For years now, Alphabet's (GOOGL 10.22%) (GOOG 9.96%) Google and Meta Platforms' (META 0.43%) Facebook have reigned supreme as the leaders in digital advertising. Estimates differ, but as recently as 2017, Google and Facebook managed as much as 73% of all digital advertising in the U.S., while also capturing as much as 83% of growth in the industry. But to quote Bob Dylan, "The times, they are a-changin'," and privacy moves by Apple (AAPL -0.35%) last year may have changed the entire landscape.
Just this week, Alphabet and Facebook both reported third-quarter earnings, and the news was a wake-up call to investors. Alphabet's revenue grew just 6% year over year, while Meta's declined by 4%. To be clear, the vast majority of the challenges were related to foreign currency headwinds and slowing ad spend due to macroeconomic uncertainty.
Image source: Getty Images.
That said, there is additional evidence that suggests that Apple's privacy moves are siphoning away business from the walled gardens, further loosening the stranglehold that Google and Facebook once had on the digital advertising space. More on that in just a moment.
An IDFA primer
To understand the changing landscape, it's worth reviewing the move that kicked up all the fuss. The identifier for advertisers (IDFA) is a unique credential assigned to each iOS device, which allowed apps and publishers to track user activity across various mobile apps and websites. To avoid being tracked, users would choose "Limit ad tracking" in their device settings. By some accounts, fewer than 30% of users in 2020 took the time to opt out.
When Apple rolled out iOS 14 in early 2021, the company fundamentally changed how users dealt with ad tracking. In the new version, iPhone users would get a pop-up notification for each app, forcing them to choose "Ask app not to track" or "Allow," specifically requiring them to opt in for each notification. Since the update, estimates suggest that roughly 75% of users decided against sharing their data.
This makes it much tougher for companies that rely on ad tracking to target consumers. Facebook parent Meta was particularly vocal about the privacy changes, saying Apple's App Tracking Transparency feature (its official name), will cost Meta $10 billion in lost ad sales this year.
A bigger bite of the Apple
Apple is now reaping some benefits from the seeds it has sown. The share of mobile apps advertising directly on Apple's App Store grew 3.7% in the second quarter, according to a recent report by Appsumer. This boost to Apple's ad spending growth corresponds closely with declines for the duopoly. Facebook suffered a 3% decline, while Google experienced a 1.7% decline during the same period.
The data suggests that Apple is the ultimate beneficiary of its recent privacy moves. To further drive home the point, advertisers allocated roughly 15% of their ad budgets to Apple in the second quarter, up from 10% in the first quarter of 2021, just before Apple introduced the changes. At the same time, money allocated to Google fell from 35% to 34%, and Facebook's share declined from 32% to 28%.
A drop in the ocean
It's important to view these developments in a broader context. Apple pulled in roughly $4 billion in advertising revenue in 2021, which pales in comparison to Alphabet's $209 billion and Meta's $115 billion during the same period. Even Amazon made more, generating about $31 billion in ad revenue last year.
In terms of the share of wallet, or what app developers spend for online advertising, Google remains the top dog with 34%, Facebook runs a close second at 28%, and Apple rounds out the top three with 15%.
Still, this data shows the cracks in the dam, and it's easy to envision a future where Apple's ad revenue is much bigger than it is now -- at the expense of Alphabet and Meta Platforms.
