Apple’s Advertising Long Play

My big takeaway following Apple’s WWDC keynote is that they are serious about blunting the surveillance economy that drives Facebook and Google’s businesses and now are pushing to stymie the capabilities of smaller players that depend on email tracking like Hubspot, Mailchimp, Klaviyo, etc. Their devices and platforms are used by the most affluent and desirable consumers around the globe so their decisions on data protection are important and influential for the whole advertising industry.

Apple professes the most noble of intentions and has crafted a large part of their hardware and services marketing around the safe walled garden that they continue to build. I think this is great marketing and Tim Cook is a much more likable leader than Mark Zuckerberg. It has been well documented that there is no love lost between the two.

The good vs. evil narrative is an easy sell but Apple is undoubtedly building some sort of advertising business where data equals dollars. Lost in the controversy of the hiring and subsequent firing of Antonio García Martínez is why he was brought on at Apple in the first place. Antonio vaguely explains his role as “working on a new ads privacy product…building a future version of an ambitious ad platform, working on data, ad targeting and privacy…at the one company that could actually make it happen” in an interview with Peter Kafka.

Advertising isn’t new at Apple, Steve Jobs envisioned a mobile platform decade ago with the launch of iAd with iOS 4.0 in 2010.

It never gained any traction as Facebook and Google grew to dominate mobile advertising.

Where creative and impressions from the forthcoming iteration of Apple’s ad product will be served up and what they look like is speculative but Podcasts, Music, TV, Fitness, Arcade and News all seem like the most logical homes in their current services portfolio. Ad supported versions of TV and Music could help them compete with some of the emerging AVOD platforms like Pluto TV, which is projected to do over $1 billion in ad sales for CBS Viacom, or Spotify in audio.

The problem for Apple is this is all chump change relative to their market cap. They would need to add the value of Netflix to increase their valuation around 10%.

Advertising accounted for $84.2 billion of Facebook’s revenue of nearly $86 in revenue last year. If Apple can find a way to capture half of that it could theoretically amount to an additional $400 to $500 billion in market capitalization adding roughly 25% to their current valuation. YouTube generated nearly $20 billion in revenue for Google last year without the costs of original content creation and marketing that Netflix, Disney and other streamers face but I don’t think this is a market that Apple is going to after.

If Apple forces the industry to largely work from the same broad set of targeting profiles for ad campaigns, leverage their install base of 1.7 billion plus iOS devices and reputation for brand safety (no porn in the App Store, etc.) to take a significant share of the digital ad market place. If Apple’s new ad platform gains traction in could also shift brands to more broadly focused brand creative campaigns and entertainment integrations away from the direct response formats that micro target audience segments using Facebook and Google’s targeting tools.

The question then becomes what is the reputational risk to the value of Apple’s brand equity by going all in on the ad game? Getting into the mud with Facebook, Amazon and Google is going to be a messy battle with all three companies under scrutiny from global regulators for anticompetitive business practices.

Apple’s brand is their most valuable asset estimated by interbrand to be worth around $323 billion by Interbrand in 2020. I think that estimate is conservative when you look at their expanding margins. How much of that equity is put at risk by jumping into advertising game and losing the high ground on the privacy debate? How much damage will the continued hypocrisy of being embedded with the CCP in China while championing privacy as a human right do?

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