Inside Apple's Plan To Become An Advertising Monopoly - The Hated One
There is something going on behind the scenes at Apple that manifests in this graph.
The line shows a change in how many apps people installed when they saw ads from Apple’s own advertising network.
In less than a year, the volume has doubled. Why is there such an immediate spike and what exactly is going on?
Over the last two years, I closely observed Apple’s dramatic shift in their business model. This is something they never admitted openly, but they left enough crumbs of evidence that lead to a very clear conclusion.
This sudden spike is not an outlier. It’s a pattern that will dictate a new direction that the most valuable company in the world has already taken. Let me show you what this pattern is and why it should completely reverse your outlook on the whole company.
Services vs devices
For years, the big tech has realized the best way to make money is when people use their services, not when they buy their devices. Microsoft, Google, Amazon went all-in on this strategy.
This business model means customer data is monetizable, which means the more personal information they collect, the more valuable their service becomes to their real clients - the advertisers.
Some took this strategy to its extreme and sold their devices at break even. The idea is to make money when people use the devices, not when they buy the devices.
Companies can still charge premium prices for hardware and software, but eventually they will turn on the data pumps and begin cashing on. Licences for Microsoft Windows have always been sold for hundreds of dollars. But with each new iteration of the operating system, Microsoft turned up the data collection and introduced more ads into the desktop.
It doesn’t matter if the company primarily sells hardware or software, their privacy policies will keep getting longer and broader to reflect their increasing appetite for your personal information.
Shareholder primacy
The reason for this norm is an economic doctrine known as the shareholder primacy. It’s a dogma that dictates the only social responsibility of a business is to increase profits for its owners. Legal scholars don’t agree whether this is positive law or just a dogmatic belief. But it is definitely a widely accepted and expected practice.
CEOs are assigned their positions with the sole responsibility. If they don’t deliver, they don’t just get fired. They get sued. We often hear moral speeches from executives but corporations aren’t run by principled ideologues. They are owned by investors who only care for one thing - that their numbers are higher than the quarter before.
But then, there’s Apple. The sole outlier that markets itself as an opposition to the standards of the big tech. They could have monetized their customer and they would have made a ton money but they’ve elected against it.
This makes it look like as if the rules of the game didn’t apply to Apple and that somehow this most valuable corporation can afford to go against its own bottom line.
With the exception of all but one aspect, Apple has emulated the same business model observable across the big tech.
They hooked millions of people into their ecosystem, making them volunteer vast amounts of highly personal data available exclusively to Apple. Their broad range of products generates so much information about peoples viewing, listening, or browsing habits the company has been sitting on piles of cash they seemingly never touched.
So for how long can we expect a publicly traded corporation with a fiduciary responsibility to their shareholders to refuse tapping into one of their potentially most valuable revenue sources?
Well, looking back at this graph, the paradigm shift is already happening.
Ad expansion
For now, Apple’s primary source of revenue has been selling hardware. But that market is dwindling as smartphone sales are on the decline.
But luckily for Apple, the corporation has a services division. And every year, its significance at the company is growing.
This is a graph that shows Apple’s revenue by product category. It shows a gradual but visible trend of the declining strength of hardware and accessories and the growing share of revenue from Apple’s services.
The services include subscription models but they also include a newly emerging and strategically inevitable advertising division.
Right now, Apple makes about $4bn annually from ads. But they are seeking to triple that number into double digits as soon as possible. And by 2025, Apple is projected to generate $20bn annually from ads on their network.
Apple has its own advertising network called Apple Search Ads. Not many people are aware of this but investors and developers are paying close attention. Because Apple Search Ads is on the path to dominance.
This is a graph that shows the share of total installs from different advertiser networks. There is a gradual increase in the share of Apple Search Ads, until the sudden spike in April 2021.
This graph puts the trend from the line in the introduction of this video into a better perspective. Something is happening that makes Apple’s ad algorithm suddenly more lucrative than all of their competition.
That something, happened when Apple released iOS 14.5 in April 2021.
When Apple released iOS 14.5, it implemented a feature that would prevent third party developers from tracking iPhone users with an advertiser ID. This ID was built into the operating system to help advertisers track users across apps and websites. Before, all users were opted in by default. Now developers would first have to seek user permission with a prompt to allow or deny this tracking.
This move was almost uniformly applauded across all media and news outlets as a transformative milestone that challenged the whole industry.
But this wasn’t so much an improvement in privacy as it was a major step towards consolidating the ad market in Apple’s ecosystem.
The rules on the advertiser ID opt out didn’t apply to Apple’s own ad network, because it was using different IDs. That meant Google or Facebook could no longer target users with the same precision but Apple kept that ability for themselves.
