The end of app installs

Last week, Snap, Twitter, Facebook, and Google all announced their second quarter earnings, and all four companies trounced expectations in revealing incredible year-over-year revenue growth. Snap perhaps posted the most celebrated results, showcasing an astonishing 116% year-over-year growth in revenue against its strongest user base growth in four years, with DAUs up 23% from Q2 2020.

While Snap’s stock price jumped 16% on news of its earnings, Facebook’s fared worse, dropping nearly 4% after hours and falling further over the course of the week. While Facebook beat analyst expectations for revenue, its user base growth slowed over the quarter, and it also issued a stark warning for Q3 and Q4 related to the impact that Apple’s new privacy policy, App Tracking Transparency (ATT), will have on its revenue in the near-term future:

Snap and Facebook are both beneficiaries of a longer-term, secular updraft in mobile engagement that is increasing time spent on mobile devices and especially on the largest social platforms. Facebook was always expected to be punished disproportionately by ATT relative to other ad platforms, and the adjustments it made to revenue guidance in accommodating that impact are roughly consistent with the 7% revenue headwind I projected for the company back in April 2021.

Ultimately, I am optimistic about Facebook’s long-term prospects. This optimism owes partly to the aforementioned secular shift in media engagement to mobile, and partly because ATT is the manifestation of the single most perilous threat facing Facebook — a platform’s precision strike at the heart of its advertising business — and it will only inflict a high single-digit revenue headwind on the company in the medium term.

In a sense, the constrasting outcomes on the stock prices of both Snap and Facebook both support enthusiasm for the digital advertising market going forward: both of these platforms (as well as Twitter and the various Google properties, not to mention other ascendant advertising ecosystems like TikTok, Amazon, etc.) will continue to aggregate attention and engagement simply because more people are using their phones more often and for more time, to consume more content. And as I’ve written about extensively, the privacy environment privileges these large companies by allowing them to build content fortresses: first-party data environments that power propretiary advertising ecosystems that are unperturbed by privacy regulations. From The profound, unintended consequence of ATT: content fortresses:

The products that command the most first-party data will operate as autonomous content ecosystems, subsuming all content interaction and user interaction into their own properties and utilizing their first-party data for deep personalization. Rather than creating a total dependency on Apple and the App Store for content distribution, Apple’s ATT may end up creating more walled gardens. This would be a profound unintended consequence.

But what form does the content that is being subsumed take? In this very nascent stage of the content fortress paradigm, we can see this content as platform-native fare that doesn’t necessarily rouse suspicions of a seismic shift in the way the mobile ecosystem operates: FB Shops on Facebook Blue and Instagram, Spotlight on Snapchat, Jumps on TikTok, the rumored newsletter product on Twitter following its acquisition of Revue, etc.

Snapchat’s Spotlight feature, a TikTok-like feed of viral videos, is specifically interesting because of the phenomenal traction it has experienced since launch. Spotlight DAU grew 49% quarter-over-quarter into Q2, and daily time spent per user on Spotlight grew 60%.

Again, this content feels native to these platforms based on historical precedent and context. But it won’t always feel that way. Other platform and potentially regulatory initiatives motivated by privacy will push other forms of content into these content fortresses in ways that steal viability from the broader mobile landscape. Influencer content and viral videos are the first step. Perhaps the next step represents the end of app installs.

In a presentation that I gave at a Mobile Dev Memo meetup in New York City in 2017, I described a shift in the app discovery dynamic in which some products had grown so important and consequential that they had effectively intermediated the app store. “Discovery” took place in these apps, not in the App Store, and certain types of content had displaced apps completely.

The example I gave at the time (the next slide in the presentation) was that of Netflix. To a user, how does Netflix substantively differ from an App Store for Streaming Video? Netflix aggregates video content and that is where discovery for such content takes place. The “discovery” of the Netflix app itself in the app store happens only once, but the discovery of content within Netflix happens on a regular basis.

Fast forward four years and Netflix has not only grown in terms of the gravitational pull of its content appeal, but it is also soon to publish mobile games. Roblox similarly hosts a catalogue of streamed games, and every major games streaming service is coming to mobile through the browser. Every large, household-name consumer product is racing to wrap its arms around various forms of content in order to integrate them as proprietary features to their flagship products: podcasts, newsletters, Clubhouse-esque audio rooms, games streaming, ecommerce, etc.

Ultimately these integrations could move beyond categories and into features so specific that they would otherwise exist as standalone apps — except that the privacy environment has made promoting standalone apps inefficient, and the household-name products have created programs to integrate content in a way that provides the kind of discovery and exposure to users that was previously achieved through performance marketing. As I wrote in 2016 in The Balkanization of the app economy:

The other behavioral change is a potential Balkanization of the app economy. Early “favored app” status can be a kingmaker on ascendant platforms, and that’s obviously no longer probabilistically realistic for the established platforms (iOS, Google Play) given the number of apps released every day by very skilled developers (which is to say: don’t bet your company on featuring, even if your app is excellent). But it would be possible for app stores within the App Store, many of which will be eager to promote a killer app that provides engagement and stickiness to their platform.

ATT has likely shifted this future forward. Why launch an app when the path to success is obstructed by the frictions of ATT and other privacy restrictions, and when every household-name consumer tech product is competing to bring your content onto their platform in a way leverages their first-party data environment for promotion?

Photo by Randy Laybourne on Unsplash