you have decided to crash the advertising party.
As a couple of Apple (ticker: AAPL) news sites picked up last week, the company recently posted a job listing for a “Senior Product Manager, Demand Side Platform.” Ad tech is complex, so here’s a translation: A “demand side platform” lets ad buyers buy inventory on multiple ad exchanges from a single interface, using automated bidding, which is also known as programmatic. The platform takes a little slice of each dollar deployed. There are a bunch of these DSPs.
(META) has Meta Ads Manager;
(GOOGL) has Google Ad Manager;
(AMZN) offers Amazon DSP. And there are independents, too.
Apple said the new hire would “drive the design of the most privacy-forward, sophisticated demand side platform possible…innovating on some of Apple’s most confidential and strategic plans to design products that deliver business growth and experiences that exceed customer expectations.” The job posting says that the project will target ads placed in various Apple Services; what isn’t clear is whether Apple might eventually try to target the wider world of advertising across apps and websites.
Apple declined to comment on the posting or other elements of its ad strategy.
This all seems a bit nervous. Apple’s decision to adopt a policy called App Tracking Transparency has made it far harder for Meta’s Facebook and Alphabet’s YouTube to target and attribute advertising campaigns. Apple has taken the position that consumer privacy comes first, and it now requires iPhone users to opt in when apps request to track how people travel around the web. Most people say no.
The policy change has caused immense pain for the likes of Meta, YouTube, and
(SNAP). Earlier this year, Meta said that Apple’s policy change would reduce its advertising revenue this year by about $10 billion. Meta has argued that Apple’s approach is bad for small business, but that message has been trumped by Apple’s persuasive support of privacy.
For Apple to now be talking about building an advertising business of its own is sure to ruffle some feathers at Meta and other ad firms.
But, to be clear, it isn’t that Apple has shunned advertising. In fact, the company’s income statement includes a contribution from ads, although it’s hidden in the Services line of the report. In its latest quarterly filing with the Securities and Exchange Commission, Apple said that the largest contributors to its 12% growth in services revenue in the period were higher sales of advertising, cloud services, and AppleCare.
Evercore ISI analyst Amit Daryanani, who wrote about Apple’s new job listing in a research report this past week, notes that the iPhone maker in late July added two new ways for developers to advertise their wares in the App Store. One will allow ad placement on the Today tab, basically the site’s home page. And the other will allow ads touting “apps you might also like” to appear on individual app product pages.
I’ve recently written about Apple’s need to find big new markets to juice growth. Advertising could be part of the answer.
Daryanani thinks that Apple’s ad revenue from the App Store alone could reach $7.1 billion by 2025. “Advertising is a great growth opportunity for Apple, and their tremendous installed base gives them a competitive advantage that they have not effectively exploited in the past,” he writes.
Daryanani estimates that Apple’s ad business will generate $4 billion in revenue this year, or just 0.2% of the $600 billion online advertising market. He thinks that Apple can reach 2.25% of the digital ad market by 2025—and rake in $20 billion a year in ad revenue.
Needham analyst Laura Martin is also bullish about the potential for Apple’s advertising. In a note this past week, she pointed to the significant growth in Amazon’s ad business, which consists entirely of ads within its core e-commerce platform. Martin expects the Amazon ad business to reach $37 billion this year, up from $4 billion just five years ago. And she notes that ad revenue typically comes with 70% to 80% gross margins, so Apple’s profits from advertising would almost certainly grow faster than revenue. Martin thinks Apple would specifically target the market for mobile ads, which eMarketer estimates at $452 billion for 2022, growing to nearly $680 billion in 2026.
The challenge for Apple will be to balance its access to data on iPhones with its publicly stated focus on privacy. Martin thinks Apple can build an ad platform that effectively prevents personal information from leaking to third parties. But until it comes up with a real plan, doubts will remain.
Despite worries about a slowing economy—and the consequences for marketing budgets—there’s been a resurgence in advertising interest.
(NFLX), which once swore that it would never have ads on its platform, has promised to offer an ad-supported subscription tier in early 2023.
And a few recent data points show that there’s still plenty of demand for advertising that can deliver customers.
(YELP) shares soared Friday, after reporting a surprise spike in demand for local market ads, in particular for providers of home repair and contracting services.
In any case, Apple isn’t worried about this year’s outlook for advertising; it’s thinking about the opportunity five, 10, and 20 years from now. I have no idea what the world will be like in 2042, but I can tell you this: There will still be plenty of ads.
Write to Eric J. Savitz at email@example.com