So while everybody was busy celebrating Apple for standing up to the privacy invasive big tech corrupted by the sweet ad money, Apple was quietly monopolizing the ad market and expanding their own advertising operation. This strategy paid off tremendously. In just one year, app installs from Apple’s ad network skyrocketed from 17% to 58% in just one year. The online ad business is a $500bn market. Apple is already on the path to capture a large chunk of it.
Privacy product
But with this ad expansion also comes more data collection.
Anytime you use the App Store, one of the key spaces for Apple Search Ads, the corporation collects a set of data that is accompanied by a string of numbers tagged as DSID. This is a Directory Services Identifier and Apple uses it to uniquely identify Apple ID and iCloud accounts – the one iPhone users need to sign in to all Apple products and services, including on phones, laptops and wearables. Since Apple users are required to provide personally identifiable information when creating an Apple ID, this means Apple is personally identifying usage data with specific individuals.
The most egregious thing about this is that information on the DSID wasn’t publicly available information until security researchers discovered it by analyzing traffic on a jailbroken iPhone.
Their research also discovered Apple collects detailed device analytics from users iPhones. The collected data sets include details about how you use the service, what you search and browse for, what you install and every tap you make. Apple would collect all the detailed information even if users specifically opted out of all Device Analytics sharing. The research found disabling the toggles would have no effect on the data collection whatsoever.
This tracking is not just on the App Store. Researchers found this is happening across the iTunes Store, Apple Music, Apple TV, Books and Stocks. All of these are tracked with a consistent ID that uniquely identifies an individual user. If you created an iCloud account, the same DSID is used to track you there too. All of these apps are places where Apple is building and expanding their ad network.
Lawsuit
Apple is in a hot water right now because using unique identifiers generated for individual users is classified as tracking under several jurisdictions, including the European General Data Protection Regulation. According to Apple, unique identifiers are not personal information. And according to their privacy policy, that gives them the right to do with your data whatever they desire – including sharing it with third parties and partners. But according to the European legislation, anything that identifies a person, including a random string of numbers, is personal data.
Apple is already facing a class action lawsuit as a result of these reports. Lawyers are calling Apple’s privacy promises illusory and seek retribution for collecting private data of their customers without their consent.
None of these revelations are mishaps or unintentional mistakes. Apple has carefully and very intentionally designed their practice to be this way.
When they were rolling out the option for users to opt out of tracking, they defined tracking in a very deceptive way. According to Apple’s policy, tracking is only when a developer links the data they collect from you with the data they can buy from third parties. So when Apple tracks your activities across different services with a consistent identifier tied to your identity, it is by definition not tracking. Because Apple doesn’t do tracking. It is just consolidating all of your data under one ecosystem that they process, analyze and monetize. But it’s definitely not tracking.
When Facebook was connecting your personal information with profiles from data brokers, that was a privacy invasion. When Apple entered into a data-sharing partnership with Facebook to collect information on you and your Facebook friends, that’s not something you should even be told about.
So while everyone thought we should give Apple praise for their bravery to stand up to the big tech, Apple in its candid nature continued profiting off of their users data in the same way they accused everyone else of doing.
So let’s think different here for a second. What exactly is it that Apple is doing differently from the rest of the ad-driven big tech industry?
Solution
Apple has made the definitive decision to make advertising an ever increasing part of their business model. This shouldn’t be surprising when you take a quick look at their record.
Apple is the company that frequently ignored user consent, they have been secretly collecting personal data without telling their users, and they enable governments exclusive access into the content of people’s most sensitive information. And their privacy policy is full of data collection practices that allow Apple to know and share anything that you do on your iPhone.
The real issue though is trust. If you have to trust anyone with your data, you don’t have control. So if you trusted Apple wouldn’t violate your privacy and know realize you’ve been misled again, there is a way out. Use services you don’t have to trust. That’s a pretty consistent benchmark.
For instance, you have to trust Apple with the decryption key of your iMessage conversations. Instead of iMessage, use Signal. It encrypts your messages end-to-end without ever having access to your keys.
Don’t trust Apple with managing your online accounts through your Apple ID. Use something like SimpleLogin instead. Manage your passwords and online identities with Bitwarden.
Even better, don’t trust Apple or anyone at all and use GrapheneOS. The most secure and fully de-Googled mobile operating system. It will run every app you need without giving any of them access to your identifiers. You can run multiple profiles to isolate invasive apps from your personal data. And so much more that I already covered in separate videos.
You can gradually replace privacy invasive services with alternatives you can use without trusting them.
I can give you this advice honestly because I don’t take any sponsors or affiliates that could taint my recommendations. This channel is viewer-funded so if you want to see more of my investigations, explainer videos and essays on topics similar to this one, please support me on The Hated One | creating video essays on privacy, monopoly power, corruption | Patreon.
Thank you.
