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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 included the latest version of SKAdNetwork, Apple’s advertising services framework for the App Store, and the placement of advertisements outside of the “Search” tab, where they had previously been relegated. Other changes included new app store rules which give Apple a share of NFT sales and purchases made to increase posts in social media apps.
Regardless of the intended effects of these new ad-related updates, indications from Apple’s third-party app developers, bloggers, and users have indicated that the end result is a flood of irrelevant and obnoxious advertisementsquite often for crypto-related scams and gambling. This included many cases where these ads were not only annoying but inappropriate, alongside apps for children’s games or apps for gambling addiction recovery.
We reached out to Apple to see if it had anything to share about its ad rollout, and the company told us (and other outlets) that it had “paused gaming-related ads Money and a few other categories on the App Store product pages”. In the short term, the most glaring issue was resolved, and in any case, “gaming apps advertised alongside gaming addiction recovery apps” appeared to be the result of unforeseen circumstances rather than something Apple intended happen.
But whatever the intended effect, the outcry reminded me of something that’s been worrying me for a while now: the rise of Apple’s Services division, and why it makes me worry about the direction that takes the business.
Where Apple makes its money
Apple still makes the vast majority of its money from the same thing it always has: selling hardware. Apple has always had less lucrative businesses bubbling alongside its hardware business – iTunes stores for music and video, sales for Mac OS X and pro apps like Final Cut or Logic Pro, and .Mac/MobileMe subscriptions. /iCloud have all brought in some cash. But these were mostly side businesses or services designed to create a halo effect for Apple hardware.
That’s one of the reasons I’ve been a little more comfortable inviting Apple products into my home, compared to those from Google or Amazon or Facebook Meta or (to a lesser extent) Microsoft. It is where each of these companies makes their money. If the products have no upfront cost and most of the company’s revenue comes from ads or other types of targeting and tracking derivatives, as the saying goes, “you are the product.”
It might be polite of me to base my buying decisions on that gut feeling, but as long as Apple made most of its money from hardware sales, I could at least tell myself that the internal and external pressures on the companies would encourage a continued focus on good hardware running good software, rather than chasing click-through rates and user engagement. As Apple began to focus on confidentiality to create a stronger contrast between itself and Google, it seemed even more likely that Apple would resist the urge to insert pushy ads and notifications into all of its apps.
But things have changed and continue to change in Apple’s financial reporting. Compare Apple’s non-material revenue a decade ago to what it is today: In 2012, software, services, and music and other media sales accounted for about $12 million out of 156 $.5 million earned by Apple that year, or 7.7%. In 2022which climbed to $78.1 million from $394.3 million, or almost 20%.
This increase has been consistent, and growth in services has consistently outpaced growth in Apple’s hardware business over the past several years; even in 2022, a relatively slow year for Services growthits revenue increased by nearly $10 million (14.2%) year over year, while all Apple products combined increased by $18.8 million (6.3% ).
Services aren’t exactly eating up the hardware business of the company, but at this point they’re bigger, revenue-wise, than the Mac and iPad combined. And although growth has slowed somewhat through 2022, there is likely still more growth potential there are none in hardware, since your pool of possible subscribers includes people who don’t own Apple hardware.
It’s still just little things, but there’s more to come
Since Apple suspended ads for gaming apps, most of what I see next to app store listings are relatively harmless ads for hotel booking apps, coloring book apps and nameless free games. me, which is his own problem, but they’re not hurting anyone. And ads, auto-generated listings of suggested or sponsored content, and messages about e-commerce features and switching browsers aren’t nearly as ubiquitous in iOS or macOS as they are in (say) Windows or Microsoft Edge. The kind of behavior I’m complaining about, at least for now, occurs at the outer edges of the Apple experience.
But I’m still worried about the general trend here. When I see these ads, when Apple TV+ notifies me of new shows I haven’t watched or expressed interest in, when Apple News shows a notification in my feed even though I don’t open it or never use it, it represents small forays by the Services division into the iOS experience. I can skip ads, I can turn off notifications, but the defaults are to push me into things I don’t want using methods I don’t care about.
The icky game ads are just one data point, but reports suggest that Apple’s ad business is only just getting started. Digiday reports earlier this month allege that Apple is setting up a bigger advertising operation for the Apple TV+ service, fueled by a “demand-side platform” (DSP) to allow advertisers to more effectively target their desired audiences.
More ads coming to Apple’s services and devices aren’t necessarily the end of the world in and of themselves, and ads shown during Apple TV+ streams won’t suddenly start popping up uninvited on the Apple home screen. your iPad. But in my experience of 25 years on the internet, ads usually don’t show less intrusive or pervasive over time – the The chromium-based version of Edge is a great example., since it started out as a mostly harmless Chrome clone and over time became a nightmare of e-commerce pop-ups and reminder messages. I don’t think I’m taking any chances when I say these ads usually don’t. to improve the experience of using a product or service.
As for Apple TV+ ads, consider: Seeing the same four or five ads six times each during an hour-long show on Hulu is tolerable, but do they make you feel warmly like a Hulu subscriber? , or do they make you think about upgrading to ad-free or completely canceling your service just to escape it? Do you look at a Google or Amazon search with nothing but sponsored results above the fold and be excited to keep using these products, or are you using them because they’re usually still barely less bad than all the alternatives that exist?
Will Apple’s ads be as obnoxious as these? Probably not. An ad agency executive speaking to Digiday said that “[Apple TV] is going to be a very good ad experience with probably a low ad load. [Apple is] already actually quite diverse in terms of revenue streams, so there’s less pressure to integrate lots of ads.” But ad experiences almost never start out as boring as they eventually become.
That’s why Apple’s forays into the advertising business and the Services division’s increased importance to Apple’s continued growth worry me. Not because I think Apple’s products will become unusable or because I think the home screen of the iPhone or Apple TV is going to be dominated overnight by ads half a -Roku-style page, but because I believe the pressure from Apple to degrade user experience and developers in the name of expanding its advertising business will gradually increase as Apple attempts to satisfy shareholders at the search for perpetual growth.
It’s the same slope that made us leave app ads in search results to “gaming apps advertised next to literally everything”, and we’ve already seen many, many products and services slipping into them. Maybe Apple will be different. But maybe not.