Apple Ads and the Anti-Steering Argument, Additional Follow-up

Posted on Author by Ben Thompson

Good morning,

I was a guest on the Bill Simmons podcast, where we discussed AT&T’s spin-off of WarnerMedia, the future of streaming, and Apple v. Epic. Oh, and a healthy dose of the Milwaukee Bucks.

On to the update:

Apple Ads and the Anti-Steering Argument

I noted in App Store Arguments that I found much of the recent discussion around Apple’s anti-steering provisions to be particularly interesting, and yet that was one of the shortest sections of yesterday’s very long Article; that was proof that yes, I really do edit! Here’s what I wrote:

The point of this Article, though, is not necessarily to refute arguments, but rather to highlight them, and for me this was the most illuminating part of this case. The only way that this analogy makes sense is if Apple believes that it owns every app on the iPhone, or, to be more precise, that the iPhone is the store, and apps in the store can never leave.

What really made this click for me was actually Apple’s increasingly aggressive shifts into advertising; it recently updated its Apple Advertising & Privacy support document, and there are several interesting things to unpack (I’m not going to quote everything — follow the link to read the whole document):

Ads that are delivered by Apple’s advertising platform may appear on the App Store, Apple News, and Stocks. Apple’s advertising platform does not track you, meaning that it does not link user or device data collected from our apps with user or device data collected from third parties for targeted advertising or advertising measurement purposes, and does not share user or device data with data brokers.

It’s not an accident that Apple defines what it means by “tracking” up top; something that has become clear to me over the past year of debate around Apple’s App Tracking Transparency initiative is how many of Apple’s most ardent supporters are actually opposed to targeted advertising, i.e. advertising that is tailored to you individually. Apple, of course, has encouraged this interpretation, with commercials that highlight the creepiness factor, letters that suggest ATT represents a return to pre-Internet advertising models, and interviews that argue that individuals should own their data.

Note, though, the specificity of this definition: according to Apple, it’s only tracking if it links data from “our apps” with data from “third parties”; the rest of the document makes clear why this specificity matters.

Contextual Information

Contextual information may be used to serve ads to you, such as:

  • Device Information: Your keyboard language settings, device type, OS version, mobile carrier, and connection type.
  • Device Location: If Location Services is enabled and you’ve granted permission to the App Store or Apple News apps to access your location, your location may be used to serve you geographically relevant ads. Your precise device location is not stored by Apple’s advertising platform, and profiles are not constructed from this information. To access these settings, go to Settings > Privacy > Location Services.
  • Searches on the App Store: When you search on the App Store, your query may be used to serve you a relevant ad.
  • Apple News and Stocks: The type of story you read may be used to select appropriate ads.

Most of this fits the preferred model of folks who are opposed to targeted advertising (perhaps with the exception of location data). So far so good.

Segments

We create segments, which are groups of people who share similar characteristics, and use these groups for delivering targeted ads. Information about you may be used to determine which segments you’re assigned to, and thus, which ads you receive. To protect your privacy, targeted ads are delivered only if more than 5,000 people meet the targeting criteria.

This is, broadly speaking, the same concept as Google’s FLOC proposal; Google, though, is clear that cohort creation happens entirely on-device, while Apple’s language suggests that they create segments on their servers.

We may use information such as the following to assign you to segments:

  • Account Information: Your name, address, age, gender, and devices registered to your Apple ID account. Information such as your first name in your Apple ID registration page or salutation in your Apple ID account may be used to derive your gender. You can update your account information on the Apple ID website.
  • Downloads, Purchases & Subscriptions: The music, movies, books, TV shows, and apps you download, as well as any in-app purchases and subscriptions. We don’t allow targeting based on downloads of a specific app or purchases within a specific app (including subscriptions) from the App Store, unless the targeting is done by that app’s developer.
  • Apple News and Stocks: The topics and categories of the stories you read and the publications you follow, subscribe to, or enable notifications from.
  • Advertising: Your interactions with ads delivered by Apple’s advertising platform.

