How Apple pushed its ad-vantage

Apple is beginning to build its own ad empire just as its iPhone privacy crackdown weakens key ad-supported rivals.

The big picture: In the middle of a broader downturn in the online ad market, Apple’s move to limit the way apps track user behavior kneecapped competitors like Meta, even as users embraced it.

Why it matters: Apple has long touted a privacy and security advantage for its products over alternatives like Google's Android and Microsoft's Windows. But the simultaneous rollout of Apple's ad expansion and privacy changes has stoked criticism and could draw the attention of antitrust regulators.

Driving the news: Apple is planning to expand its advertising business significantly by placing more ads directly on users' devices, Bloomberg reports. 

• The expansion would include bringing ads to more of Apple's own apps on iPhones and iPads, including Apple Maps. 

Between the lines: The company has reportedly begun to reorganize its services team — the internal division responsible for making money from apps, media and other "soft" products — to cushion its business as growth slows in hardware sales.

By the numbers: Last quarter, Apple said it made $19.6 billion from services like advertising, the App Store, Apple Music, iCloud, Apple News, Apple TV+ and Apple Pay — representing nearly 25% of its quarterly revenue.

• In the same quarter five years ago, services represented just 13% of Apple’s overall revenue.
• Apple doesn’t break out how much of its services revenue comes from advertising, but a Bloomberg report suggests the company currently brings in around $4 billion annually in ad revenue. 
• Analysts estimate that Apple's ad business could reach $6 billion by 2025. For comparison, Snapchat, which receives almost all of its money from ads, brought in $4.1 billion in revenue last year. Twitter made $4.5 billion in advertising last year.

Catch up quick: Apple’s ad business began to boom following changes it made last year to its app tracking policies that made it easier for iPhone users to opt out of being tracked across other apps on their phones.

• For companies that rely heavily on that user data, the changes made it much harder to efficiently target people with ads online.
• The changes were also devastating for companies like Meta and Snapchat that rely on that data to power their advertising offerings. 

Meta has waged a huge lobbying campaign against Apple’s changes, arguing they make it harder for small businesses to find customers. 

• But the company has its own reasons for pushing back. Meta executives said they would lose $10 billion in ad revenue this year in response to Apple’s changes. 

Between the lines: Apple began pushing privacy long ago, but it landed heavily on the selling point in the wake of Facebook's many data spills and privacy calamities, including the Cambridge Analytica scandal.

• That "privacy narrative," some are now arguing, helped it introduce its anti-tracking plan without being cast as a corporate predator.

Be smart: Apple’s biggest source of ad revenue is search advertising. Data shows that Apple’s privacy changes have significantly shifted ads that promote app downloads from companies like Meta and Snapchat to Apple. 

• Analytics firm Branch found that in the first half of the year, Apple's in-house search ads were responsible for around 50% of iPhone app downloads resulting from clicks on ads for the first half of this year, up from around 20% in April 2021 before the company rolled out its privacy changes.

What's next: So far, regulators have yet to pay too much attention to the issue.

• That’s likely because the biggest voice rallying against Apple’s changes right now is Meta, which faces its own plethora of competition issues. 

Go deeper: Apple's privacy changes eat rivals' businesses