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Konvoy Ventures is a thesis driven venture capital firm focused on the video gaming industry. We invest in infrastructure technology, tools, and platforms.

Apple's Pro-Privacy Bet

We believe that Apple’s efforts on the privacy side are positioning them for the launch of their own internal ads business

Apple’s Pro-Privacy Bet

Apple products have become a core part of millions of people’s lives. Over one billion people globally use Apple products (Web Tribunal) and in America, Apple has a 48.7% market share of all smartphones. As of today, Apple is the most valuable company in the world with a $2.37T market cap. This is 70% of the combined market cap of Microsoft, Google, and Meta.

Our prediction: Apple launches an ad network

Apple knows that businesses can’t push back on Apple’s privacy changes without fighting against consumer privacy. Apple’s bet on being pro-privacy is not without a clear goal. While it’s just speculation at this point, consumers should not expect ads to stop, rather, expect Apple to take advertising into its own hands (they do not take any rev share currently on ads within apps). We believe Apple is going to launch an ad network.

Apple has played nice with businesses for so long that their reliance gives Apple a perfect opportunity. Businesses don’t have the option to pivot away from mobile, the average person spends 3 hours and 15 minutes on their phone each day. And 1 in 5 smartphone users spends upwards of 4.5 hours on average on their phones every day (Exploding Topics).

Currently, Apple advertises through three main avenues: App Store Search (600m weekly visitors), Apple Stocks, and Apple News (125m monthly active users). It is rumored that advertising through these avenues generates $4b annually for Apple, which is only ~1% of their annual revenue as a company (Wired).

Apple is going to pursue owning the monetization pipeline for both IAPs and ads. Its moves to handicap the entire ads industry will benefit Apple’s ad endeavors as well as force apps to focus on IAP conversion through premium experiences. The strategy may be bad for businesses using Apple to acquire and monetize users but consumers (better app experiences and privacy) and shareholders will greatly benefit if this strategy can play out.

Another point to be noted is the anti-competitive nature of Apple’s plans. Even though Apple is not inherently banning other ad companies from competing, they are clearly hindering their ability to effectively run their business. Areas we will be watching are two fold: (1) locking out advertisers from Apple’s App Store, and (2) is the data that Apple has available to target users the same as the data ad companies have?

Idea: Apple’s ecosystem affects ~17% of US GDP

With all of these changes, we would like to suggest an interesting thought experiment: does Apple have enough control over businesses and consumers to trigger a macroeconomic event like a recession? While there are many factors to consider when thinking about the cause of a recession, Apple has an exorbitant amount of control over many businesses.

For this thought exercise, we will only focus on the US. To start, the nearly 27 million small businesses in the US generate about 50% of GDP (University of Minnesota) and 64% of all new job creation in the US comes from small businesses (Oberlo).

Small businesses rely on being able to target users, traditionally through mobile. 70% of small businesses are using mobile for social media marketing and email marketing and 50% have a mobile app (Constant Contact, Truelist). If Apple’s iphone has a ~48% market share in the US, then their actions affect roughly 48% of the GDP created by ~19m small businesses who use mobile for marketing. These 19m businesses control roughly 35% of total US GDP. Therefore (in very rough math), Apple’s 48% market share has a direct impact on the marketing efforts of roughly ~17% of US GDP.

Without being able to target users effectively, not only are businesses losing out on revenue but they also have to pay more for each incremental user, which must be compensated by raising prices (compounding on inflation).

Takeaway: In short, Apple’s ecosystem has become integral to small businesses which are core to the broader economy. We believe that Apple’s efforts on the privacy side are positioning them for the launch of their own internal ads business. Today, they are focused on its policies around consumer data and privacy, which have major effects on these business’ ability to acquire and monetize users. As their privacy strategy plays itself out, we believe it is laying the groundwork for Apple’s ad network.