The Impact of Apple’s IDFA on Facebook Advertising (prediction)

I’m not ready to write a full essay on this, but a friend asked the question, so I thought I would share my “off the top of my head” response somewhere other than private email.

The situation:

Apple is going to block the ability of Facebook to track the “full revenue funnel” from ads served through to app installs and revenue/install [Details in The Information]. The question is: “What does that do to the Facebook Ad ecosystem?”

What I think will happen:

The gaming apps have VERY good attribution and zero marginal cost. This lets them bid very accurately and down to the penny. Most CAC is not that accurate (too many ways to buy the product where you lose attribution, so you need to be more conservative to ensure you have margin — or too aggressive if you just don’t care like a lot of brand marketing)

I DON’T think the target market for app instals is totally segmented from the rest of the marketing landscape. So I think the effect is something like this:

[Made up numbers]

BEFORE:

• Gaming App companies fully optimized. CPM $30. CPI (measured) $1, CPI (actual) $1, Installs 100K
• Other companies CPM $30

IMMEDIATELY AFTER CHANGE [bad targeting causes CTR and conversion rate to decrease, CPI to increase, installs to decrease]

• Gaming App companies. CPI (measured) ???, CPI (actual) $1.50, CPM $30, Installs 75K
• Other companies CPM $30

[Actual goes up because the targeting gets a lot worse — targeting the wrong users, so for the same CPM the wrong apps are hitting the wrong people]

FIRST ADJUSTMENT: [Apps adjust to lower bids to try and get economics to roughly work. Lowering CPM, CPI, Instals]

• Gaming App Companies. CPI (actual) ~0.9 [estimated the best they can], CPM $20, Installs 50K
• Other companies CPM $20

SECOND ADJUSTMENT: Non-Gamins Apps take advantage of the lower CPMs and bid they up — but not as high as before, reducing the available inventory for Gamin Apps at a specific CPI

• Other companies CPM $28
• Gaming App Companies. CPM $28, CPI ~0.9, Installs 30K

So in the end:

• Facebook hurt for lower overall CPMs
• Gaming Apps hurt a LOT, as CPM only drops a little, their ROI becomes opaque, requiring conservative choices (so ROI LIKELY goes up), but much lower volume
• Other companies helped — lower CPM AND higher volume as App companies driven out of the auction

That’s my guess anyway.

To the extent that “other companies” need the same tracking, that changes things — but only in magnitude and ratio — there will always be “other companies” who are not optimizing for whatever optimization tool there is who will step in as CPMs go down.

Keep it Simple,

Edward

Edward is a senior advisor at Warburg Pincus and former CMO at General Assembly and A Place For Mom. He was an executive at Expedia, a consultant at McKinsey & Company and a graduate of the Wharton School. You can follow him on Twitter at @ednever or read his newsletter at MarketingBS.com. You may like his essay on how to make $1MM/year in traditional employment.