CIO and Co-founder of FunCorp, a mobile app development company, oversees the growth of UGC platforms with AI/ML content feed aggregation.
Advertising is one of my organization’s primary sources of revenue, and so we constantly monitor this market and notice various changes. The internet advertising market has grown more than 100 times in the last 20 years, and it will reach $517 billion by the end of 2023, according to eMarketer.
But what stands in the way of that growth?
The rapid growth of internet advertising is mainly explained by the fact that, unlike classic advertising formats, you can bring your product to the audience. Online advertising has also opened up opportunities for small and medium-sized businesses, which previously could not afford to buy expensive advertising on television and billboards in prime areas of the city. Now, such companies can run their ads on social networks, search or mobile applications to a niche audience.
Growth is not going to stop, but it has already begun to slow down, primarily influenced by the slow growth of the world’s leading economies year over year, but now there is another thing that could stand in the way — the trend for privacy on the internet.
More than half of internet users are concerned about the security of their data. This concern has resonated with governments around the world. In recent years, laws that were developed and implemented for user privacy, such as the GDPR in Europe and the CCPA in California.
Let’s consider the privacy of advertising from the advertiser’s point of view. Many advertisers are not interested in buying aggregated and impersonal data but that of specific users (U.S. adults 25 to 35 years old) who have been shown historically to bring maximum profit. These users are called “whales.” In addition, online stores need to show products that a person has already looked at repeatedly, known as retargeting, and online stores are willing to pay more money for retargeting than for impersonal ads or new users.
But, to the advertising platform — who sells advertising space — users’ data all looks the same. They cannot provide this data to the advertiser itself because that would violate App Store guidelines in iOS 14-plus and because advertising platforms usually don’t have direct contact and integration with advertisers. Therefore, advertisers will not pay extra for retargeting or “unique” users, which ultimately affects the overall revenue of platforms.
With these challenges in mind, here’s how some of the big companies — the leaders of the internet industry — are restricting the transfer of users’ personal data and how this affects the internet advertising market:
Intelligent Tracking Prevention From Apple Safari Browser
Apple introduced Intelligent Tracking Prevention (ITP) in 2017. The primary purpose of ITP was to improve the privacy of Safari browser users. This system had several versions, but the latest version included the ability to automatically clear any storage one week after you visit a site and cookies were deleted after 24 hours.
As a result, according to oko.uk, Safari has the lowest eCPM among desktop browsers. eCPM is a metric for measuring the monetization effectiveness of an application publisher’s advertising. It stands for “effective price per thousand impressions.”
Apple’s App Tracking
In the summer of 2020, Apple provided a new feature in iOS 14 called Apple’s App Tracking, which offered the ability for a user to block the transfer of their personal information to advertising companies in a targeted way. Our research at FunCorp has shown that the percentage of users who respond positively to the question about transferring their data will be about 30%.
On the other hand, Brian Bowman from Consumer Acquisition, in an interview with GamesBeat, said: “Certain clients are down 30% to 40% in revenue. Others are feeling less of an impact. It’s a mess.” At FunCorp, we also noted a negative trend after the release of iOS 14.5 and cut the budget for iOS app marketing.
Privacy Sandbox From Google Chrome
How To Adapt
In conclusion, here are a few steps you can take to adapt your business based on current privacy trends:
1. Expand your monetization model. If your main income comes from advertising, then you should think about subscription and/or in-app models.
2. In the short term, it is not worth allocating a large amount of advertising budget for promotion on platforms where CPM is falling.
3. Test more ad formats. Not everything needs re-marketing. Some ad formats involve only brand advertising.
4. Start working toward direct sales of your ads. You can then control the process of selling them yourself. In addition, this will reduce costs like commissions from third-party advertising platforms.
5. Think about how else you can increase the impact of your business, perhaps beyond the B2C. You may have formed a lot of tools that can manifest themselves in the B2B segment.
We can see that many companies support the trend of improving user privacy. However, the advertising business itself and the digital advertising market have yet to adopt to these changes. Based on historical trends, we will probably see decreases in revenue per user, which may lead to a slowdown in investment in startups and companies that receive revenue from advertising.
Because of these changes, we could see a peak of growth in the digital advertising market in the next few years, and budgets will begin to be redistributed again in the direction of more classic advertising formats.