E-commerce companies are paying higher prices for digital advertising after Apple's privacy update made it harder to track iPhone users and target them with relevant marketing. The rising costs of mobile ads will push online retailers again to find ways to improve campaign performance, a new study by ad-tech startup Moloco suggests.
Driven by online privacy concerns, Apple in April began showing a pop-up window on iPhones that asked people to consent to be tracked by apps — a feature called App Tracking Transparency (ATT). With many users opting out, the portion of tracked users fell from 73% at the start of 2021 to 32% by the end of June, per the study. Amid that shift, the average cost of conversions for e-commerce marketers surged 200% for tracked users and 155% for non-tracked users during the six-month period. These trends are likely to continue alongside heightened competition for ad placements, particularly in targeting the smaller portion of consumers who consent to tracking.
"ATT has had a seismic effect on the landscape of mobile advertising," said Anurag Agrawal, vice president of product at Moloco. "Because of the changes made by Apple, it has become harder to find the right users. Targeting is more imprecise now, which manifests itself with higher costs to acquire a particular user."
The higher costs for e-commerce marketers come at a time when they're vying for consumer attention amid a boom in online shopping since the pandemic's onset last year. E-commerce sales rose 9.1% from a year earlier to $222.5 billion in the second quarter, making up about 13% of total retail sales in the U.S., the Census Bureau found. That strength is expected to continue into the holiday season, rising as much as 15% from 2020 to reach $218 billion, according to consulting firm Deloitte, though that growth will be stronger than for total retail sales, which could expand as much as 9% to $1.3 trillion on improved consumer sentiment.
Apple's privacy changes have added to the uncertainty that marketers face this year as the pandemic continues to impact consumer behavior. Despite announcing the changes to iPhones' iOS software at its developer conference in mid-2020, Apple delayed the rollout amid an onslaught of criticism.
At the same time, Facebook — whose revenue mostly comes from mobile ads — protested Apple's update and warned about its negative effects. The social media giant argued the change would magnify the pain for small businesses trying to recover from the pandemic by making their campaigns less effective, while annoying consumers by showing them ads unrelated to their interests. Facebook is among the companies that have been forced to adapt to Apple's privacy update, tasking "hundreds of engineers" to develop ways to target ads without relying on personal data, The Verge reported. Still, the changes have been disruptive for Facebook, which this week disclosed that it had underreported ad performance on iPhones.
Amid these disruptions, Moloco's report recommends e-commerce marketers also find ways to adapt their strategies to improve ad performance and avoid wasteful spending. A key tactic is to diversify sources of traffic to help identify the most productive methods for achieving customer acquisition goals.
"There are schools of thought that these changes impact companies like Facebook and Google a little bit more, so it's really important for advertisers to try different channels to make sure which is performing better for them," Agrawal said. "Experimentation is important with the landscape changing — the world is much different today than it used to be six months ago."
"Experimentation is important with the landscape changing — the world is much different today than it used to be six months ago."
Vice president of product, Moloco
Marketers should have a budget for campaigns optimized for return on ad spend (ROAS) while monitoring CPA trends, which can change rapidly. As Moloco observed, CPA rates have shifted with Apple's software updates. Unlike the release of iOS 14.5 in April, the introduction of iOS 14.6 version in June triggered an automatic update that forced more Apple customers to look at their privacy settings.
The increased difficulties with audience tracking also pushes e-commerce companies to consider contextual targeting — or placing ads amid digital content that's relevant to a consumer group.
"You used to have a deterministic indicator of who the user is, but now that is gone," Agrawal said. "With less user-level signals, you really have to rely more on contextual signals to figure out whether this is the right place for an ad."
His company urges e-commerce marketers to consider their broader goals in their campaigns and how mobile advertising fits with their strategies to boost conversions.
"While CPA prices continue to fluctuate, make sure you're running campaigns that target big-picture gains," according to Moloco's report. "Otherwise, you may become embroiled in bidding wars that won't pay long-term dividends."