Apple and ATT
Apple and ATT
5

Apple Overplayed Its Hand

We have written in the past about Apple’s upcoming App Tracking Transparency (ATT) changes and their impact on ad publishers. In recent days, information has emerged that throws a spanner in the works for Apple’s plan.

-George Hadjia

 

We have written in the past about Apple’s upcoming App Tracking Transparency (ATT) changes and their impact on ad publishers. In recent days, information has emerged that throws a spanner in the works for Apple’s plan. It involves China and some difficult decisions Apple is now faced with.

As a recap, the ATT involves the deprecation of what is called the Identifier for Advertisers (IDFA), meaning that the activity of users across apps cannot be tracked unless that user specifically consents to that via a prompt every app must show. The expectation is that opt-in rates will be low, hurting the business models of companies that rely on third-party data for targeting and attribution (which basically all advertisers do to varying degrees). This ATT initiative has been slated for “early Spring 2021” and would be rolled out globally. Or so Apple thought.

A number of Chinese big tech companies have been experimenting with a tool that aims to bypass Apple’s new privacy framework, allowing them to continue tracking iPhone users without their consent in order to collect data and serve them personalised ads. This poses a major conundrum for Apple, and it appears that they failed to fully consider the second-order unintended consequences of the ATT framework.

The China Advertising Association, comprised of 2,000 members, has launched this new iPhone tracking framework called the CAID. It is currently being widely tested within the country, as reported by the Financial Times. ByteDance, the parent of TikTok, commented on the CAID in a memo to developers, stating that advertisers “can use the CAID as a substitute if the user’s IDFA is unavailable”. This clearly runs afoul of the spirit of the ATT framework, which ostensibly serves to give users greater control around how their data is collected and used. So why does this matter?

Given that the CAID is a state-backed initiative, if Apple tries to fight it, they are in effect pushing back against the will of the Chinese Communist Party (CCP). The CCP knows the power they hold in this confrontation and are almost certain to not cede any ground to Apple; they will proceed with the CAID as they wish. They know that Apple is hamstrung by its deep dependence on China. While Apple has said publicly that they will not grant exceptions to its privacy rules, they might be forced to in this instance.

Apple could perhaps choose not to grant any exclusions. However, outside of the grim practical realities of enforcing its rules against the large swathe of Chinese companies that act defiantly, such a move would very badly damage their relationship with China. Would Apple choose to kick all of these non-compliant Chinese apps off of its Chinese app store? This would eliminate a key high margin revenue stream for Apple, and could potentially be even more problematic. Apple doesn’t hold the same power as an ecosystem in China as it does in the West. Being on iOS as an operating system is much, much less important than being on the WeChat app in terms of how Chinese netizens conduct their lives. Banning Chinese apps from the App Store could in a worst-case cause a defection of Chinese mobile users into the Android ecosystem. This would be very ugly and clearly a situation Apple would seek to avoid, particularly given the importance of China as a growth engine for Apple’s business.

It is also worth noting Apple’s supply chain dependence on China, with potential disruptions here if Apple’s relationship with China were to deteriorate significantly.

An alternative is that Apple could choose to allow Chinese companies to be exempt from these rules, whereas all other nations need to abide by the ATT policies. This situation would cause a furor in the U.S. and would likely be untenable. It would also be a PR disaster for Apple, especially given a political environment supporting a bipartisan hawkish stance on China.

Maybe Apple instead walks back some of the restrictions of the ATT framework as they relate to the SKAdNetwork tool. At a minimum, it seems likely that these developments will delay the implementation of the ATT and could see material changes to it. This would be an about face for Apple, but it’s perhaps an outcome they’d prefer rather than losing real dollars. Apple almost certainly has overplayed its hand in a thinly-veiled attack on Facebook’s business model. Where things progress from here will no doubt be interesting, and keenly watched by the Montaka team.

 

Montaka owns shares in Apple and Facebook.

George Hadjia is a Research Analyst with Montaka Global Investments. To learn more about Montaka, please call +612 7202 0100.

Our Montaka Global Long Only strategy strives to act as a core, high conviction, global portfolio holding. Consistent with the long portfolios in our Montaka strategies, this offering is focused on owning the world’s high quality, undervalued businesses – and cash when appropriate – to outperform its benchmark.

Our Montaka Active Extension strategy strives for maximised return over the long-term. Owning the Montaka long portfolio typically scaled up to approximately 130 percent - and the Montaka short portfolio typically scaled down to approximately 30 percent – this strategy results in a net market exposure of approximately 100 percent most of the time.

Our Montaka variable net strategy strives for significant downside protection – but with minimal upside reduction. Focused on owning the world’s great and growing businesses when they are undervalued, while managing a portfolio of short positions in businesses that are deteriorating, misperceived, and overvalued, this strategy is our flagship long-short

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Our Montaka Global Long Only strategy strives to act as a core, high conviction, global portfolio holding. Consistent with the long portfolios in our Montaka strategies, this offering is focused on owning the world’s high quality, undervalued businesses – and cash when appropriate – to outperform its benchmark.

Our Montaka Active Extension strategy strives for maximised return over the long-term. Owning the Montaka long portfolio typically scaled up to approximately 130 percent - and the Montaka short portfolio typically scaled down to approximately 30 percent – this strategy results in a net market exposure of approximately 100 percent most of the time.

Our Montaka variable net strategy strives for significant downside protection – but with minimal upside reduction. Focused on owning the world’s great and growing businesses when they are undervalued, while managing a portfolio of short positions in businesses that are deteriorating, misperceived, and overvalued, this strategy is our flagship long-short