Why Apple's iOS 14.5 update is a ticking time bomb for Facebook

Do you ever mention a product or service on Facebook's messenger, while casually chatting with your friend, and eerily find ads for the product on your newsfeed the following day, as though Facebook has been listening to your conversations?

Thankfully, Facebook does not listen to our conversations. However, it does track our activities very closely using data from both in-app and off-Facebook activities. 

Facebook's business model is simple - it lets businesses advertise on its platform in exchange for a fee. Therefore, Facebook uses user data to optimise ads. This ensures that the ads can accurately target the most relevant audience for the businesses.

So, evidently, Facebook's revenue model revolves around user data. However, more often than not, Facebook does not explicitly seek consent when collecting user information from off-Facebook activities.

For instance, Facebook leverages its in-house technology to get data from thousands of off-Facebook applications. 

Facebook provides Social Plugins to other apps and websites to allow users on those platforms to share in-app content on Facebook. These plugins are usually in the form of a Like or Share button that we see on other websites or apps.

Another common tool is the one step Facebook Login, which allows users to log in or sign up on other apps using their Facebook accounts, bypassing the rigorous process of having to sign in using information like name, email and password.

While such technology offers a seamless experience for users, it allows Facebook to mine data such as the user's IP address, location and in-app activity.

Currently, all iOS devices have an IFDA (Identification for Advertisers). It is a unique identifier that each iOS device has. Using this identifier, advertisers track user activity across apps and the web. In a way, the process of tracking here is analogous to how website cookies track users, except it is far more intrusive.

As Facebook braces for impact, ahead of iOS 14.5's release, the outcome of this privacy battle between the giants is going to shape the future of online consumer privacy. 

Using the IFDA of each user, Facebook mines and aggregates data from thousands of apps, even when the user is offline. This allows Facebook to create a 'shadow profile' of a user - i.e. a virtual activity profile which closely resembles the user's real-life persona and preferences. 

Permission to track user activity via IFDA is currently switched on by default on all iOS devices. However, Apple has announced a major privacy enhancement feature in its new iOS 14.5 - the Apple Tracking Transparency.

Apple Tracking Transparency enables users to deny apps to track their IFDAs. Furthermore, tracking capabilities, using IFDA, is switched off by default in this version of iOS. This means an advertiser can access the data only if the user specifically permits.

As iOS 14.5 is expected to be launched at the end of April, it appears to be a ticking time bomb for Facebook. Experts predict that more and more users will opt-out of being tracked once such a feature is made so saliently accessible.

For the year ended 2020, Facebook made $86 billion in revenues, 98 percent of which attributed to ad revenues. Furthermore, of Facebook's total revenue, 45 percent was generated in the USA and Canada, 24 percent in Europe, 23 percent in the Asia Pacific, and 9 percent in the rest of the world. 

On an average revenue per user basis, this means Facebook made 13 times more money per user in the USA and Canada ($53.56) than it did in the Asia Pacific ($4.05).

Needless to say, USA-Canada and Europe are Facebook's most lucrative markets for generating ad revenue. What is alarming for Facebook, however, is that these very regions also have the highest iOS penetration as of December 2020.

This means that the impact of the iOS 14.5 release on Facebook's revenue is going to be catastrophic.

In its recent letter to shareholders, Facebook said, "Apple has announced changes to iOS 14 that will limit our ability, and the ability of others in the digital advertising industry, to target and measure ads effectively", noting that implementation of Apple Tracking Transparency is going to adversely impact their revenues.

In 2010, speaking at the All Things Digital Conference, the legendary Steve Jobs said, "I believe people are smart and some people want to share more data than other people do. Ask them. Ask them every time. Make them tell you to stop asking them if they get tired of your asking them. Let them know precisely what you're going to do with their data."

Almost 11 years later, now, Apple is bringing colours to Jobs' vision. While this new privacy policy of Apple gives power back to the users to control what data they share, it threatens the existence of thousands of data harvesting companies like Facebook.

As Facebook braces for impact, ahead of iOS 14.5's release, the outcome of this privacy battle between the giants is going to shape the future of online consumer privacy.