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Apple released iOS 16.1 and iPadOS 16.1 to the public last week, with a long list of new features, fixes, and high-priority zero-day security updates. The updates also include the latest version of SKAdNetwork, Apple’s ad services framework for the App Store, and the placement of ads outside of the “Search” tab, where they were previously relegated. Other changes included new App Store rules that give Apple a discount on NFT sales and on purchases made to boost messaging in social media apps.
Whatever the intended effects of these new ad-related updates, evidence from third-party app developers, bloggers and Apple users indicated that the end result was a torrent of irrelevant and annoying adsquite common for crypto related scams and gamble. This included quite a few cases where those ads were not only annoying but inappropriate, in addition to apps for kids games or apps for recovery from gambling addiction.
We’ve reached out to Apple to see if it has anything to say about the ad rollout, and the company told us (and other outlets) that it’s “holding ads related to gambling and a few other categories on App Store product pages.” interrupted”. In the short term, the most egregious problem has been addressed, and in any case, “gambling apps advertised alongside gambling addiction recovery apps” seemed more like a result of unforeseen circumstances than something Apple meant to happen.
But whatever the intended effect, the outcry reminded me of something I’ve been concerned about for a while: the rise of Apple’s Services division and why I’m concerned about where the company is headed.
Where Apple Makes Its Money
Apple still makes most of its money from the same thing it has always done: selling hardware. Beyond the hardware business, Apple has always had less profitable ventures: the iTunes music and video stores, sales for Mac OS X and professional apps like Final Cut or Logic Pro, and .Mac/MobileMe/iCloud subscriptions all contributed. some money. But these were mostly afterthoughts or services created to create a halo effect for Apple hardware.
This is one of the reasons why I’m a little more comfortable inviting Apple products into my house, compared to Google’s, or Amazon’s, or Facebooks Metas, or (to a lesser extent) Microsoft’s. It is about Where each of those companies makes their money. If the products have no upfront costs and the majority of the company’s revenue comes from advertising or other types of targeting, tracking derivatives, as the saying goes, “you are the product.”
It might be a bit stiff of me to base purchasing decisions on this gut feeling, but as long as Apple was making most of its money selling hardware, I could at least convince myself that the internal and external pressures on the company would encourage continued focus. on good hardware with good software, instead of chasing click-through rates and user engagement. As Apple started to play around with its focus on privacy to draw a stronger contrast between itself and Google, it seemed even more likely that Apple would resist the urge to stop ads and push notifications in all of its apps.
But things have shifted, and continue to shift, in Apple’s financial reports. Compare Apple’s non-hardware revenues from a decade ago with what it is today: In 2012, software, services, and sales of music and other media were about $12 billion of the $156.5 billion Apple made that year, or 7 .7 percent. By 2022, that has increased to $78.1 billion from $394.3 billion, or nearly 20 percent.
This increase has been steady and the growth of services has consistently outpaced the growth of Apple’s hardware business in recent years; even in 2022, a relatively slow year for Services growthrevenue grew nearly $10 billion (14.2 percent) year over year, while all of Apple’s products grew $18.8 billion (6.3 percent) together.
Services aren’t really eating up the company’s hardware business, but right now it’s bigger in revenue than the Mac and iPad combined. And while growth has slowed somewhat to 2022, there is likely still more growth potential there’s then in hardware, as your pool of potential subscribers includes people who aren’t Apple hardware owners.
It’s just small things, but there’s more to come
Ever since Apple suspended its gambling app ads, most of what I see next to App Store listings are relatively innocuous ads for hotel booking apps, coloring book apps, and nameless free-to-play games — they’re not even remotely relevant to me, which is his own problem, but they don’t hurt anyone. And ads, auto-generated lists of suggested or sponsored content, and messages about e-commerce features and browser switching aren’t nearly as ubiquitous in iOS or macOS as they are in (for example) Windows or Microsoft Edge. The kind of behavior I’m complaining about, at least for now, happens around the outer edges of the Apple experience.
But I’m still concerned about the general trend here. When I see these ads, when Apple TV+ notifies me of new shows I haven’t watched and shown no interest in, when Apple News pops up a notification in my feed even though I never open or use them, represent this small raid by the Services division into the iOS experience. I can ignore the ads, I can turn off the notifications, but the defaults are to push me toward things I don’t want using methods I don’t care about.
The icky betting ads are just one data point, but reports suggest Apple’s ad business is just getting started. Reports from Digiday earlier this month claim that Apple is building a larger ad operation for the Apple TV+ service, powered by a “demand-side platform” (DSP) to allow advertisers to target their desired audiences more efficiently.
More ads coming to Apple’s services and devices aren’t necessarily the end of the world per se, and ads broadcast during Apple TV+ streams won’t suddenly appear unsolicited on your iPad’s home screen. But my experience in 25 years on the web is that ads usually don’t show fewer intrusive or intrusive as time goes by – the Chromium-based version of Edge is a prime example, as it started out as a mostly harmless Chrome clone and over time has steadily grown into an ecommerce pop-up nightmare and nagging messages. I don’t think I’m going crazy when I say these ads generally don’t improve the experience of using a product or service.
As for Apple TV+ ads, think about it: seeing the same four or five ads six times apiece in the span of an hour-long show on Hulu is acceptable, but do they make you feel warm about being a Hulu- are a subscriber, or do they? make you think about either upgrading to the ad-free tier or canceling your service entirely to escape it? Are you looking at a Google or Amazon search with? nothing but sponsored results above the fold and get excited to keep using those products, or do you use them because they are usually just new less bad than all the alternatives out there?
Will Apple’s ads be as obnoxious as those? Probably not. An advertising agency director who spoke to Digiday said that “[Apple TV] will be a very good ad experience with probably a low ad load. [Apple is] actually already very diversified in terms of revenue streams, so there’s less pressure to place a lot of ads.” But ad experiences almost never start out as annoying as they eventually get.
That’s why Apple’s forays into the advertising business and the increased importance of the Services division to Apple’s continued growth worry me. Not because I think Apple’s products will become useless or because I think the iPhone or Apple TV home screen will be dominated overnight by Roku-esque half-page ads, but because I think the pressure for Apple to degrade the experience for users and developers in the name of expanding its advertising business will gradually increase as Apple tries to please shareholders seeking eternal growth.
That’s the same slope that has taken us from app ads in search results to “gambling apps advertised alongside literally everything,” and we’ve already seen tons of products and services slip. Maybe Apple will be different. But maybe not.
