12.24.2020 09:00 AM

Nice Try, Facebook. iOS Changes Aren’t Bad for Small Businesses

The social media giant would have you believe that Apple’s privacy update will hurt the little guys. But Facebook’s motives aren’t so altruistic.

exterior of an Apple store — Photograph: Getty Images

Late last week, Facebook bought full-page ads in the leading national dailies contending that Apple’s new policy, which will require apps running on iOS to allow users to opt out of tracking beginning early next year, will hurt small businesses. The ads—taken out in The New York Times, The Washington Post, and The Wall Street Journal on December 16—claim that Facebook is “standing up to Apple for small businesses,” for whom Apple’s changes will be “devastating.” With its not-so-subtle implication that Apple doesn’t care about lifting up the little guys, the campaign amounts to a mammoth bat-swing at the company, especially in this moment of antitrust inquiry and anti-monopoly reckoning. But while the social media giant is leading us in a seemingly virtuous direction, the reality is quite different. Facebook's contentions that this is bad for small business are most likely self-interested. But they are also plain wrong.

The nuts and bolts of Apple’s new policy, which will apply to iOS 14, are pretty clear: Data tracking is not allowed if the user chooses to disable the option. And that choice must be presented to the user through Apple’s AppTrackingTransparency framework, which, in the user interface, appears as a typical iPhone pop-up query. Apple has further indicated that the kinds of practices that will qualify as tracking include in-app ad display targeted at users with the aid of third-party data, sharing of location data with brokers, sharing of personally identifiable information like email addresses with third-party ad networks for ad-retargeting or lookalike targeting, and use of third-party SDKs that use in-app data for commercial ad-targeting services.

This definition of tracking can be considered appropriately broad. It could be broader—Apple offers some examples of practices that will still be allowed under the new policy. But as with every decision, there are natural trade-offs, and Apple has faced tremendous pushback from app developers and major tech firms in response to the announcement. The new policy doesn’t come out of the blue, though. Some have suggested that Apple, along with other major tech firms, including Facebook, are instituting (or already have established) such policies in light of the growing regulatory stick in the air on all matters related to user privacy; the European Commission and the state of California, for instance, have each recently pushed new standards that favor their constituents' privacy rights. And we could soon see similar moves at the federal level in the United States, resulting either from the recently-pushed antitrust suits or the possibility of a reformative baseline privacy law.

Facebook’s ads claim that small businesses will be impacted—that its many app developers and small business advertisers around the world will suffer in the long run as a result of Apple’s privacy-minded changes. Notably, the newspaper ads mention that 44 percent of “small to medium businesses started or increased their usage of personalized ads on social media during the pandemic” and that the “average small business advertiser stands to see a cut of over 60 percent in their sales for every dollar they spend.”

But when one examines the technical changes that Facebook announced to its developer community in order to comply with Apple’s update, the idea that small businesses advertising on its platform stand to lose a lot of revenue begins to look quite shaky. According to the post, Facebook will tweak engagement measurements so that advertisers cannot track more than eight types of “conversion events,” or in-app user actions that it measures to assess the effectiveness of ad-targeting algorithms. There will also be some minor technical changes to the implementations of Value Optimization, Facebook’s algorithmic tool that maximizes revenues generated from ad targeting by predicting how much a given user will spend in an app, as well as dynamic ads, measurement of performance of ad campaigns, and a subset of Facebook’s developer APIs.

These are manageable changes—minor coding fixes—for small businesses who depend on Facebook to reach their customers and know their buying habits. But more to the point, they are changes that hurt Facebook and its affiliated data brokers and ad networks—not the main-street small businesses evoked by Facebook’s newspaper ads.

