At Apple, A is now for Advertising

Omri Argaman, Chief Growth Officer, Zoomd looks at the future of the tech giant and its continued push to become a player in the ad market.

In its efforts to champion user privacy, Apple restructured the mobile marketing ecosystem by ending IDentifier For Advertisers (IDFA) and requiring user consent for App Tracking Transparency (ATT).

Beyond the financial pain inflicted on all platforms not named Apple, the company restarted its own advertising business (since its acquisition of Quattro Wireless in 2010) with its push in app store advertising. Now, the coming DSP adds more evidence of Apple’s new found love of advertising.

Because product replacement cycles are inconsistent and dependent on user needs, Apple is seeking businesses with recurring revenue streams, and advertising fits that bill.

With regulators in South Korea and the Netherlands already forcing Apple to accept third-party payment solutions in the App Store, and with some apps now paying Apple 15% instead of 30%, Apple is preparing for a possible decline in App Store revenue in the future.

So how has the company known on Madison Avenue for its iconic advertising become a player in search advertising? And why are these changes impacting other platforms and marketers?

ATT favours Apple Search Ads

ATT gave Apple’s search ads some big advantages. Though developers and networks need to rely on SKAdNetwork and its limitations for marketing attribution data, Apple is exempt from this.

Why? Because Apple receives data directly from the App store payments owned by Apple. So Apple considers that data to be first and not third-party data.

Additionally, Apple Ads Attribution API, used for Apple Search Ads, includes two parameters not available in SKAdNetwork – creativeSetID and keywordID. These enable marketers to know which ad creative and keywords are credited for generating the app install.

The benefits of Apple Search Ads have made Apple an ‘always on’ marketing channel for many apps, in the same way that Google search is. This was not the case for most apps before IDFA was terminated.

Last summer, Evercore ISIS analyst Amit Daryanani predicted that Apple’s ad business would grow from $2bn in 2021 to as much as $20bn in 2025. Though this is relatively small in comparison to Google and Meta’s 2021 ad revenue – $209 and $115bn respectively – those companies derive 81% and 99% of their revenue from advertising. Apple generates less than 2% of the company’s revenue from advertising today (and only from iOS users).

Increase in Apple Search Ads conversion rates and costs post-IDFA,/p>

Apple Search Ads conversion data from SplitMetrics shows an increase in conversion metrics since 2021.

According to SplitMetrics data, cost per acquisition (CPA) for Apple Search Ads ranged between $1.44 in Q2 2018 and $2.02 in Q4 2020. In Q1 2021, CPA jumped to $2.22. With the rollout of ATT starting in April 2021, Apple Search Ads CPA jumped to $2.58 in Q2 and Q3, before jumping to $3.64 in Q4 2021, an 80% increase from Q4 2020.

A more interesting data point from SplitMetrics is the increase in conversion rate (CR). The CR data represents the number of app downloads divided by the total number of taps on the ad. Between Q2 2018 and Q4 2020, the CR for Apple Search Ads was between 41.7% and 47%. In Q1 2021, the CR jumped to 62.4%, staying above 60% for all that year.

The increase in CPA isn’t surprising, as user acquisition managers are experiencing challenges with their traditional marketing partners like Meta, Snap, and Google which have caused them to increase their budgets. Because of these challenges, more app marketers are bidding on more search keywords, resulting in higher costs for the winning bidders and greater CPA.

This has also resulted in higher CPA costs in other channels. But the improvement in CR, when coupled with the increase in CPA, is more surprising. Is it driven by the trend toward paying for advertising from apps already ranked among the first few organically? Will the CR decrease over time, or are user acquisition managers afraid that their organic rank in Apple Search Ads will drop if they stop advertising?

Apple Search Ads become ‘always on’ ad buys for app marketers – is it necessary?

Conversion rate rises on Apple Search Ads are why Apple is taking user acquisition budgets from the likes of Meta, Google and Snapchat. But it looks as if Apple is also taking budgets from organic App Store Optimization as app marketers are buying ads according to their brand name, competitors and keywords.

Given the relatively small screen size of the mobile phone versus desktop search, and the smaller quantity of apps versus possible web pages which can appear in a desktop search, are these marketing investments by app marketers really necessary? Particularly for small businesses, are Apple’s efforts locking them out of revenue opportunities because they don’t have the budgets to compete in ways that are possible in the larger and more robust desktop search page?

Recently, there has been more criticism of Apple using privacy as a cover for the company’s ‘land grab’ in the digital marketing Twittersphere. Apple is working hard to address this narrative, even funding research in an attempt to refute the claims that Apple’s Search Ads benefit from the end of IDFA and the rollout of ATT.

Though many in the industry are questioning the research, the intended target is more likely governments as Apple, like the rest of Big Tech, tries to keep regulators and members of Congress at bay.

Omri Argaman

Chief Growth Officer, Zoomd