When Apple's iOS 14.5 update arrived at the end of April, it introduced a new feature that created a stir. The App Tracking Transparency (ATT) feature received cheers from users but dismay from businesses and advertisers, like Facebook, who depend on tracking users across their apps.
But what exactly is the ATT feature and how will it impact Facebook's business model?
The iOS 14.5 Update: What Does It Do Exactly?
App Tracking Transparency is a feature that allows users to decide if they want their activity tracked across different apps on their iOS device.
Every iOS device is assigned a unique identifier, called an Identifier for Advertisers (IDFA), that can track the user. The purpose of the IDFA is for advertisers to personalize and target ads more effectively.
Apple had been teasing the idea of restricting IDFA access since last year, and the feature was tested in the iOS 14 beta release. It wasn't until the iOS 14.5 update that Apple made ATT available for all users.
Apps that want to track user activity across other apps must now obtain permission through a notification.
As a user, the only thing you have to do when asked if you want your activity to be tracked is select Ask App Not to Track to stop them when prompted via notification. Or tap Allow if you're happy to share your data.
How Does Facebook Make Money?
Creating an account on Facebook is free—no revenue is directly generated from Facebook's user base. Because of this, Facebook depends on other methods to generate revenue.
Facebook's primary source of revenue is selling advertising space on its social media platforms.
The Facebook and Instagram social media platforms account for the lion's share of revenue generated. In fact, Investopedia reported that 98% of Facebook's revenue in 2020 came from digital advertisements on Facebook and Instagram.
The other 2% of Facebook's revenue comes from sources like Oculus sales and e-commerce payments.
What Is Facebook's Official Stance on App Tracking Transparency?
Since Apple announced the ATT feature last year, Facebook has flip-flopped between saying the feature would harm its business model and supporting the new choice for users.
After strongly opposing the feature at the time of its announcement, Facebook now supports ATT, claiming that the feature could potentially strengthen the company's position.
How Many Users Allow App Tracking?
Before ATT was implemented, a survey from the Post IDFA-Alliance found that 38.5% of users would allow app tracking in iOS 14.
It now appears that this number was highly optimistic as data shows that in the US only 4% of users allow app tracking, with a slightly higher 12% figure worldwide.
What Does This All Mean for Facebook?
Previously, Facebook would track users and collect information about them across different apps. This information would help Facebook decide what ads to show users.
ATT does not prevent Facebook from tracking users across its own apps (for example, between Instagram and WhatsApp). However, Facebook can no longer track users across apps it doesn't own unless the user gives it permission to do so.
This means that Facebook can no longer serve targeted advertisements as effectively since it lacks information about user behaviour outside of its own apps on iOS devices.
While this seems like a disaster for Facebook at first glance, it remains to be seen how badly it will affect the company.
Facebook's Likely Response
While tracking users across iOS devices is now ineffective, Facebook can still track users outside of iOS.
User behavior inside Facebook's suite of apps also provides information about a user. For example, the pages they follow and the posts they like reveal user information and behavior that can be used for advertising.
Facebook is also innovating new measures like Aggregated Event Management for advertisers.
Innovation and finding new ways to update its business model will be Facebook's most effective defense against ATT.