The long-trailed update to the iPhone’s operating system, iOS 14.5 is upon us. This one has been of particular interest to anyone advertising on Facebook and other social apps because it includes a fundamental change to how the advertising model works.
As this is so important to online retailers, so we sat down with Luke Jonas from our partners Nest Performance, who are experts in paid social advertising for ecommerce businesses, to talk about what exactly the changes are and what they mean for retailers.
Ometria: For those that don’t know what’s going on to the iOS 14.5 update, what’s happening with this update?
Luke Jonas, Nest: Basically Apple, prior to this update, were opting users in to app tracking. So on the Facebook app, you were being auto enrolled into personalised advertising, with the option to opt out yourself.
The big change is that there’ll be a prompt when you open the Facebook app for the first time after the update, which asks you if you want to opt in. This is the App Tracking Transparency (ATT) prompt and this is going to have some level of effect on measurement and optimization of Facebook ads.
Ometria: So why has Apple done this?
LJ: They’re doing it in the name of consumer privacy. But there are other motives at play here that I suspect also make them want to do it. So the first thing is the consumer privacy thing creates a differentiator between their device and competitor devices, i.e. Android devices, because Android devices have no opt in. So it’s creating a USP which also raises the value of its own ad network.
Plus I think they do want to intentionally hurt Facebook, because they see them as a big rival, and they want to regain control of the distribution of apps by the App Store, rather than via ad networks. This theory was definitely backed up by the recent news that Apple is expanding its own offering for advertisers within the App Store.
Ometria: So a focus on privacy sounds good from a consumer’s perspective, if you’re able to choose whether you can be tracked by apps. But, what does that mean for advertisers?
LJ: So I think on the consumer side, it depends how you view targeted advertising. As a consumer, would you prefer to be shown random ads, or would you prefer to be shown ads for brands that are more likely to be suitable for you? Because that’s what personalised advertising is. Personally, I’m quite happy with the latter.
I also think, you know, there’s some sort of quid pro quo here. Facebook has given us Facebook, Whatsapp, Instagram, entirely for free, and they’re monetizing those platforms for ads. This is the oldest business model in the book. I personally don’t think it’s a big deal. But I understand why people do.
In terms of what this means for advertisers, obviously the effects of iOS 14.5 are yet to be seen, but I can say the following:
The impact of the rollout will be governed by the quantity of the opt ins. People are predicting this will be anywhere between single digits and 30% but we have no idea. From there, it’s about how well Facebook has really reengineered their ad tech to cope with this. So targeting won’t just be limited to opt ins, because Facebook will be doing some clever stuff in the background to infer and extrapolate from the data they do have over the unknowns. So those are the two big levers governing the impact.
For ecommerce advertisers there’s going to be less data so it’s gonna be harder to achieve statistical significance. This means it’ll be easier for medium to large advertisers to mitigate the effects because they have the volume so they can get statistical significance to make decisions. They will also favor advertisers which have a broad optimization structure, rather than a linear account set up as this allows for more data and therefore more statistical significance. Also, advertisers which have a strong handle on attribution and the value of Facebook pre-iOS 14.5 roll-out will be in much better shape than advertisers that don’t.
In terms of expectations, ecommerce advertisers can expect reduction in volume and reporting conversions, volatility and performance, decreased audience match rate and delayed conversion data
Ometria: So Facebook is obviously going to make changes in the background, what do you think these changes are going to be? And what are the things they can do to combat this, such as Facebook shopping or Instagram checkouts?
LJ: Mark Zuckerberg brought up an argument that this update could be an advantage for them. Because if advertisers adopt the ecommerce features in Facebook, such as Facebook shopping or Instagram shops, that are not affected by this ATT update, you still be able to do all of the historical Facebook optimizations. So that’s a big incentive for retailers to start integrating Facebook shops, and they’re really easy to integrate. So I can see this taking off in a big way and if it does, it’s great for Facebook, because it will own the transaction.
Ometria: So what tips do you have that ecommerce businesses could be doing now to try and mitigate some of these factors?
LJ: The first thing they need to do is recalibrate their performance expectations based on a seven day window so if you are optimising on a 28 day window before, you need to work out what that looks like from a seven day perspective. You need to be prepared to be much more patient on waiting for the outcome of experiments or optimization decisions because the data will come through much more slowly.
It’s really important that you create a model that compares Facebook spend data against conversion in revenue data from your online store the past year and establish a proxy to compare after the ATT prompt is live. So basically, if your performance data changes in Facebook, that doesn’t mean that your real world performance has changed. And you need to have a before and after model set up to evaluate the effects of the ATT rollout. So you can continue to make decisions based on different KPIs.
We all also advise implementing CAPI which is server side tracking to improve the accuracy of tracking conversions and to improve optimization. If you’re using Shopify, that’s really, really easy to just flick a switch.
Ometria: In terms of building match audiences, it will still be possible to build these audiences with email addresses won’t it?
LJ: Our advice here is that the match rate is going to be lower because it will only be the opt in users that you’ll be able to match against. So what we’re recommending, especially for retargeting and remarketing is increasing your windows so you can capture more data. So there’s more elements to match, basically, but it is going to decrease the power of retargeting and remarketing on Facebook.
Ometria: So based on how Facebook advertising has been historically, what do you think is going to happen to the cost of advertising?
LJ: We’re at a crossroads of massive competition on Facebook. And that’s been caused by a huge influx of new customers or new types of advertisers on Facebook during COVID. So you’ve got all these new advertisers coming in and it’s becoming more busy, more crowded.
Currently CPMs or Facebook costs are higher than they’ve ever been. They are 60% up year on year, so it’s super expensive. But once you factor in that physical shops are opening, which we can assume at some level decreases consumer intent on the internet. Then you throw in iOS 14, and these things happening all at once, and it means it’s a tricky time for Facebook advertising.
Ometria: What do you think is going to happen to advertisers’ spend?
For those retailers that haven’t planned, and don’t have advanced setups, it’s going to cause disarray. And they will see numbers dropping and not know what to do. Our expectation is that this will cause a pullback on spend, and prices on Facebook will come down slightly in the short term.
I think there’ll be a hunt for new channels. But there aren’t really any other channels to get the kind of same level of scale as you can on Facebook. Facebook and Instagram have the biggest addressable audience on the internet. And there isn’t another audience like that, that you can buy.
Ometria: So if cost of acquisition goes up, then is this going to benefit businesses that already have large databases of customers, and is that going to crowd out smaller retailers?
LJ: It’s really bad for small retailers. Basically, it’s really bad for unsophisticated advertisers, But for sophisticated advertisers that do have an advanced Facebook set up, that do understand attribution, do understand the value of Facebook to their business pre-ATT-rollout, they will be fine.
Ometria: From Ometria’s perspective this highlights the importance of putting together a solid retention marketing strategy, built on great customer experiences. What’s your perspective?
LJ: I think there’ll be a renewed focus on retention, to grow your LTVs to counterbalance increased costs of acquisition.
Basically, in order to afford your CPA, your LTV has to go up, otherwise, your competitors are going to beat you. So if you’re selling a pair of trousers and your competitors selling trousers as well, a real competitive edge is LTV because it means you can buy more customers because you can afford the prices.
Ometria: With a disruption in acquisition, retention becomes so much more important. It’ll be interesting to see what happens, and whether Facebook is able to mitigate the effects, and if ecommerce businesses are able to be this sophisticated. Thanks so much for your time.