Apple’s IOS 14.6 Blocking of Ad Tracking Just Generated $26 Billion in App Store Revenue

By now, the rollout of Apple’s IOS 14 update with the ability to block advertiser-based tracking and ad targeting has started to move well beyond the knowledge of media buyers and those who follow the stocks of companies such as Apple (AAPL) and Facebook (FB) and into mainstream consumer awareness. But in Apple’s quest to offer consumers both privacy and a secure platform, they have all but guaranteed a hyper acceleration of Apple’s App Store revenue that could dwarf the $64 billion it earned in 2020.

And the source of that acceleration will most likely come at the expense of a global $455 billion dollar ad marketplace.

If there is one business objective that Apple has made a clear priority, it is in defending the current revenue stream earned in the form of a 15-30% commission on digital subscriptions and in-app purchases on non-physical goods. Faced with mounting anti-trust and monopoly accusations from corporations and government bodies alike, it is quite fair to say that the current $64 billion revenue stream is facing headwinds.

Then there is the $455 global ad marketplace which as of today, $56 billion of paid media runs on Apple mobile devices. Apple’s traditional 30% cut alone would be worth $16 billion to the Apple App Store if ads were somehow tied to a digital transaction or subscription. But today, they are not, and Apple exited the ad business a long time ago.

With 2 billion apps in the app store and 97% of them being free a significant number of them from CNN to a simple calculator app monetize their app through paid ad placements as opposed to a subscription hence circumventing any opportunity for Apple to take a cut.

Those ad placements to media buyers, media buying agencies and advertisers alike only have value because of the ability to both target the right customer and track the actions of that customer back to the advertiser’s website. With apple eliminating those abilities through IOS 14, those ad placements will generally see both demand and revenue back to app developers fall significantly and possibly to the point where there is little value to developers and publishers in even having ads on those apps.

Developers and publishers do not generate a significant amount of revenue from advertisers to begin with since some 80% of potential ad revenue goes to technology platforms, data companies, intermediaries, ad exchanges, ad servers, media agencies and so on. So, any sort of reduction in ad pricing and value to advertisers will have an overweight impact on publishers and developers making it an almost certainty they will search for alternative monetization strategies.

Many publishers such as CNN have already started to include messaging around their pop-up ad tracking opt-in windows warning consumers that ad tracking funds the app or in some cases developers are flat out stating that opting into the app will help to keep the app free in the future.

Just about every option which developers will have to consider from will involve some form of a digital subscription or an initial charge to purchase their app.

With an installed user base of 728 million iPhone users, if the average customer had to start shelling out $10 a month to use their favorite apps which previously were free and based on ad-supported models, that represents about $26 billion a year in potential new App Store subscription revenue.

Apple has a long-standing history of being several steps ahead in terms of both product and business innovation. But even for Apple, it does not take a free ad-supported calculator to run the numbers to see that blocking of ad tracking and targeting on Iphones is a smart financial move.