In 2021, digital advertising generated over $450 billion in revenue with the vast majority coming from Facebook and Google. Advertisers recognise the power of targeted advertising which has driven a massive shift in spend from traditional media to digital marketing. The ability to personalise ads and target them towards specific demographics is the key driver of improved return on investment, allowing advertisers to generate far better returns on advertising spend.
Successful digital advertising is predicated on two key elements: targeting and attribution.
Targeting: Advertising platforms can target specific user groups by creating profiles based on a user’s preferences. For example, if you search for a used car on Google you will invariably begin seeing car advertisements pop-up. A user’s profile is developed over time as their preferences are identified, allowing for improved targeting. Sometimes it seems like Facebook knows us better than we know ourselves and can predict what we want!
Attribution: Simply knowing who to serve what ad is not sufficient. Advertisers need to be able to determine the success of a campaign by attributing a specific ad to an actual purchase. By tracking a user’s initial ad click to a completed purchase, advertisers can calculate the exact return on an ad campaign.
For both steps to be successful a significant amount of data needs to be tracked. Both Facebook and Google have amassed large amounts of data on users enabling superior identification, tracking and attribution.
In April 2021, Apple introduced its new app tracking transparency (ATT) framework with the goal of limiting the amount of private data transferred to app developers and advertisers, significantly impairing their targeting and attribution abilities. By default, Apple devices do not provide user-level data access to app publishers, and users are required to grant apps explicit permission to access the data. Every app install is now followed by a prompt asking users, “Allow [app name] to track your activity across other companies’ apps and websites?” with opt-in rates very low.
Advertising platforms have been trying various workarounds. For example, “fingerprinting” is the practice of attempting to match an individual mobile user to an advertising source by tracking device attributes such as device name, device type, OS version, and mobile carrier. Developers utilise unique device information to create an ID that could then track users across different websites and apps. However, Apple is aware of this workaround and it’s only a matter of time before they prohibit developers from tracking this data which will once again impair their ability to create unique IDs for users.
Where to from here? While the efficacy of digital advertising has been diminished, the Apple privacy rules do not spell the end for digital advertising. As has been the case previously, platforms will adapt and find creative ways to target users. And while the outsized return on investment vs traditional advertising may be a thing of the past, digital advertising still presents a superior return compared to traditional TV advertisements.
A key driver of future success will be the development of “walled gardens”. This is an ecosystem where a platform doesn’t share information, technology, or other data with other third parties. It is a closed platform or “walled garden” that works as an enclosed network. This gives providers full control over everything that occurs on their digital property. Indeed, a significant percent of Facebook’s revenue is generated from their “walled garden”, as users search, click and pay for products all within the Facebook ecosystem. While the Apple privacy rules prevent Facebook from tracking users across platforms, they still generate significant data within their own system which they can use to target and attribute. The same can be said for Google.
Perhaps the greatest beneficiary (other than Apple) is Amazon. As advertisers seek better returns on investment, Amazon is becoming a very attractive platform. With data on millions of customers and thousands of purchases made every minute, Amazon has significant data within its ecosystem and is a destination for users with purchase intent. All this data exists within the Amazon “walled garden” and is not subject to the privacy laws of Apple or Google. With $31 billion in advertising revenue, Amazon is proving to be a prime destination for advertisers.
While new privacy rules, whether from Apple, Google or government regulators, are impacting digital advertising, the industry will continue to provide a valuable service to small businesses. Sellers still need to connect to buyers and online ads still provide the best way to connect the two. ATT notwithstanding, digital advertising is here to stay.