Key Points
- The removal of automatic user tracking from the App Store has caused major signal loss for advertisers, with big players like Meta stepping in to develop alternative solutions.
- Through AI & its Advantage+ Shopping Campaigns algorithm, META has the potential to rebuild detailed social graphs and facilitate improved & optimized ad targeting.
- With ad spend in flux due to macroeconomic turbulence, AI could drive improved campaign performance which if successful, would drive incremental dollars to its platform.
- The metaverse looks theoretical at this point with significant remaining challenges to longer-term adoption.
In June 2021, Apple responded to an evolving privacy landscape in a way that significantly impacted digital advertisers. With the release of iOS 14, Apple removed automatic user tracking in the App Store.
Prior to losing this signal, advertisers were able to build up a detailed mosaic of user behavior and preferences and see where advertising had influenced purchasing decisions. This meant that companies could effectively target & measure their ad spend – which meant that advertising platforms could prove their worth.
Losing the signal made it much more difficult for certain platforms to show that buyers were influenced while using their products. This hit Meta (through Facebook and Instagram) especially hard, impacting revenue by 10%. Now companies are coming to terms with the fact that the Apple signal is gone for good, and grappling with how to rebuild highly valuable social graphs in pursuit of increased market share.
The Advantage+ Shopping Campaigns algorithm points the way
The foundation of Meta’s signal loss rebound strategy is the development of Advantage+, which leverages an algorithm that combines bigger AI-generated audiences and real-time conversion feedback allowing for higher return on ad spend for Meta’s customers. Despite the impact of Apple signal loss, Meta has an advantage over many other platforms — users tend to input more data into apps like Facebook than they do onto platforms like Twitter. A big shift is in play, from client-side tracking to server-side tracking, and Meta is well placed to leverage this.
“Essentially, Meta’s Advantage+ appears one of the key alternatives in the new world of targeting, which is really around connecting advertiser platforms like Facebook & Instagram back to the advertiser's data.”
Brad Erickson, Internet Services Analyst, RBC Capital Markets
Meta’s new algorithm allows advertisers to provide dynamic data to Facebook that analyzes campaign effectiveness in real time, and leverages AI to continually optimize performance. The old, pre-signal-loss model involved advertisers making manual changes to campaigns based on the audiences they believed to be the best fit for their products. But algorithms like Advantage+ are being used to replace this human component of ad targeting, with promising early results.
Can Meta help advertisers recover from signal loss?
There’s no denying that the timing of this signal loss event creates significant challenges for advertisers, especially considering the volatile macreconomic outlook. Although the path to signal loss recovery is still evolving, RBC has seen encouraging signs that Advantage+ is playing a crucial role in this more privacy-conscious age.
“We've heard evidence of Advantage+ just in the last month that it's really starting to work,” says Brad Erickson, Internet Services Analyst at RBC Capital Markets.
A range of macroneconomic factors have driven ad spend cutbacks in recent times, such as fluctuating gas prices, supply chain headwinds, rising import costs, and general uncertainty over the future state of the economy. This has had a greater impact on small and medium businesses, which have been quicker to tighten budgets, in contrast to larger companies, where spending often stays more resilient. However, there’s no doubting that Meta’s new algorithm is an attractive proposition to businesses of all sizes.
The future of the metaverse
Meta’s other big project right now is its forays into the metaverse. The metaverse has the potential to become the next leg of the internet, much like of the worldwide web and mobile applications. Just like every business has some form of web presence, the metaverse could become a standard component in everyone’s marketing mix.
However, as with websites, driving users to the metaverse will remain a challenge for many. Access is currently facilitated through expensive hardware and doesn’t have the stakeholder buy-in that drove the mass adoption of smartphones. Due to its decentralized technology, similar to blockchain, the metaverse will also have significant compute intensity and there’s an outstanding question of how that demand will be fed. The implementation of semantic search, which allows users to leverage AI to affect changes within the metaverse, is another significant technical challenge.
Despite these challenges, the metaverse has some true believers. It’s been touted by some as having a potential market value of trillions of dollars, and companies like Meta and Microsoft are sinking significant investment into the space.
Tune in to the full podcast episode to get a deep dive on the wider context of a transformed data privacy landscape, the impact on ad spend and campaign targeting, and find out why Mark Zuckerberg is investing so much in the metaverse.