It’s true that small businesses generally depend on advertising. In recent years, because of the overwhelming popularity of social media, and Facebook’s monopoly in that space, that’s meant that many small businesses depend on Facebook. But it doesn't have to be that way—small businesses would still find other places to advertise in targeted ways even if Facebook didn't exist, let alone if its targeting and tracking features were fully deprecated. Consider the statistics Facebook presented in its ads. What does the fact that 44 percent of small businesses increased advertising during the pandemic effectively mean? Only that, during the pandemic, more people are stuck at home, and Facebook’s monopoly ad network is seeing more consumption as a result. More businesses are advertising over it because more consumers are on the couch looking at their phones. This figure doesn’t necessarily indicate that small businesses benefit from advertising on Facebook, just that they have no other option.

The company also notes that without targeting, sales for small businesses would decrease by 60 percent for every dollar spent on Facebook ads. But that’s a potentially misleading figure that doesn’t speak to the possibility that these businesses will identify alternative places to reach consumers. We already know that without targeting based on personalized optimization, advertising on Facebook would be far less effective. Recall that in the Facebook advertising network, ad placement is priced by auction, meaning that with less effectiveness in targeting, the price of advertising on Facebook would correspondingly decrease—which in turn would open up more marketing budget for small businesses to advertise elsewhere. The result? Apple’s policy will take a bite out of surveillance capitalism, and will hand that excess profit back to traditional media and advertising businesses that will offer small businesses a greater diversity of opportunities to get the word out about their products and services. A more meaningful number for Facebook to report would be how deprecating ad-targeting options correlates, if at all, to the overall commercial success of small businesses—not their sales rates on Facebook itself. Facebook can research and eventually report the former, but it is well aware that such a study wouldn't yield a useful number for their purposes.

Of course, in the short term, these changes will cause some minor headaches in updating advertising campaigns and code. But people will still want to buy local products, patronize mom-and-pop stores, and donate to their neighborhood charities. Meanwhile, Facebook will inevitably adjust its ad-targeting technologies and develop new methods of tracking users in aggregated and anonymized ways across its applications—innovations that will help the ad industry maintain profitability while respecting Apple’s new compliance constraints.

And aren’t these changes that the public should want, in any case? Small businesses owners are, at the end of the day, individual citizens and consumers, too. They care about privacy, just like anyone should—and any increase in data privacy, marginal or otherwise, is an economic win for consumers. Local and digital-first small businesses will still be able to compete fairly—and now, their owners will have a little more privacy protection to boot. There are trade-offs inherent to any policy change; it can be argued that even if advertisers do experience a minor hit in ad-targeting in the near future, it is nonetheless good for the whole of society given the gains in individual privacy and autonomy that will also result.

What, then, is Facebook talking about in its full-page ads? Not surprisingly, the hit to its own business—and business model. The practices of ad-targeting and engagement-tracking are precisely what make Facebook so tremendously powerful in the digital ecosystem. We know that the vastly dominant share—over 98 percent—of Facebook’s global revenues, which in 2019 were over $70 billion, comes from advertising. Even a 5 percent hit to that equates to a loss of billions of dollars a year, a cut that Facebook’s financial community—including capitalists, shareholders, and the company’s own executives and staff—does not want to see.

As many have now contended, Facebook is a monopoly. The company has a dominant share in various subsectors of the consumer internet that are economically critical in the media ecosystem—including social media and web-based text messaging. In fact, Facebook could arguably be considered a natural monopoly, in that the company takes advantage of powerful network effects that, absent regulatory intervention, establish it as the dominant market player in perpetuity. Using its monopoly power, Facebook has undertaken a number of steps designed to put a stranglehold over the social media economy: buying up rival firms, copying the practices of smaller players, sucking up intellectual talent including independent academics, collecting personal data at exploitative rates and using it for questionable means, and, along with Google, monopolizing the process of information exchange over advertising networks. An imposition of greater privacy protection—instantiated by Apple in response to new, progressive privacy regulations—might be precisely what helps small businesses gain a greater economic foothold. To be sure, Apple is no angel. But the changes it is implementing next year are a good thing for an American and global public that increasingly cares about digital rights and personal privacy.

At the end of the day, small businesses are owned by people like you and me—people who themselves will benefit from improved privacy rights.

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