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Shares of Facebook parent Meta were hammered Thursday, falling 26% after the company revealed that privacy changes Apple made to its iOS platform last year have begun to sink their teeth into the social networking giant's bottom line.
During its Q4 earnings report released Wednesday, Meta CEO Mark Zuckerberg explained that Apple's App Tracking Transparency feature, or ATT, will cut $10 billion out of Meta's earnings in 2022.
Apps like Snap and Pinterest, however, appear to be faring better in handling the change — Snap says its advertising partners are adapting well to the new system.
So what exactly is ATT, and how can it have such an outsized impact on some of the biggest social networks around? Here's what you need to know.
What is App Tracking Transparency?
Let’s start with the basics. Your iOS and iPadOS devices have what’s called an Identification for Advertisers software tracker, or IDFA. An IDFA is Apple’s randomized identifier that allows advertisers to track your activity across apps and the web without pulling in your personal information.
Tracking your activity is important for advertisers, because it allows them to send you targeted advertisements and determine how successful their advertising campaigns are. So if you are looking at a lot of pet-related websites, IDFA can help advertisers send you ads related to pet food or toys.
Apple, however, has been pushing privacy as part of its product line for the last few years, and previously made moves to limit the ability of companies to track certain user activities via its Safari browser.
That’s where App Tracking Transparency comes in. The feature, which was first made available as part of iOS 14.5 in April 2021, provides users with a pop-up window when they open an app that asks if they want the app to track their data.
When a user chooses not to be tracked, which they do more often than not, IDFA technology becomes useless, and advertisers can't see the kind of sites you visit. Apple has introduced a replacement for IDFA that it says is more privacy friendly, but Meta and Snap have criticized it for being less efficient than IDFA.
Why is that a problem for Meta?
Meta generates the vast majority of its revenue through, you guessed it, advertising. If advertisers can’t target specific demographics with ads or properly measure how effective those ads are, they'll go elsewhere for their advertising needs.
Meta claims that the hit from ATT is harming not just its revenue, but small businesses that rely on the company's ad services to reach the appropriate customers.