Frustrated coffee shop manager calculating figures in cafe showing Apple's privacy changes impact small businesses

Echoing Facebook’s Late 2020 Media Blitz, Small Businesses Complain of Steep Personal Costs From Apple’s Privacy Changes

Facebook always stood to lose the most from Apple’s privacy changes, and spent the latter part of 2020 on a media campaign against its proposed App Tracking Transparency (ATT) framework. One of the central themes of that campaign was that the moves would disproportionately hurt small businesses.

Though the intent may have been at least somewhat disingenuous and self-serving, the complaints of some small businesses are nevertheless providing at least some validity to the theory. A number are now taking to the media to challenge Apple’s privacy changes, after seeing their 2022 revenue drop precipitously as compared to the initial months following the changes in 2021. This is backed up by a recent Varos study finding that the cost of acquiring new customers via advertising has gone up sharply in 2022, and competitors that do not rely on third-party tracking are swooping in to steal considerable chunks of market share.

Facebook contentions were self-interested, but Apple’s privacy changes measurably hurt small businesses in 2022

Nadia Martinez, founder of Kallie (a California handcrafted shoe company) summarized this small business perspective in a statement to Financial Times, saying that the impact of Apple’s privacy changes was “brutal” and the potential for damage had not really been apparent until 2022 began. She added that a second business she runs, an agency that assists women in getting their own online businesses underway, is seeing its clients go out of business due to increased ad costs and diminishing returns in customer acquisition.

Facebook is the single entity that has been hit hardest by Apple’s privacy changes, at least in terms of dollar value. But the company was always large enough to survive the expected blows, and savvy enough to realize public perception of it is a serious issue. In late 2020 the social media giant took out full-page ads in newspapers portraying this exact scenario of small businesses struggling and going under due to having the playfield-leveling power of targeted advertising crippled or removed.

A recent Varos study of 1,300 small businesses found that revenue declined more and more each month of the second quarter of 2022, with a 13% drop for the month of June. The pinch for small businesses is not just owed to Apple’s privacy changes; inflation and production costs are also contributing to the squeeze, but the end result is substantially reduced ad spend on Facebook.

Small businesses are also suffering from decreased visibility into the direct cause of drops in sales, between the variety of global conditions that could be contributors and the lack of metrics caused by Apple’s privacy changes. There has been some controversy in this area, as Apple offers a competing product in its Apple Search Ads product; while Apple’s privacy changes have been of benefit to its own product, the company defends its position by claiming it is only a “very small” part of the online ad ecosystem (at present limited only to displaying with Apple News and the App Store). Nevertheless, the company faces an antitrust probe in Germany over this potential case of market manipulation.

Small businesses look to other advertising options as Apple’s privacy changes impair Facebook’s reach

Apple has been able to evade some degree of antitrust scrutiny in this issue given the limits to its own advertising program, but small businesses are showing that they are happy to take their ad spend to competing companies even if they do not offer the same sort of third-party tracking scope that Facebook offered.

Amazon’s ad program has been one of the biggest winners in the market shakeup created by Apple’s privacy changes, and it relies on internal customer data and shopping history rather than third-party tracking. Twitter also saw a small increase in ad revenue during the period in which small businesses saw the worst of the damage, though the company feels it would have grown more if not embroiled in the contentious Elon Musk takeover bid.

Collectively Google, Meta and Amazon still collectively control three quarters of the digital ad market. But nearly every ad company that is experiencing growth spurts this year, big or small, is taking them from Meta’s former share. All of this comes as the company begins its big pivot to the Metaverse in earnest, something that it had been relying on continued strong ad revenue to facilitate. CEO Mark Zuckerberg believes that online virtual reality is the future of computing, the new standard for internet use that will be in place by the 2030s. But the company has thus far invested just about as much money in the project as it is projected to lose due to Apple’s privacy changes, about $10 billion going in each direction in a year’s time. Facebook has responded to the new circumstances by refining its advertising engine to copy the more generalized group-based approach used by Google and Snap, but some industry analysts believe it is months behind its competition and may continue to struggle to catch up.