Apple’s IDFA Deprecation Part 2: Winners and Losers – The business models that will excel and those who will struggle.
Apple’s announcement of the deprecation of the IDFA has dominated the mobile app ecosystem’s attention since June 2020, and while it is sure to affect the entire ecosystem, the industry is scrambling to plan and react to this massive industry shift.
In speaking and strategizing with dozens of app developers and publishers around the world over the past several months, AdLibertas has assembled some thinking into what the leaders are doing to plan, prepare and adapt.
This three-part series is our assessment of what’s to come for the mobile app industry, which apps are poised to win or likely to struggle, and how app developers can prepare and adapt.
- Part 1: Where will the impacts be felt? How are app developers preparing now, and how will they drive revenue in the near-term?
- Part 2: What types of apps are most exposed to risk – and most poised to thrive?
- Part 3: How will Apple’s privacy changes change mobile apps in the long term?
If you’re a mobile app developer, what does your next year look like? Share your thoughts either in the comments or directly at adam@adlibertas.com.
Photo by Anton Maksimov juvnsky on Unsplash
Introduction
Apple’s privacy changes are soon to hit. In short these privacy policies makes user-tracking across apps difficult, which is important because user-tracking has become an important mechanism for mobile advertising. The majority of money in the mobile is made via advertising – 2X the amount earned by in-app purchases according to App Annie’s September report.
Today, the most successful apps are heavily dependent on growth for success. This growth driven is driven by targeted user acquisition, finding users that will convert into earnings for the mobile apps. Post IDFA deprecation finding these high-value app users will be more difficult and expensive now that the granularity of targeting will be impacted.
Another breed of apps that are successful today earn money by selling users to the highly-targeted “whale hunters”, they earn massively disproportionate CPMs by trading users back to performance advertisers. Because targeting will be less effective for marketers, the recipients of high-CPM ad units will likely see CPMs fall drastically.
Photo by Anton Maksimov juvnsky on Unsplash
The Losers:
Given the changes in earned CPM and user-targeting there are 3 main app business models at risk post IDFA Deprecation:
Apps with a long ROI on marketing spend, by nature have apps run thin-margins and face long-term ROAS. These are usually ad-supported apps that monetize their users over many months – if not years. Facing lower CPMs, new users will take longer to turn an ROI. This will stretch cash flow and put these businesses at risk.
Apps that earn the majority of their revenue from very few users. “Whales” are a small group of players – 2% according to ironSource–earn the majority of the revenue. In most cases these are apps that rely on whales to make a disproportionate percentage of revenue. These whales are generally found through highly targeted performance advertising, which is predicted to be harder—read: more expensive– to find and acquire.
Conversely the apps that serve as feeding grounds for performance advertisers will feel downstream affects. These apps earn disproportionally high rates of spend from performance advertisers in the highly competitive search for valuable users. These apps tend to show high-CPM reward videos and full-screen ad rates from advertisers. But as performance advertisers struggle to find and acquire these users the competitive bidding will shrink, lowering the rates of these apps (Eric Seufert walks through the math in an excellent example).
Photo by Benjamin Dada on Unsplash
The Winners:
The news isn’t all bad. The apps that plan, analyze and react accordingly stand to come out the winners after IDFA Deprecation
Apps with loyal users Retention is an often overlooked lever for growth and profitability. In the historically explosively growing mobile app market it was relatively easy to acquire new users but as costs rise, a natural shift to user retention will follow. After all, it’s 5-25X cheaper to keep an existing user than find a new one. Apps will focus on better product design to engage users more effectively, expand offerings and keep them in the app longer. This will lead to a higher user-LTV, reducing the need for higher marketing costs.
Apps pushing subscription & IAP: Hand-in-hand with better product design is the focus on enticing users to pay for items in the app. We’ve already seen this from our customers, the dependency on advertisers for revenue earnings makes for a riskier business model. Falling ad revenues will drive apps to focus on direct user-subscriptions and purchases to monetize content.
Apps with good metrics & measurement: more than ever charting the path to ROAS will be important but equally important are the subtleties of the new attribution models that will allow apps to fire “Conversion Value” events to help the buyers optimize marketing campaigns. This means apps who can find day-0 indications of success & failure will be able to optimize marketing more effectively. This is deceptively hard for mobile apps and will require a significant investment into analytics.
Penetrate new markets & develop new growth methods quickly – there is wide speculation on why Apple is making this change – from regaining control of distribution to inflicting pain to rival tech giants – but one thing is clear: the distribution models will be changing. The apps that can adapt to new markets—such as third-party app stores or a new offering (Facebook Streaming Platform?)– can quickly outpace competition in gathering new users. A popular trend has been app acquisition, in some cases buying a large group of users in way of another application’s user-base can make sense.
Photo by ThisisEngineering RAEng on Unsplash
Quod Erat Demonstrandum
As early spring is right around the corner, the one constant is no one knows the full extent of the changes IDFA deprecation will bring to our industry. As we covered in part I of this series, there will be pain and app developers are still shooting at a moving target.
While there are a host of unknowns, there is some solace that in many ways the recipe for success is no different than any industry: companies with thin-margins, long marketing ROI and narrow earning-concentrations are risky and are apt to feel the pain whereas businesses that focus on high quality product, direct monetization paths, acute measurement and adaptable models are in a position to take advantage of the market shift.
AdLibertas Audience Reporting: Event Revenue Performance
For years we’ve seen mobile app developers struggle to collect the vast-amounts of user data then and make those terabytes of information usable.
- Does user-registration increase user retention?
- Does heavy first-day usage indicate higher LTV?
Traditionally these questions have been very difficult to answer, so we’ve built Audience Reporting, the industry’s first user event-based revenue reporting.
Do you want to see how the LTV of your users is impacted by user event or action?