an 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 ad services framework for the App Store, and placement of ads outside of the Search tab, where they were previously moved. Other changes included new App Store rules which give Apple a cut of NFT sales and purchases made to amplify messages on social media apps.
Whatever the intended consequences of these new ad-related updates, comments from third-party Apple app developers, bloggers, and users indicate that the end result is a stream of inappropriate and objectionable advertisingquite common for fraud related to cryptography and gambling. This included quite a few cases where these ads were not just annoying, but out of place – next to children’s games or apps for gambling addiction recovery.
We reached out to Apple to see if it had anything to share about the ad rollout, and the company told us (and other retailers) that it has “suspended gambling-related ads and certain other categories on App Store product pages “. In the short term, the most glaring issue was resolved, and in any case, “gambling apps advertised alongside gambling recovery apps” seemed more like a fluke than something Apple appointed will happen
But whatever the intended effect, the outcry reminded me of something I’ve been worried about for a while: the growth of Apple’s services division, and why that makes me worried about where the company is headed.
Where Apple makes money
Apple still makes most of its money from the same thing it always has: selling hardware. Alongside the hardware business, Apple has always had businesses that make less money: iTunes music and video stores, sales of Mac OS X and professional software such as Final Cut or Logic Pro, and subscriptions to .Mac/MobileMe/iCloud for some money . But these were mostly add-ons or services created to create a halo effect for Apple hardware.
This is one of the reasons I’ve been more comfortable inviting Apple products into my home compared to Google products, or Amazon, or
Perhaps it would be foolish of me to make purchasing decisions based on this feeling, but as long as Apple made most of its money from hardware sales, I could at least tell myself that internal and external pressures on the company would encourage a continued emphasis on good hardware with good software, not chasing click-through rates and user engagement. How Apple started strengthen your focus on privacy to make a stronger contrast between itself and Google, it seemed even more likely that Apple would resist the urge to insert ads and push notifications into all of its apps.
But things have changed and continue to change in Apple’s financial statements. Compare Apple’s non-hardware revenue a decade ago to now: In 2012, software, services, and sales of music and other media accounted for about $12 million of the $156.5 million Apple made that year, or 7.7 percent . In 2022which rose to $78.1 million from $394.3 million, or nearly 20 percent.
That growth has been steady, with growth in services consistently outpacing growth in Apple’s hardware business over the past few years; even in 2022, a relatively slow year for services growthits revenue grew by nearly $10 million (14.2 percent) for the year, while all Apple products combined grew by $18.8 million (6.3 percent).
Services isn’t quite eating into the company’s hardware business, but it’s currently bigger in revenue than Macs and iPads combined. And although the growth rate has slowed somewhat by 2022, it is likely that the growth will be greater potential there than in hardware since your potential subscriber pool includes people who don’t own Apple hardware.
These are still small things, but there will be more
Since Apple suspended advertising for gambling apps, most of what I see next to the App Store listings are relatively innocuous ads for hotel booking apps, coloring apps, and no-name free games – far from me, this a separate problem, but they do not harm anyone. And ads, automatically generated lists of suggested or sponsored content, and notifications about e-commerce features and browser switching are nowhere near as ubiquitous on iOS or macOS as they are on (say) Windows or Microsoft Edge. The behavior I’m complaining about, at least for now, happens outside of the Apple experience.
But I’m still concerned about the overall trend here. When I see this ad, when Apple TV+ notifies me of new shows I haven’t watched or shown interest in, when Apple News pops up in my feed even though I never open or use it, it’s means small intrusions by the Services division into the iOS experience. I can ignore ads, I can turn off notifications, but the default settings push me to do things I don’t want in ways I don’t care about.
The obnoxious gambling ad is just one data point, but reports suggest that Apple’s ad business is just starting to heat up. Reports from Digiday earlier this month claim that Apple is building a larger advertising operation for the Apple TV+ service based on “demand platform” (DSP) to allow advertisers to target their desired audiences more effectively.
More ads appearing on Apple services and devices isn’t necessarily the end of the world in itself, and ads that appear during Apple TV+ broadcasts won’t suddenly start popping up uninvited on your iPad’s home screen. But my experience of 25 years on the Internet is that ads usually don’t land less intrusive or pervasive over time The Chromium-based version of Edge is a great example, since it started out as a mostly harmless Chrome clone and has steadily become a nightmare of pop-ups and intrusive e-commerce messages over time. I don’t think I’ll be embarrassed if I say that this ad is usually not like that improve experience using a product or service.
As for the Apple TV+ ads, think about it: seeing the same four or five ads six times during an hour-long show on Hulu is tolerable, but do they make you feel good about being a Hulu subscriber, or Are you considering upgrading to an ad-free tier or canceling the service altogether to avoid them? You look at Google or Amazon search with nothing but sponsored results above the fold and get excited about continuing to use these products, or are you using them because they’re usually just barely less bad than all the alternatives that exist?
Will Apple’s ads be just as obnoxious? Probably not. The head of the advertising agency told Digiday that “[Apple TV] it will be a very good ad with probably a low ad load. [Apple is] are already actually very diversified in terms of revenue streams, so there’s less pressure to put in a lot of ads.” But the ad experience almost never starts out as annoying as it eventually becomes.
That’s why I’m worried about Apple’s forays into the advertising business and the increasing importance of the services division to Apple’s continued growth. Not because I think Apple products will become obsolete, or because I think the home screen of an iPhone or Apple TV will suddenly be dominated by Roku-style half-page ads, but because I think the pressure on Apple to degrade the experience for users and developers in the name of expanding their advertising business will gradually increase as Apple tries to satisfy shareholders who want constant growth.
This is the same slope from which we came app ads in search results to the fact that “gambling apps are advertised next to literally everything” and we’ve already seen many, many products and services fail. Maybe Apple will be different. But maybe not.