Apple is best known as a hardware brand – from iPhones to iPads the company has done an incredible job at turning customers into fans and keeping them engaged with the upgrade cycle. But facing the threat of a device-sales slowdown, Apple plans to build out its advertising business to bolster service income alongside app and media subscription revenues.
Takeaways
- Apple is looking to grow its advertising business by broadening ad placement on its own apps on iPhone and iPad devices. The move to increase ad revenues comes just a year after it launched its ATT (App Tracking Transparency) programme to allow users to choose whether apps can track them.
- To date, advertising has been restricted to display ads in News and Stock apps and across the App store. The expansion will bring ads to more of Apple’s own apps on iPhones and iPads, potentially including Apple Maps, storefronts like the App store, Apple Books and Apple Podcasts as well as TV+.
- Apple’s advertising teams are being reorganized within the company’s services organization, with ad group VP, Todd Teresi, reporting directly to services chief Eddy Cue. Teresi is reported to have said he wants to increase the company’s ad revenues into double digits.
Service income
- Last quarter, Apple said it made $19.6 billion from services including the App Store, Apple Music, iCloud, Apple News, Apple TV+ and Apple Pay. This represents about a quarter of its revenue mix, up from just 13% in the same quarter five years ago.
- Apple doesn’t report how much of its services revenue comes from advertising, but a Bloomberg report suggests the company currently brings in around $4 billion annually in ad revenue. That represents about 1% of Apple’s annual revenue, compared with 90% at Google.
- Analysts estimate that Apple’s ad business could reach $6 billion by 2025. For comparison, Snapchat, which receives almost all of its money from ads, brought in $4.1 billion in revenue last year and Twitter made $4.5 billion in advertising last year.
Are app changes anticompetitive?
Competitors are complaining that tracking restrictions imposed by Apple on its devices have ‘stymied’ third-party advertising on its platform.
- Ostensibly a privacy-focused move, the introduction of ATT weakened the ability of marketers to target advertising. While customers have been overwhelmingly supportive of the feature, app giants like Meta and Snap claim to have lost billions of dollars as a result of the changes.
- Meta has instituted a lobbying campaign against Apple’s changes, arguing that they make it harder for small businesses to find customers. But the reality is Meta executives have said they will lose $10 billion in ad revenue in 2022 because of Apple’s changes.
- Apple’s defense is that it has long promoted the privacy and security advantages of its products over equivalent devices on Google’s Android and Microsoft’s Windows. And, although the rollout of Apple’s ad expansion plans so close to its ATT privacy changes could draw the attention of antitrust regulators, its record on privacy and the inherent good sense of introducing customer choice has given it cover.
Customer reaction
Perhaps a bigger question for Apple is whether its customers – sold a vision of privacy and uncluttered interfaces – are ready to accept more advertising. Writing on Bloomberg, Mark Gurman, describing the iPhone as a premium device, said:
Let’s say you shelled out $1,000 or more to buy one, do you want to feel like Apple is squeezing more money out of you just to use its standard features?
