Thursday, October 27, 2022

Clarification: Apple's ads on app pages are only a sword, never a shield (unlike Google Ads) -- which doesn't mitigate the impact on app developers

The following tweet of mine has been quoted in media reports (after MacRumors picked up the key information (the start date of Apple's ads on app pages), dozens of other media did):

The only thing I wish to clarify for accuracy's sake is that app developers can't even buy ads on their own app pages for defensive purposes the way many brands do on Google. That doesn't make it any better, but it is something I wanted to explain.

The following screenshot shows how it works on Google (click on the image to enlarge); in the example, I just searched for "salesforce":

In that screenshot you can see two blue links to the same landing page ( the one at the top is labeled as an ad, and the one further below is an organic search result. If one clicks on the one at the top, Google charges Salesforce for the click, but not if one clicks on the organic search result further below. The positions in the screenshot are correct; I just deleted some of the advertising part to have space for my red arrows and labels. If Salesforce didn't purchase ads when people enter that keyword, any one of its competitors (Gartner lists companies like Microsoft, Oracle, SAP, SguarCRM, zoho, Sage, Zendesk, and Hubspot) might place an ad there instead, and steer customers who are actually looking for Salesforce away from that product.

In the particular case of Salesforce, it's not impossible--though rather unlikely--that someone enters that search term based on its ordinary meaning (a team of salespersons). For brands that have no plain meaning, it's impossible. But the companies owning such brands often feel they have to pay Google. Trademark infringement lawsuits against Google selling ads for trademarked search terms went nowhere. There is some awareness among competition regulators, especially as Google made it harder over the course of many years to distinguish paid ads from organic search results and gradually increased the number of ads that appear above the first organic result. Presumably in response to those concerns, Google is now changing its "Ads" tage to "Sponsored."

A similar problem (if not worse) plagues Amazon search results. Even if you search for a very specific product, it's possible that you can't find it easily because Amazon will display all sorts of "sponsored" results first that are not what you really want--or maybe they are what you want, and then the advertiser has to pay only because you click on something you were specifically searching for at any rate.

While search results pages on the App Store work very much like Google or Amazon, ads on product (i.e., app) pages are a different story. In that case, you already are on the landing page; if an ad was displayed that takes you there, you'd be going in circles.

Theoretically, Apple could sell you a "neutralizer" option to keep your product page ad-free, but they're not doing that. If they did it, it would make it even clearer that ads on app pages are just a de facto increase of the effective app tax rate--which is precisely what I wrote in the tweet I'm referring to.

In the anti-steering context (the injunction Epic Games won against Apple last year was an anti-anti-steering injunction), Apple always suggests that if app developers could point users to alternative payment options, it would be as unacceptable as if competing resellers could promote their stores in an official Apple Store and steer customers away. But that is just what Apple's ads on app pages are all about, except that Apple makes money that way. Those app pages should be controlled by app makers--not that they could do anything they want on that page, but at least that no one else can do anything there--without their consent--that harms them.

There's a lot of outrage over those ads (as well as Apple's new NFT rules), and Apple has "paused" gambling ads, which means to me that those either won't come back ever again or (more likely) if they do, they'll be shown only within the gambling category. Whether gambling apps or loot box games get promoted, ads on product pages are a bad thing, given that developers have no alternative iOS app stores to choose from.

App discovery is a key cost factor. Making user acquisition (UA) more expensive for developers is effectively an incremental app tax.

Imagine a scenario in which you've already paid for an advertisement--say, on Google--to direct users to your app page. Ad networks will typically charge you when users click through and visit your page, and conversion is then your problem. The ad networks will try to help you measure the success of your campaign, which Apple also complicates in various ways. So when you get that click (and have typically paid for it), you're just one step away from what you really want users to do: to actually install your app and to keep using it. Now Apple will generate incremental revenues by letting your competitors "steal" those customers. Epic Games CEO Tim Sweeney described the problem of how this relates to the app tax, which was already effectively increased by Apple Search Ads:

What can you as an app developer do if a competitor promotes its competing apps on your page?

As I explained, there is no way to shield you from this--not even if you were willing to pay.

Those ads on product pages are just a sword, not a shield. All you can do to "retaliate" is to also place ads in your category, some of which will appear on that particular competitor's app page.

The primary beneficiary from that type of escalation is, of course, Apple. Also, deep-pocketed app makers can raise smaller rivals' costs--and slow their growth.

The only solution is for antitrust enforcement and legislative measures to bring Apple's ever more abusive conduct to an end. Alternative app stores would help more than anything else, provided that they get traction, for which they have to overcome the Power of Default.

I'm not criticizing anyone for saying that app developers pay "up to 30%" to Apple, but it hasn't been a precise number in a long time. The ads that Apple sells to developers are another tax. If you pay federal taxes, state taxes, and local taxes, you also have to add up all taxes to arrive at your effective tax load. While we're on the subject of taxes, Apple also plays some games to app developers' detriment in that regard: by letting app developers pay certain taxes that they wouldn't be subjected to if they could transact directly with end users. As I showed last year, the effective App Store commission was raised in certain markets to up to 35.25% in September 2020; and in Korea, there is an antitrust investigation underway because Korean app developers argue they effectively pay Apple 33%, not 30% (or 16.5% instead of 15% if they are eligible for the small business program).

With App Tracking Transparency, Apple wreaked havoc on other advertising networks on iOS. Even YouTube appears to be impacted as Mobile Dev Memo (Eric Seufert) plausibly argues. Now Apple offers a "solution" to the problem it created in the first place, and it comes down to an incremental app tax. App developers are always the ones to get squeezed--until we can reach iOS users without being dependent on Apple's App Store.