Member Exclusive   //   January 26, 2021

How Apple’s iOS14 update will impact e-commerce companies

An Apple iPhone update is about to upend the advertising strategies of e-commerce companies.

Any day now, Apple is expected to release the latest version of its iOS14 software. As part of that update, developers will be required to ask iPhone users for permission to track their data across other apps and websites.

The update has the greatest implications for app developers, but it also will significantly impact e-commerce companies who spend most of their advertising money on Facebook and other mobile ads. The app update stands to give companies fewer data points to aid in ad targeting.

But not all e-commerce companies will be hurt equally. The brands that are most reliant on a single channel like Facebook advertising — which includes many direct-to-consumer startups — stand to take the biggest hit. Some direct-to-consumer startups will spend as much 60-80% of their digital advertising budget on Facebook, as startups like Bombas and Eight Sleep have previously told Modern Retail they did at one point.

“The net of it is you are just not going to get as much information back from platforms — whether it is confirmation that an ad drove a purchase, or confirmation that an ad drove someone to your site,” said DTC marketing strategist and investor Nik Sharma.

That means DTC brands are in for a world of change. Here’s what every e-commerce company needs to know about the iOS14 update, and how to prepare for it.

What is the iOS 14 update?
Up until now, if an iPhone user did not want one of the many apps they use to track their browsing activity across the web, they would have had to opt out of tracking. But the newest iPhone update will make this functionality opt-in.

No one knows exactly when this update will hit, but it could be any day now. Apple released the first version of iOS14 in September, but it’s still being updated as Apple works out new bugs (iOS14.4 was released last week) and the new privacy prompt could come in any one of the next several rounds of updates.

When it does, iPhone users will receive prompts from the apps they use, asking them to allow the app to track their activity across other companies’ website and apps.

Who will be impacted?
Mobile apps that derive much of their revenue from advertising will be the most immediate group impacted by the latest iOS update — that includes Facebook, Snapchat and Pinterest.

But of those three companies, Facebook stands to lose the most because it has the largest digital advertising business; it generated $21.2 billion in advertising revenue during its most recent quarter. As a result, Facebook has been the most vocal in opposing the iOS14 update, taking out ads in newspapers, claiming that the privacy changes will make it harder for smaller businesses “to use their advertising budgets efficiently and effectively.”

“Facebook is scared shitless….if you weren’t scared, you wouldn’t have taken out a full-page ad,” said Duane Brown, founder of performance marketing agency Take Some Risk.

The other digital advertising giant that will be affected is Google. But, unlike Facebook, Google hasn’t been running a flurry of anti-Apple ads. That’s because Google still has plenty of its own properties through which it can track users’ behavior, like the Android phone and Google Chrome.

Why does this matters for e-commerce?
E-commerce companies are heavily reliant on digital advertising — and on Facebook in particular. This is for a few reasons. Facebook is still cheaper than most other traditional advertising platforms, while still having a huge reach. The average cost per click for a Facebook ad as of 2020 was 39 cents, according to AdEspresso; A very young startup might have an advertising budget of $10,000 a month or fewer for Facebook and still be able to reach hundreds of millions of users. Meanwhile, Facebook has more robust targeting options than other, newer apps like TikTok and Snapchat.

But, if Facebook can’t track users’ activity across apps outside of Facebook, its targeting options may become less effective. “For a lot of these brands, especially the DTC brands, they rely on that data and information coming back [from platforms like Facebook] so they can be more efficient with their selling and advertising, and cater creative to specific people,” said Sharma.

Just how much the iOS14 update hurts e-commerce companies depends upon how many users opt in to tracking. “Everyone is guessing at best,” said Brown. Even then, not all companies will be impacted equally. A company that spends 80% of its advertising budget on Facebook has more to to lose from this update than a company that only spends 20% of its advertising budget on Facebook, and the rest on traditional channels like billboards and TV.

Additionally, companies that sell more expensive products, like furniture or handbags, may be hurt more, said Sharma. That’s because customers typically take longer to decide whether or not to buy these higher-ticket items after viewing a Facebook ad than say, someone who gets an ad for a $10 iPhone case. These companies typically rely on longer attribution windows to determine whether or not their Facebook ads are working. And as part of the flurry of updates Facebook is making to prepare for the new iOS changes, it’s doing away with a 28-day attribution window, its longest one. 

How can brands prepare?
In light of the new updates, Facebook has made a number of changes to how companies can structure their ad campaigns. The full list of changes is detailed here.

Facebook is bracing for the fact that it won’t be able to track what as many users click on or search for outside of Facebook. If a user opts out of tracking it would be more difficult for Facebook to determine if, say, they end up buying a pair of shoes several after viewing an ad on Facebook. That explains why Facebook  is doing away with the 28-day attribution window. Instead, advertisers will be subject to a default 7-day clickthrough attribution window.

Certain advertising formats may also be disproportionately impacted. Facebook’s dynamic ad units, for example, may become less effective, according to Katya Constantine, CEO of digital marketing agency Digishopgirl Media. Dynamic ads show specific products to people depending on if they’ve, for example, previously abandoned that product in their online cart. It may be harder for those ad units to find the right customers to target, she said, “because less data is coming through.”

She went on, “one of the things that we’re ready to do with our clients is have other ad unit creatives like static and carousel ready to go live when we see [any drop] in dynamic product ads.” And indeed, Facebook warned advertisers “you may see performance and audience sizes decrease” for dynamic ads in its post advising companies on how to prepare for the iOS14 update. 

The agency heads that Modern Retail spoke with said that there are a few things companies can do to prepare. For one, companies will likely have to build out new strategies around customer acquisition. If a company can’t determine for certain whether or not a prospective customer bought something for the first time after viewing a Facebook ad, then it’s harder to justify centering your new customer acquisition strategy entirely or mostly on Facebook.

What will likely become more common, Sharma said, is companies running Facebook ads, hosting events or creating content, with the goal of capturing a customer’s email address or phone number. That way, not only do companies have a more direct way to communicate with prospective customers, but they can also still retarget those potential new customers with Facebook ads, because they have their email address or phone number. “Essentially, you’re going to have to build out the marketing funnel a little more,” said Sharma.

Marketers are also advising clients to look at other attribution sources beyond Facebook’s to figure out how much they are being impacted in the first weeks of the new iOS14 rollout. Constantine, for example, recommends that companies download the latest version of Google Analytics, since that reporting source won’t be as affected by Apple’s changes. Post-purchase surveys will also become more important, so companies can rely on that — rather than Facebook’s attribution window — to determine whether or not a certain type of ad is indeed causing people to buy.

Despite the additional hoops companies will have to jump through, “Facebook is still the easiest way to reach people,” said Sharma. But Brown said the iOS14 update further highlights the need for e-commerce companies to not put all of their eggs in the Facebook basket. 

“We get a lot of clients who come to us and they are only on Facebook, and we tell them that’s great. But if one day this happens —  which is happening now — where Facebook isn’t as reliable … you are going to get yourself screwed because you don’t have another ad platform to go on,” he said.