Why Alphabet has weathered Apple's privacy change better than rivals

Published Tue, Oct 26 20217:26 PM EDT

Alphabet Tuesday topped analyst estimates for its third quarter earnings, but perhaps more importantly to investors, was that the company managed to stave off any major hit from privacy changes that affected companies like Facebook and Snap earlier in the week. Social media company Snap 's stock plummeted 22% in after-hours trading after citing Apple's changes as the reason for missing its revenue expectations. Apple released iOS 14.5 in April, but the specific privacy changes that impact online advertising were slowly rolled out to all users over the following months. The change allows consumers to opt out of targeted ads on apps. When asked about Apple's privacy changes on its Q3 earnings call, Alphabet's finance chief Ruth Porat said it had a "modest impact" on its ad revenue. Alphabet's advertising revenue still rose 43% year-over-year to $53.13 billion. "From our standpoint, we see ATT as one aspect of the many broader ecosystem changes that are underway and we've been investing in privacy preserving technology for many years," said Porat, answering a question from analysts about the iOS 14 privacy changes' effect on the company. However, Alphabet has some unique cushion other companies don't have, including owning the world's largest digital advertising machine and a large and diverse trove of customers. In January, Google Ads Group product manager Christophe Combette warned that "Apple's ATT changes will reduce visibility into key metrics that show how ads drive conversions (like app installs and sales) and will affect how advertisers value and bid on ad impressions," he said, referring to the app tracking transparency change. "As such, app publishers may see a significant impact to their Google ad revenue on iOS after Apple's ATT policies take effect." It encouraged developers to upgrade to a newer version of its mobile ads software development kit for new features that would supposedly help advertisers. It also helps that the company owns its own operating system. Google-owned Android, which is the only other popular mobile operator aside from Apple, has over 2.5 billion active users worldwide, with more than 3 million devices across the globe using this mobile operating system. And while Google is also tightening its privacy practices that could make it harder for companies to track users on Android phones and tablets, it still owns the software ecosystem and, by extension, has control over any workaround features. Both Snap and Facebook rely heavily on ad sellers and buyers who use data on information such as what devices consumers are using and what they are searching for. Contrastingly, Google doesn't depend on iPhone or mobile data but also operates on desktops, Ygal Arounian, managing director of firm Wedbush Securities, pointed out in a recent research note. Google also has various channels where it gets its revenue from. It's been the market leader in online advertising for well over a decade and is expected to command nearly a 29% share of digital ad spending globally in 2021. Search is Google's most lucrative unit. In 2020, the company generated $104 billion in "search and other" revenues, making up 71% of Google's ad revenue and 57% of Alphabet's total revenue. Unlike other social and app-based companies, Google advertisers are both big and small across various industries and various demographics as advertisers using Google products can bid on search keywords — specific words and phrases that lead their ads to show up to relevant users in search results. Alphabet also has the added benefit of owning the world's largest video platform YouTube, which Jefferies analysts said in a note Tuesday would give the company "massive tailwinds." Because it owns YouTube, it has an even broader trove of advertisers, reaching users across web, mobile (Android and iOS), and internet-connected television (CTV) as opposed to strictly "Direct Response" ads, which Facebook and Snap rely on. Even products like Google Maps are becoming more strategic on the ad side. Using Google Maps, advertisers can buy ads for local business listings and "pins." Maps, which only began allowing ads in 2019, has 1 billion monthly active users and it's updated tens of thousands of times in a day.

Sundar Pichai, Alphabet CEO

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