The profound, unintended consequence of ATT: content fortresses

With its ATT privacy policy, Apple is diminishing the ability for advertising to be personalized by limiting the use of third-party data for that purpose. In doing this, Apple is imbuing first-party data with an incredible value premium. 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.

In early February, Applovin, the mobile ad network, acquired Adjust, a mobile attribution company. Beyond financial engineering (given that Applovin is approaching an IPO), there’s no strategic justification for this acquisition other than that Applovin is building a self-sufficient advertising ecosystem to connect its first-party properties. Apple is fairly explicit about the fact that “tracking” requires data to be shared between companies. If Applovin’s first-party games sit atop the combined, wholly-owned Applovin / Adjust infrastructure, Applovin essentially becomes a walled garden with multiple access points.

Meanwhile, Zynga, in its Q4 earnings call last week, mentioned two new initiatives that signal its desire to construct walls around its first-party properties in an attempt to build an autonomous ecosystem: cross-platform play, and building an advertising network.

Both of these ideas align neatly with my thesis around the shift of content platforms away from hardware form-factor dependency (I articulate this thesis in this three-part series of articles). If Zynga is able to undergird its first-party titles with a proprietary ad network and then project some of its content interaction onto platforms that aren’t governed by Apple and Google (eg. the open web), then it obviates many of the limitations imposed by Apple through ATT.

Whether Zynga can successfully execute such a dramatic shift in strategy is another story. Zynga’s turnaround has been driven by M&A: Zynga acquires a high-growth company for a premium, structures the acquisition with very large earn-out component to motivate further growth for the acquired studio, and allows the studio to operate independently. As Frank Gibeau said in Zynga’s Q4 earnings call: “We like to find companies that have compatible cultures that are looking for autonomy, that are interested in [remaining] independent yet being part of a company where they can really leverage the tools of our live services platform.”

This new, cross-promotion-centric strategy would require a very strong central infrastructure team to operate the internal ad network and maintain the commercial logic that supports it. It would also need wide discretion to re-route DAU across the portfolio.

But even if Zynga doesn’t do this, others will. As I wrote in Ad tech companies will become gaming companies in 2021, the correct strategy for navigating the post-ATT environment is to pair core ad tech infrastructure with content so as to sever any dependencies on external ad platforms for revenue growth. This is a content fortress: a collection of first-party (and potentially second-party) content that is supported by owned ad tech infrastructure such that reliance on external sources of new users or data is minimized.

Establishing a content fortress requires a combination of:

  • Portfolio management. Constructing a content portfolio that achieves some level of natural organic growth and benefits from the fungibility of users by providing monetization diversity. A subset of the portfolio being viral could serve as a funnel into better-monetizing content in the portfolio, but this takes purpose-driven planning and deliberate content design (either through internal production or M&A);
  • Operational ad tech. Building a functional ad network, even if it only needs to serve a first-party portfolio, is no trivial task and requires specialist talent and engineering support. When I’ve seen content companies fail to build working ad tech, it has always been a result of insufficient resourcing;
  • “Command economy.” It is very difficult, tactically, to institute centralized ad tech infrastructure for the purposes of cross-promotion when the company is comprised of autonomous business units that aren’t directed by a central authority. A “command economy” is needed to enforce decisions that might not be in the best interest of individual content teams, especially where cross-promotion is concerned.

Note that this describes perfectly the bull case for Facebook, which will potentially become the best-protected content fortress of all. As a response to ATT, Facebook will subsume content interactions into its apps as advertisers and publishers struggle with monetization in the post-ATT privacy environment. I discussed this strategy back in 2016 in Live Video and Instant Games: Facebook’s evolved ad strategy, and ATT has made it a much more immediate imperative.

Once these content fortresses are established, Apple will have difficulty undermining them. Apple can play the “privacy card” just once, and it did so with ATT: if it tries to use its platform power to break up apps that publish third-party content in a way that conforms to its App Store guidelines, it could face anti-competitive backlash. Besides, it has allowed these third-party content publisher apps — that aren’t app stores — to exist since inception, such as Netflix. If Facebook begins publishing third-party content within its app in ways that are increasingly monetizable and that generate first-party data that can legitimately be used for advertising, how can Apple credibly oppose that? Content fortresses very well may be an unintended consequence of Apple’s overreach with ATT.

Photo by Richard Clark on Unsplash