Facebook: iOS 14 will hurt small businesses during COVID

I received a fair amount of pushback to my recent column, IDFA deprecation is Facebook’s Sword of Damocles, much of which reduced to something along the lines of: Facebook is a huge company employing tens of thousands of the brightest engineers, data scientists, and analysts in the world. Surely they have enough data, and enough raw talent, to overcome a lack of access to device identifiers in driving efficient ad targeting.

That is an entirely fair point. Facebook employs perhaps the most powerful data science organization in the world, and a device identifier, while precise, is merely one identifier. Facebook has a treasure trove of data about every person that has ever used any of its properties, and those properties are ubiquitous. I don’t doubt that Facebook can deliver a medium-term solution that can replace the efficiency of device-centric ad targeting.

But the medium term is a long time for the companies that depend on Facebook for their apps’ growth (and we all know what happens in the long term). What happens to these advertisers in the intervening months between mass iOS 14 adoption, when the IDFA is essentially deprecated and devices can no longer be targeted precisely (neutering Facebook’s event-optimized ad campaign strategies much less effective than they are now), and this brave new world of probabilistic attribution — with which, many people argue, Facebook can target ads at the same precision as today?

One instructive exchange in Facebook’s recent Q2 earnings call on July 30th came when Justin Post of Bank of America asked about the upcoming IDFA deprecation in iOS 14 (transcription below is mine, emphasis is also mine):

“…could you talk about some of the potential headwinds in the second half in a little more detail, especially any Apple IDFA change, or how that could impact your business?”

David Wehner, Facebook’s CFO, responded candidly:

“…In addition, we did specifically call out changes on mobile operating platforms, and that, as you correctly identified, was specifically with the Apple latest announcement regarding iOS 14 in mind. This is one of the factors that is included in our outlook for Q3, but it really will have more of a pronounced impact in Q4 and beyond given the rollout begins late in Q3. We are still trying to understand what these changes will look like and how they will impact us and the rest of the industry, but at the very least, it’s going to make it harder for app developers and others to grow using ads on Facebook and elsewhere. Advertising clients are asking us how to maintain their performance and we’re working on it. Our view is that Facebook and targeted ads are a lifeline for small businesses, especially in a time of COVID, and we are concerned that aggressive platform policies will cut at that lifeline at a time when it is so essential for small business growth and recovery.”

This is helpful in understanding just how much of an impact the lack of iOS device identifiers will have on ad efficiency: somewhere between more than none and the opening scene from It’s a Wonderful Life. Wehner uses the world aggressive to describe Apple’s decision to deprecate the IDFA, which suggests to me that Facebook interprets the maneuver as hostile to advertising platforms. If the deprecation of the IDFA was to have an immaterial impact on Facebook’s business, it wouldn’t make sense to use aggressive to describe it.

Of course, the appeal to COVID and the struggle of small businesses is possibly even more of a tell that Facebook believes the impact of IDFA deprecation to be dramatic. In my podcast with David Philippson, CEO of DataSeat, I actually revised (incorrectly) my prediction from February 2020 that Apple would announce the deprecation of the IDFA at WWDC because I thought doing so during COVID would further aggravate economic anxieties for app developers and the ad tech ecosystem. In appealing to Apple’s compassionate temperament by invoking COVID and the acute pain that small businesses are confronting during the pandemic, Facebook seems to be saying that iOS 14 will cause real pain to its advertisers.

Facebook’s earnings call, not to mention those of other public companies that are heavily dependent on mobile advertising revenue, was light on penetrating questions about IDFA: I feel that direct, thoughtful questions can yield more insight into how these companies plan to react to the changes coming in iOS 14 (and subsequent to that from other parties, eg. Google). I enumerated some questions which could potentially produce revelatory answers in a Twitter thread (after listening to a particularly frustrating exchange in a different earnings call):

As some people pointed out in the thread, these questions are too esoteric for most executives to be able to capably answer. But that’s the point: for most mobile-centric or mobile-first content businesses (ie. advertisers), advertising is the primary determinant of revenue. If a company is spending tens or hundreds of millions of dollars per year in advertising, its executives should understand the mechanics of its underlying advertising systems, and big changes like those coming to iOS 14 — which will dramatically reshape the mobile advertising ecosystem — should register at the executive level.