When selecting which ad to display from multiple ads for which you are eligible, we may use some of the above-mentioned information, as well as your App Store browsing activity, to determine which ad is likely to be most relevant to you. App Store browsing activity includes the content and apps you tap and view while browsing the App Store. This information is aggregated across users so that it does not identify you.

Now do you see why Apple was so precise in its definition? Apple is absolutely collecting specific demographic data about you — or inferring it, if need be — and using it to target you with ads. It is also tracking not just the stories and stocks you view, but also your activity while doing so; that tracking extends to your behavior in the App Store. Apple, of course, says this isn’t tracking because they don’t link data from “our apps” with data from “third parties”.

Here, though, is where the connection to the Anti-Steering provision comes in; read again what I wrote about CEO Tim Cook’s Best Buy analogy:

The only way that this analogy makes sense is if Apple believes that it owns every app on the iPhone, or, to be more precise, that the iPhone is the store, and apps in the store can never leave.

This is how Apple justifies the fact that it doesn’t simply track your activity in Apple’s own apps, but also tracks your in-app purchases and subscriptions in 3rd party apps and uses it for advertising: the company believes that all of those 3rd party apps, at least the bits that use in-app purchase — because they have no choice in the matter — is Apple’s first-party data. In other words, when Facebook collates in-app purchases across similar apps to help developers find new customers, it’s tracking, because that is third-parties sharing data (never mind that this is precisely how smaller players can compete with behemoths like Google or Amazon). However, if every app is part of the App Store, then that exact same purchase data in 3rd party apps is, according to Apple’s definition of the App Store, first party data, the collection of which is not tracking, according to Apple’s definition of tracking.

In this regard App Tracking Transparency’s relationship to Apple’s app install advertising business is very much in the same vein as the App Store’s in-app purchase and anti-steering requirements relationship to Apple Music or iBooks. Thanks to App Store rules Apple Music and iBooks either have a significant price advantage (because Apple doesn’t pay itself 30%) or a significant user experience advantage (because Spotify and Kindle have to hope that customers go to the Spotify or Amazon websites of their own volition). Similarly, thanks to App Store rules Apple’s advertising business has a significant data advantage relative to Facebook (because Apple has perfect knowledge of app installation and purchase activity).

And, of course, Apple doesn’t ask users for permission; this data collection and personalized advertising is on by default. You can turn it off — just as you previously could turn off your advertising identifier — but when Apple started making apps ask to “track” up-front they didn’t apply the same requirements to themselves; after all, everything is first party data, and that’s not tracking.

Additional Follow-up

I did make two small additions/changes to the Article after I sent the email. First, I added this footnote after the section explaining why even a monopolist has the right to monetize their intellectual property:

There is a question as to whether Apple’s approach is the least restrictive way to achieve legitimate business ends; this is a very difficult argument to win in court, though, as any proposed solution has to be better in all regards, including appropriately compensating the IP holder.

Some of Judge Gonzales Rogers’ questions were clearly pushing on this point, wondering why Apple specifically targets game developers to monetize its IP; Apple could, for example, simply charge developers a lot more to publish games to the App Store and earn its return that way. As I noted, though, the examples of this argument prevailing in court are very rare, as its difficult to demonstrate that an alternative is superior.

Second, I changed this line — “Is it strong to continue to tarnish its brand with consumers, its reputation with developers, and its (previous) deference from Congress simply because it can?” — to this: “Is it strong to continue to tarnish the customer experience with popular apps, its reputation with developers, and provoke criticism from Congress simply because it can?”.

Truthfully, I don’t think that most consumers care; to the extent they do, they like Apple’s App Store approach. This is one of the most frequent bits of feedback I get when I write about this stuff, and I get it; my argument is simply that that is a reason why Apple ought not be afraid to compete on the merits. I can imagine that conversion via in-app purchase would be so much more attractive to consumers that developers would want to use it anyways!

Indeed, the truly provocative argument to make about the App Store is that Apple has squandered a massive opportunity to not simply provide payment infrastructure for apps but for the entire web. That, though, is the other problem with monopolies: they not only cause deadweight loss by foreclosing opportunities for others, they ultimately breed the sort of complacency that stifles innovation by the monopolist as well.

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