Apple As An Advertising Company: Inevitable, or A $100 Billion Mistake?

Well, until it’s not.

I hope to write something more thoughtful soon, but this piece from CNBC prompted me to at least jot down a placeholder: Apple is clearly coming for the ads business, and it’s starting exactly where Facebook did ten years ago: The app download marketplace.

First, the news – not that it’s that new given many smarter observers have noticed Apple’s recent pivot to advertising. From CNBC: Apple plans to sell ads in new spots in the App Store by year-end.

The addition of these new ad units only strengthens Apple’s already  robust business of selling search ads inside the app store.  Apple also sells other types of advertising, but what you might not realize is how large the app download advertising business actually is: an estimated $118 billion this year alone. Google and Facebook/Meta dominate the category, but Apple’s coming on strong – aided in large part by its decision, under the cloak of caring about consumer privacy, to kneecap the third-party data ecosystem that underpinned its competitors’ offerings. In short, Apple made it far harder for its rivals to deliver ROAS (return on advertising spend), and advertisers, being logical businesspeople, are moving spend to Apple.

Why does this matter? Hypocrisy, for starters. Apple is spending countless millions positioning itself as anti-advertising, while at the same time privately planning to grow its own advertising business to a significant percentage of its overall revenues and profits. According to reporting from Bloomberg and elsewhere, Apple’s current advertising business stands at around $4 billion, putting it roughly in the league of Twitter, TikTok, and Snap, all of which are struggling to build app download businesses (and failing, in large part, because they can’t use data from Apple’s ecosystem). But Apple has been hiring ad platform talent lately, and some research outfits predict the company could scale its ads business to $30 billion within the next four years – putting it in the top tier of advertising giants*.

Once that happens, it’s worth asking: How will becoming an ads business change the famously privacy-first company? I plan on digging into this question – and welcome any thoughts you might have as I do.

  • * Yes, yes, I know that $30 billion is not much given Apple’s nearly $400 billion in top line. But study this chart, and think about the fact that Apple’s services revenue – which includes advertising – has a nearly four times higher gross margin than its devices business. Put another way, every dollar in ad revenue is worth up to four times MORE than a dollar in device revenue. 

(And PS, watch this space – Germany is suing Apple for self dealing in its ads business…)

 

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