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Apple made a change that is hammering internet companies like Meta

                                Apple CEO Tim Cook stood in front of company products during a visit to an Apple Store at The Grove, Nov. 19, in Los Angeles. Apple’s vision of a more private web is not necessarily a more profitable one for internet companies that depend on advertising revenue.
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Apple CEO Tim Cook stood in front of company products during a visit to an Apple Store at The Grove, Nov. 19, in Los Angeles. Appleā€™s vision of a more private web is not necessarily a more profitable one for internet companies that depend on advertising revenue.

Apple’s vision of a more private web is not necessarily a more profitable one for internet companies that depend on advertising revenue.

That lesson was clear Wednesday in an earnings report from Meta, the company that Mark Zuckerberg founded as Facebook. Meta said privacy features introduced by Apple last year could cost Zuckerberg’s company $10 billion in lost sales this year.

The news, along with increased spending as Meta tries to focus on the new idea of a metaverse, dropped Meta’s stock price more than 26% this morning. Zuckerberg said Wednesday that Apple’s changes and new privacy regulations in Europe represented “a clear trend where less data is available to deliver personalized ads.”

Meta’s warning and its cratering stock price were reminders that even among tech giants, Apple holds extraordinary sway because of its control of the iPhone. And the tech industry received a clear notice that a long-planned shift in how people’s information may be used online was having a dramatic impact on Madison Avenue and internet companies that have spent years building businesses around selling ads.

“People can’t really be targeted the way they were before,” said Eric Seufert, a media strategist and author of Mobile Dev Memo, a blog about mobile advertising. “That breaks the model. It’s not just an inconvenience that can be fixed with a couple of tweaks. It requires rebuilding the foundation of the business.”

Other internet companies that depend on ads felt the tremors, too. Shares in Snap, which is set to report its fourth-quarter results this afternoon, fell about 17% earlier in the day. The share prices of Twitter and Pinterest — the latter of which is expected to report its results later on today as well — also dropped after taking hits in after-hours trading Wednesday.

The changes have far-reaching repercussions that may hurt consumers, Seufert said, although consumers are overwhelmingly choosing not to be tracked. While Meta and other big media companies develop new methods to target people with ads, some smaller brands, whose ads can no longer reach new customers, have a solution to their problem: raise prices.

Apple made significant changes to the privacy settings of its mobile operating system last year, allowing iPhone users to choose whether advertisers could track them. Since Apple introduced the feature, a vast majority of iPhone users have opted to block tracking.

Only 24% of iPhone users around the world have consented to being tracked by advertisers, according to data published in December by the analytics company Flurry. That means that a broad swath of iPhone users are evading the personal tracking preferred by advertisers.

It has been a dismaying shift for advertisers, which have for years tracked people online in order to determine how many sales their clients were making. Advertisers also rely on tracking to resurface products that consumers have viewed but not yet purchased, reminding them that it might be time to buy. But for privacy activists, the change is a welcome check against surveillance that puts power back into the hands of everyday technology users.

“We believe the impact of iOS overall is a headwind on our business in 2022,” said Dave Wehner, Meta’s chief financial officer, during a call with analysts Wednesday. “It’s on the order of $10 billion, so it’s a pretty significant headwind for our business.”

Google has also made moves that disrupt the advertising industry. Last month, it announced a proposal for how Chrome, the world’s most widely used web browser, might eventually eliminate traditional tracking mechanisms for serving ads. It introduced a new system, Topics, which would inform advertisers of a user’s areas of interest — such as “fitness” or “autos and vehicles” — based on the last three weeks of the user’s web browsing history.

Meta’s estimated loss resulting from these limits is comparable to what the company is losing on the metaverse. Meta said its pivot to the metaverse — which could in theory help it step away from Apple’s influence — was eating into its profit. The company views the metaverse as the next generation of the internet, in which people will share virtual experiences. It lost more than $10 billion in 2021 as it built the virtual reality goggles and smart glasses that will make it possible for users to access the metaverse.

Although Meta said revenue rose 20% in the three months ended in December, to $33.7 billion, compared with the same period a year earlier, the company’s quarterly profits fell 8%, to $10.3 billion.

Wehner added that Apple’s iOS changes buoyed the ad business of Google, which is not dependent on Apple for advertising data.

Snap, maker of the Snapchat app and the augmented reality glasses Spectacles, said in October during its most recent earnings report that Apple’s privacy changes were having an unexpected impact on its business.

“We grappled with industry changes to the way advertising is targeted, optimized and measured on iOS that created a more significant impact on our business than we had expected,” Jeremi Gorman, Snap’s chief business officer, said in an October analyst call. Still, the company’s revenue grew 57% from the same period a year ago, to $1,067 million, Gorman added.

Last month, Snap introduced new augmented reality shopping features that allow brands to add catalogs of merchandise to the Snapchat app. While users can try on glasses, makeup and apparel in augmented reality, brands receive insights about which items and styles are most popular.

In the past, Twitter has said that Apple’s privacy push caused minimal disruptions to its business because much of its advertising came from brand awareness campaigns and large events, like the Olympics, rather than targeted advertising. Twitter is set to report its fourth-quarter earnings Feb. 10.

But Apple, which reported its fourth-quarter earnings last week, indicated that privacy was profitable. Despite supply chain disruptions, Apple said sales of iPhones totaled $71.6 billion, up 9% from a year earlier. The smartphone maker reported an 11% increase in revenue and a 20% jump in profit.

Apple has made privacy a key part of its marketing for the iPhone and other products, giving customers the ability to opt out of tracking and providing steps to make tracking more difficult in its browser, Safari. But Apple has continued to allow apps like Facebook to track users in aggregate, as long as they do not seek to personally identify users.

Last year, Apple CEO Tim Cook, making his company’s message clear, said the advertising industry had become an ecosystem of “trackers and hucksters just looking to make a quick buck.”

This article originally appeared in The New York Times.

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