Customer Experience

Facebook’s
Campaign Misleading
Against Apple’s
Privacy Policy
by Bart de Langhe
and Stefano Puntoni
February 02, 2021, Updated February 09, 2021

Jeffrey Coolidge/ Getty Images

Summary.   Apple will soon require consumers to opt in if they want to allow

businesses to track their data and use it for personalized advertising. Facebook is
fighting this decision with an aggressive ad campaign, citing evidence that the
decision will hurt small businesses.... more

This article has been updated.

On January 28, at the Computers, Privacy, and Data Protection

conference, Apple’s CEO, Tim Cook, spoke about the importance
of giving users more control over how their data is used for online
advertising. To that end, Apple’s new operating system will soon
require consumers to opt in if they want to allow businesses to
track their data and use it for personalized advertising.

Facebook, which relies heavily on personalized advertising,

responded fiercely to this decision, placing full-page ads in the
New York Times, the Wall Street Journal, and the Washington
Post that accuse Apple of hurting small businesses. Facebook has
also created a website where small businesses can voice their
concerns about Apple’s decision.

Facebook’s central claim is that small businesses will lose

revenues if they can’t use personalized ads. “Without
personalized ads,” the company says in its ads and on its website,
“Facebook data shows that the average small business advertiser
stands to see a cut of over 60% in their sales for every dollar they
spend.” It’s an eye-popping figure, and one that suggests that
Apple’s pro-privacy policy is poised to deal a devastating blow to
small businesses. But where does the data for this apocalyptic
claim come from? And does it hold up under scrutiny?

To properly evaluate this claim, you first need to understand the

popular metric that Facebook used here to quantify advertising
success: return on ad spend, or ROAS. The metric indicates the
amount of revenues associated with advertising — but it does
not indicate the amount of revenues caused by advertising.

To understand why this difference matters, imagine a company

that knows its customers very well. It can predict with a high
degree of accuracy how much a customer will spend in the
coming month. If the company targets its advertisements to those
customers who are expected to spend a lot, each dollar spent on
advertising will be associated with high revenues. That’s great —
the company has achieved a high return on ad spend. But here’s
the thing: These customers would have generated high revenues
anyway. That’s why they were targeted in the first place. So it
would be a mistake to conclude that these customers spent
more because of the personalized ads.
In its campaign against Apple’s new policy, Facebook is
claiming that when it compared the ROAS for campaigns that
leveraged personalized information with campaigns that didn’t, it
found that small businesses would suffer a 60% cut in revenues if
they were deprived of personalized advertising.

That scary-sounding number, however, does not say much about

how Apple’s privacy policy will impact the revenues of small
businesses.

After publication, Facebook shared more details about their

methodology.* They split more than 25,000 campaigns across
many industries and regions into two groups. Campaigns in the
first group were optimized for link clicks, which does not require
data sharing. Campaigns in the second group were optimized for
purchases. This requires data sharing, so Facebook calls these
personalized campaigns. Of course, the second type of campaign
will be associated with higher revenues per advertising spend.
Facebook’s algorithms were instructed to find people likely to
buy. That doesn’t mean they were able to increase people’s
likelihood to buy.

Without randomized controlled trials, Facebook should refrain

from making claims that imply large effects of personalized
ads. Randomized controlled trials that compare personalized
advertising with no advertising suggest only a small impact on
sales.

That isn’t the only problem with Facebook’s argument.

According to Facebook, Apple’s decision is especially damaging

during this pandemic, because, as Facebook’s ads and website
state, “Forty-four percent of small to medium businesses started
or increased their usage of personalized ads on social media
during the pandemic, according to a new Deloitte study.”

We took a close look at the Deloitte study. While the statistic used

by Facebook might be vivid, it is hardly informative. In its study,
Deloitte surveyed companies from nine industries across
seventeen countries. It sure sounds impressive to say that 44%**
of small businesses in the U.S. started using, or increased their
usage of, targeted advertising. But let’s put this number into
context.

First, it implies that 56% of businesses did not increase their

spending on targeted advertising. The majority of businesses said
they had never used targeted advertising, stopped using it during
the pandemic, decreased their usage, or that their usage stayed
the same.

Second, it says very little about how much businesses actually

spent on digital advertising. Even a relatively small increase in
advertising expenditures (of say 5%) is likely to be spread over a
large number of firms that increased their spending by some
amount.

Third, in the same table, just below the 44%, Deloitte reports the
share of small businesses that started using or increased their
usage of non-personalized ads. That number (35%) is not much
lower than the one underlined by Facebook, suggesting there’s
nothing special about personalized advertising in pandemic
times.

Facebook, in our view, cherry-picked the data they thought best

supported its case, and the cherry wasn’t even good.

In pointing this out, we don’t mean to dismiss the concerns that

many small businesses have about the changes Apple is making to
its privacy policy. They’re real: Under Apple’s new plan,
companies will have to explain their data-collection practices
when submitting new apps or making updates, and many users
won’t give permission to have their behavior tracked online.
Facebook says it wants to stand up for small businesses in the face
of these changes, which it is perfectly entitled to do. But
disinformation about advertising effectiveness isn’t the way to do
that.

Editor’s note: After the original version of the piece was published,
Facebook reached out to us and the authors to clarify its
methodology, add context, and correct an error. After consulting
 with us, the authors have made changes to analyze that
methodology* and correct that error**.

BL
Bart de Langhe is an associate professor of
marketing at ESADE Business School, Ramon
Llull University, in Barcelona.

SP
Stefano Puntoni (spuntoni@rsm.nl) is a
professor of marketing at the Rotterdam School
of Management, Erasmus University.

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