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iOS 14 and the Future of Mobile Advertising

This is the latest in Localogy’s Skate To Where the Puck is Going series. Running semi-weekly, it examines the moves and motivations of tech giants as leading indicators for where markets are moving. Check out the entire series here, and its origin here

Consumers have come to expect a change in look, feel, and functionality with every mobile operating system update. Apple’s forthcoming iOS 14 update will usher in two notable changes. Both are sure to be of interest to consumers and mobile industry veterans alike.

  • Use of approximate location rather than precise location. Users will be able to choose whether applications see exactly where they are, the city they’re in, or no location at all. Unlike previous updates, this can be chosen right from the application itself and not hidden deep within the settings.
  • Opt-in notifications. Instead of the current system, where one option applies to all applications, iOS14 will allow users to opt-in or out of location tracking in each individual app. The opt-in notice will also provide more details about what the tracking information will be used for.
What Does this Mean for App Developers?

At the end of the day, it costs money to build and maintain all the applications we use.  In 2019, the Apple app store generated $54 billion in revenue from sales, in-app purchases, and premium features. For app developers, it is in their best interest to make the appropriate changes needed to retain that revenue and even grow it. But these updates will come at a hefty cost.

There are two ways to make up the gap: have consumers pay even more for apps or in-app purchases, or increase advertising revenue. Since about 92% of iOS apps are free to consumers, advertising and in-app purchases represent the largest opportunity for developers to stay afloat.

Apps, music services, video streaming, and news subscriptions went through a long period of trial and error before settling on the right mix of free and paid content. These changes may send them all back to the whiteboard. But how much is a user willing to pay outright to get weather information, exclusive series, or play a time-passing game?

The Changing Face of App Monetization

Just as ad blockers have been growing for desktop browsers, representing 25% of total users in 2019, Apple’s new limitations on mobile ad tracking are an intrinsic acknowledgment that things have gotten out of whack.  The question is:  how will we reach a new equilibrium?

There has always been an exchange between apps, advertisers, and consumers. Convenience and functionality in exchange for anonymous user location and behavioral data. Over the years, challenges to user privacy have eroded public trust in this exchange – and rightfully so. A proactive approach from the industry is needed and while this is certainly a big move in that direction by Apple, it doesn’t cover the individual changes needed by app developers and advertising networks themselves.

With this in mind, the most viable option for apps and consumers alike may be advertising revenue.

Now hear me out. Even though these updates may seem to threaten to weaken the volume, value, and viability of consumer data used to enhance mobile advertising, we have an opportunity to uplevel our game, meet the challenge, and put privacy first.

Privacy and/or Revenue?

iOS 14 will bring some large-scale and widespread changes, both for iPhone users and the companies which serve them. However, they are not unexpected. Privacy is a growing concern for users, and governments are flexing their regulatory muscles accordingly. The EU’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) are just the beginnings of a new wave of privacy legislation to come.

Apple’s new privacy controls are designed to get ahead of the drive for new legislation. And to shape its terms. This strategic decision is not an anomaly. Google recently announced that it will start to automatically clear location and search histories (albeit after 18 months, so not that meaningful).

Privacy and transparency are important for sure, but are consumers ready and willing to make up the estimated $117 billion generated by the ad-supported ecosystem in 2020?

The recent and obvious contextual popularity of Contact Tracing is based on the value of the location data used. Because there is a crisis, location data is providing a crucial service in curbing the spread of COVID-19. While it may be hard to duplicate that kind of value in the exchange of location data between consumers and advertisers in our everyday life, the point is that the data itself is valuable to both parties. Missteps in the usage and storage of that data have led to privacy concerns. But Contact Tracing proves that all hope is not lost when it comes to mending geo-fences and winning back the support of wary consumers.

In this way, COVID is proving to be an industry accelerator, as many past crises have been. Alongside the public service provided by Contact Tracing technology, Z-Axis has finally entered the scene with initial use by emergency service providers. Where lat/long or x/y fell short in accuracy, Z-Axis is filling in the gaps allowing 9-1-1, fire, and police to locate and reach those in need when seconds count.

While Z-Axis has lucrative applications for advertisers, updates like iOS 14 are putting Contact Tracing, x,y, and Z-Axis in jeopardy unless the important public service aspect can be communicated to the public. Will public service be the savior of location data in the eyes of the consumer?

The Future is in Fortifying the Value/Data Exchange

Location data was an important part of the shift to our mobile-first world. For 10+ years the advertising industry has boomed leveraging a mix of latitude and longitude. This, layered it with some behavior data and segmenting to their hearts’ content, is enabling real-world results for the first time.

But it’s clear both consumers and the industry are at an important inflection point. We could continue on and keep our fingers crossed, hoping we won’t see a drop in location data and the value it once provided. Or we could take a proactive approach and build for privacy-first just as we’ve done mobile-first

No Time for Heads in the Sand

A number of developments are forcing our entire industry to look forward. These include COVID-19, growing consumer mistrust, and steps like iOS 14 designed to get ahead of impending legislation.

Now is not the time to carry on or stick our heads in the sand. We have spent too much time remixing the same track — enhancing algorithms based on the same data — without enhancing the security or real value of that data. We ask for forgiveness afterward instead of writing something new.  To be honest, this is the kick in the pants we all needed to move the technology forward.

Alongside the need to build for privacy-first, we need to remember that at the heart of this is our shared mission of connecting local business and local consumers. Using location data to provide the best experience for the consumer has always been the primary charge for tech companies and app developers.

If we forge ahead with this perspective and priority, marketers and advertisers will surely benefit. We can restore equilibrium in the value/data exchange. And consumers will feel more comfortable allowing the use of their data to enhance their app experience.

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