Apple (AAPL) has little love for Madison Avenue. The company’s move this week to make MAC addresses private on its mobile operating system iOS 8 is the latest in a long line of decisions that place the demands of consumers who want more privacy ahead of the needs of advertisers who want more data.
This week a developer named Frederic Jacobs discovered that the latest update to Apple’s operating system makes it impossible for Wi-Fi networks to identify a person from their phone with a MAC address, which is used to identify objects on a computer network. (MAC addresses are similar to IP addresses, only they are permanently assigned to hardware. Retailers have been using the MAC address to track customers while in their stores and recording their activity within the stores without their knowing. Now, on iOS 8, the identifier will be anonymous.
Apple’s decision follows an earlier one to not allow cookies in its Safari web browser, the default option on its iOS and OS X devices. The default setting has cookies disabled, meaning that mobile Web traffic from an iPhone can’t easily be tracked or monetized. (You know those ads that follow you around the Web? They use cookies.) With mobile traffic predicted to overtake desktop traffic in only a month, the decision puts advertisers in a tricky spot.
Stores got around the cookie issue by tracking MAC addresses anytime a customer entered the store. But with iOS 8, that option is gone. Advertisers and startups like Euclid, which sell products to help retailers identify customers, are out of luck.
Mike Perrone, CEO of SocialSign.in, a WiFi-related marketing startup, has long predicted a backlash to tracking services that use a Wi-Fi signal to identify a cell phone’s MAC address without them knowing. “I thought eventually it was going to get legislated out of existence,” he said. “In (Apple’s) case, the industry decided to do a little self-policing, so it’s great.”
Perrone compared this nascent industry to the email spam industry in the early Web days: Businesses bought and sold email addresses, unbeknownst to their owners, in order to blast out spam. In 2003, the CAN-SPAM Act was passed to make that illegal, and email marketers had to get explicit permission before sending out blasts. Since in-store tracking (or “omni-channel marketing,” in retail industry parlance) was introduced in recent years, a number of providers have moved to make their offerings “opt-in,” meaning customers must download an app or in some way authorize the store to track their whereabouts.
Apple does conduct its own in-store tracking through iBeacon, a product currently being tested in Apple stores, Walgreens and Macy’s. With it, a beacon in the store tracks customers through their phones’ Bluetooth signals. Customers must opt-in to the tracking through an iBeacon-enabled app, so Apple’s decision to privatize MAC addresses for iOS 8 does not affect it. But it does affect retailers’s ability to gather data on customers without their knowing, much like cookies on the Web.
Why doesn’t Apple cooperate more with the ad world? Two reasons. For one, Apple has never been good at the ad business. (This is unrelated to Apple’s success as an advertiser, or the news this week that the company would create a 1000-person in-house advertising agency.) Apple’s biggest foray into the advertising business has largely been considered a failure. The company acquired Quattro Wireless for $275 million in 2010 and turned it into iAd, a platform for developers to make money off of ads in their apps. But right away, advertisers balked at Apple’s $1 million asking price and strict controls over creative. The company cut its price minimum and boosted the cut it offered to developers. Despite the prevalence of iOS devices, iAd owns just 15% of mobile advertising spending in the U.S., losing to Google (GOOG) and Millennial Media, according to a report from IDC. Given iAd’s shortcomings, Apple this year pivoted the platform to support radio ads, a much smaller market, on its new music streaming service iTunes Radio.
The second reason Apple ignores the ad world is because it can. Apple makes money the old-fashioned way, by selling stuff. The company sold $171 billion worth of computers, phones, digital music files, apps and TV shows last year. Why should it care whether the stuff it sells helps advertisers? Even iAd was originally positioned as a way to help developers make money on their apps, which encourages more developers to build more apps for Apple’s App Store, not to help advertisers reach audiences.
Meanwhile, Apple’s two biggest competitors, Google and Facebook (FB), live and die by the almighty marketing dollar. They have advertising in their DNA, and as such, privacy concerns with their products are a constant subject of debate. By staying out of the advertising game (whether by choice or by failure), Apple is able to prioritize what consumers want. What they want is privacy.
