Apple continues to expand and diversify as it grows. This is a process of carving out adjacent revenue sources to maintain growth rates and keep Wall Street happy. And it gets harder and harder to do as the revenue base gets into the tens of billions. It’s a good problem to have but nonetheless a challenge.
Apple’s expansion so far includes wearables, services, entertainment, and advertising. The latter is a logical area to grow into, given that Apple owns the user touchpoint. In other words, there are ample opportunities for ad placement throughout the user interactions on its devices and operating systems.
For example, Apple offers sponsored placement in its App Store for any app looking for a boost. Known as app install ads, these are served in App Store search results. Tapping into the same “intent signaling” that makes search marketing so opportune, Apple has built an ad program where it makes sense.
This logic extends to several other places where search happens within the Apple ecosystem. That’s everything from Apple Maps to Siri searches on your Apple TV. Apple has only scratched the surface in terms of ad inventory, though it’s careful to maintain a balanced ad load, given its signature UX elegance.
Not a Good Look
Against that backdrop, AppsFlyer reports in its latest mobile advertising Performance Index that Apple Search Ads tripled in market share since 1H 2020. During the same period, other search ad competitors’ market share declined, the most consequential (read: billions in revenue) being Google and Meta.
As for the reasons behind Apple’s rise and others’ decline, let’s take those one at a time. With Apple’s ad revenue growth, it should be noted that growth comes easier from a smaller base (denominator). So its market share percentage growth is apples-to-oranges when compared to that of Google and Meta.
As for those competitors’ declines, it’s partly due to macroeconomic conditions that have impacted ad budgets – which are down 12 percent on average according to AppsFlyer. Another big reason is privacy reform that continues to ratchet up. But there’s one issue: that reform comes directly from Apple.
So the elephant in the room is allegations of anti-competitive behavior. Apple of course has initiated several privacy reform measures, a la ATT, that have hugely impacted ad-supported apps and services that run on its platforms. These data tracking restrictions have handicapped every major ad player.
If Apple’s ad business grows amidst all that decimation, it’s not a good look. The company asserts that privacy reform was done for users’ benefit… and that its ad business growth is incidental. That’s logical but suspect, and its merits will be determined in time through legal action from regulatory bodies.
Mega Verticals
Back to the challenge of maintaining growth by diversifying revenue streams, Apple continues to do this as it grows ancillary businesses such as services, entertainment, and wearables. We see the same from Amazon, as it grows into areas like advertising and the internet of things (e.g., connected home).
To take a page from the book of Scott Galloway, many of the above revenue diversification moves are marginal. Conversely, what these giants need to really move the needle are massive shifts in taking over mega verticals. We’re talking healthcare or automotive – both of which Apple is feeling out.
Amazon is also going after healthcare, considering its One Medical acquisition. It’s looking to bring its brand of logistics and streamlining to the misaligned and dreaded process of seeing your doctor. If there were ever a massive industry in need of procedural disruption, that’s probably at the top of the list.
That’s all to say, there are major forces compelling tech giants towards these new categories. And that brings us back to Apple’s search advertising play. Advertising is adjacent to its core business, given that it owns the user touchpoint. So it’s a logical move. Expect a lot more revenue diversification from Apple.
Meanwhile, as for AppsFlyer’s methodology for the above data, its performance Index analyzed 500+ media sources, 27 billion installs, and 19,000 apps from January to June 2022. See its entire report here.
