Why Apple’s digital ad business is gaining an edge over Google and Facebook

Apple ( AAPL ) is gaining ground in the digital advertising landscape, challenging Google and Facebook’s long-held dominance of the space, according to new research published by InMobi’s Appsumer.

The research, reported by CNBC, suggests that Apple’s advertising business has grown since the company’s much-discussed iOS privacy update last year undermined app developers’ efforts to track users. That update — called App Tracking Transparency (ATT) — asked iPhone users for permission to share their data between apps and offered the option to opt out of tracking.

ATT has hammered the advertising models of ad-dependent companies such as Snap ( SNAP ) and Facebook-owned Meta ( META ), while Apple’s ad business has successfully increased its adoption to 94, 8% year over year. Apple’s so-called search ads allow consumers to discover a company’s app when they search the App Store.

“I think the dynamic we’re seeing from Apple is twofold: one, it’s the inherent nature of ad placements that yields better performance overall,” Shumel Lais, general manager of Appsumer, said via email. “Secondly, their approach to performance is different from everyone else – thanks to ATT – which also gives them a bit of an edge.”

While Apple’s relationship with consumers isn’t inherently based on advertising, the iPhone maker — like so many tech companies — is turning into an ad network, according to Andrew Boone, an analyst at Citizens-owned JMP Securities.

“Apple’s added value is obviously not advertising to the consumer,” he said. “There’s always some degradation when ads are introduced into a product, but Apple can get away with it.”

However, what Apple’s advertising business actually looks like in the future remains murky. We don’t even know enough to know what the consumer privacy issues might be, according to Boone.

“You don’t know what the product is yet, so it’s hard to see yet how these privacy concerns might play out,” he told Yahoo Finance.

This is where things stand. Apple’s ads are currently focused on its app store, but there are signs that Apple doesn’t want to stop there and that the company is creating new ad-centric products. For example, Apple is currently looking to make significant digital advertising hires and is reportedly even looking to double the size of its ad team.

“Well, they’re building something, we just don’t know what it is,” Boone said.

He added that comparing Apple’s ads to, say, Facebook’s doesn’t provide clarity on where things are headed because they’re such different use cases.

The digital ad market as a whole is struggling right now, as ad revenue has declined across the industry. Macroeconomic headwinds have hit ad spending. There is reason to believe that many of these challenges will remain in place for the foreseeable future. look no further than Fed Chairman Jerome Powell’s bullish message recently in Jackson Hole for evidence of tough roads ahead.

Alphabet ( GOOG , GOOGL ) — the parent company of Google and YouTube — has seen its shares fall about 25% year-to-date.

Meanwhile, Meta shares are down about 52% year-to-date.

What might be coming under the pike

The long-running Google-Facebook advertising duopoly is in flux, according to Lais.

“I don’t think the duel is over,” he said. “I’m not sure if there’s a word for tripoli, but this is the future if Apple continues to invest and innovate. Meta remains prominent with massive reach, great ad placements and targeting options for marketers.”

Additionally, Google and Meta aren’t the only ones whose ad businesses are being challenged. At the lower end of the market, TikTok has surpassed Snap in both advertiser adoption and share of wallet, a metric that assesses how much specific consumers are spending on a particular brand, versus that brand’s competitors.

“TikTok’s audience is narrower than Meta and Google’s, and their creative output is very different,” Lais said.

Snap, now known, has had a particularly bad 2022 year to date, with shares down about 75% since January.

Apple, which is scheduled to hold its Far Out product event tomorrow, has seen its shares fall about 14% year-to-date.

Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks.

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