Apple will soon require consumers to opt in if they want to allow businesses to track their data and use it for personalized advertising. Facebook is fighting this decision with an aggressive ad campaign, citing evidence that the decision will hurt small businesses. But that evidence turns out to be false, as Facebook surely knows.
On January 28, at the Computers, Privacy, and Data Protection conference, Apple’s CEO, Tim Cook, spoke about the importance of giving users more control over how their data is used for online advertising. To that end, Apple’s new operating system will soon require consumers to opt in if they want to allow businesses to track their data and use it for personalized advertising.
Facebook, which relies heavily on personalized advertising, responded fiercely to this decision, placing full-page ads in the New York Times, the Wall Street Journal, and the Washington Post that accuse Apple of hurting small businesses. Facebook has also created a website where small businesses can voice their concerns about Apple’s decision.
To properly evaluate this claim, you first need to understand the popular metric that Facebook used here to quantify advertising success: return on ad spend, or ROAS. The metric indicates the amount of revenues associated with advertising — but it does not indicate the amount of revenues caused by advertising.
To understand why this difference matters, imagine a company that knows its customers very well. It can predict with a high degree of accuracy how much a customer will spend in the coming month. If the company targets its advertisements to those customers who are expected to spend a lot, each dollar spent on advertising will be associated with high revenues. That’s great — the company has achieved a high return on ad spend. But here’s the thing: These customers would have generated high revenues anyway. That’s why they were targeted in the first place. So it would be a mistake to conclude that these customers spent more because of the personalized ads.
In its campaign against Apple’s new policy, Facebook is claiming that when it compared the ROAS for campaigns that leveraged personalized information with campaigns that didn’t, it found that small businesses would suffer a 60% cut in revenues if they were deprived of personalized advertising.
That scary-sounding number, however, is almost certainly too high. Randomized controlled trials that compare personalized advertising with no advertising tend to reveal much smaller differences.
The problem with the 60% figure is that Facebook doesn’t report anything about the two kinds of campaigns it was comparing. For all we know, they might involve different industries, different companies, different products, different times, different places — and if they did, then Facebook’s comparison wouldn’t mean much. In fact, it might just show that companies who knew their customers well achieved a higher return on advertising spend than companies that didn’t.
That isn’t the only problem with Facebook’s argument.
According to Facebook, Apple’s decision is especially damaging during this pandemic, because, as Facebook’s ads and website state, “Forty-four percent of small to medium businesses started or increased their usage of personalized ads on social media during the pandemic, according to a new Deloitte study.”
That number seemed off to us, so we took a close look at the Deloitte study — and discovered that Facebook reported the number incorrectly.
In its study, Deloitte asked companies from nine industries whether they increased their use of targeted advertising on social media during the pandemic. The industry with the largest increase was Telecom & Technology, but the increase was only 34%. Other industries had much smaller increases. Professional-services firms, for example, had an increase of only 17%. Facebook, it seems, cherry-picked the data that best supported its case — and then increased the size of the cherries it picked by a third.