Apple's Horace & Pete Metaphor

I’m Alan Chapell. I’ve been working at the intersection of privacy, competition, advertising and music for decades and I’m now writing for The Monopoly Report. If you have a tip to share in confidence, find me on Twitter or Bluesky.

The latest Monopoly Report podcast is out with Eric Goldman - Professor of Law at Santa Clara University School of Law. We talk about Section 230 of the Communications Decency Act and how Section 230 has been critical to the growth of the consumer Internet economy, including the digital ads space.

What a TV show can tell us about the ads space

There’s a TV program called Horace and Pete about two brothers who own a bar somewhere in the deepest part of Brooklyn. The show is a bit dark, to put things mildly - as the writers leverage a fair amount of gallows humor.

In one episode, it comes to the attention of the bar patrons that the owners of the bar had been severely watering down their drinks. Rather than yelling, or storming out of the bar never to return, the patrons took the news with a grin and a shrug – because OF COURSE the bar was watering down the drinks.

That scene reminded me of how the ad tech community sometimes responds when shady practices, unethical behavior and/or anticompetitive rules are revealed. I get it – not everything in life is fair, and there’s not much to be gained by spending too many cycles complaining.

And OF COURSE, they metaphorically water down the drinks, place your ads next to CSAM or impose rules designed to preference themselves.

But just imagine for a moment that there were consequences to some of the above - at least when it comes to the issue of self preferencing. It’s easy if you try….

Revisiting Apple ATT

I recently had Eric Seufert on TMR podcast to discuss Apple’s ATT and the recent decision by the German Competition Regulator (the “Bundeskartellamt”). The Bundeskartellamt recently provided a preliminary legal assessment that Apple’s ATT has a negative impact on competition. The German Regulator made three overriding points:

1. Apple’s first-party tracking is framed differently than third-party tracking - and EU data protection law is at best reluctant to draw those types of distinctions. “First, Apple’s ATTF defines ‘tracking’ in a way that only covers data processing for advertising purposes across companies. However, based on the findings so far, the strict ATTF rules do not cover Apple’s own practice of combining user data across its ecosystem – from its App Store, Apple ID and connected devices – and using them for advertising purposes.”

2. Apple creates more friction of third-party tracking than it’s own - “Second, third-party apps may show users up to four consecutive consent dialogues under the ATTF, while Apple’s own apps show a maximum of two. In addition, these do not refer to Apple’s own processing of user data across services (known as first-party tracking) as such.”

3. The consent dialog prompts lack parity - “Third, in the Bundeskartellamt’s preliminary view, the consent dialogues provided by Apple are currently designed in a way that encourages users to allow Apple to process their data. The consent dialogues for third-party apps, on the other hand, steer users towards refusing third-party data processing.”

I should note that there are similar investigations pending against Apple in Romania, Poland & France (h/t Pierre Devoize) with respect to ATT. And the UK Competition and Markets Authority has also raised similar issues with the mobile o/s providers - although to date the CMA work there has mostly been limited to generating reports.

Let’s say Apple loses those cases - then what?

I’m getting ahead of myself here. We’re at least a year away from a final-ish decision in any of these EU cases - and potentially several years away from Apple exhausting its appeals.Before we go too far down this path, it might be worth thinking about the end game.

I’ve asked the community for their thoughts here - but here are some of the possible outcomes as I see things:

• Bring back IDFA - I'll confess. I have a hard time seeing this happen. And the odds would seem to be diminishing with each passing day. ATT was introduced nearly four years ago. And it’s difficult to imagine how they’ll bring it back five, six, seven years afterwards.

• Require parity as between the choice screens - As noted above, part of the issue with ATT is that Apple uses a scare screen to obtain consent for third-party tracking and a warm/fuzzy prompt to frame Apple’s personalization. So a decision requiring parity in how the tools are presented strikes me as the most likely outcome. I don’t exactly love this outcome for either browsers or mobile o/s, but I think it’s the most likely one. (We’re starting to see a related trend in the browser space where some U.S. States are starting to insert anti-preferencing measures in connection with opt-out mechanisms.)

• Monetary penalty - I hope this is the side dish, but not the main course. You’re never going to get Apple to agree to a penalty that is commensurate with the additional ad revenues they’ve obtained. And imposing astronomical penalties only increases Apple’s desire to fight these cases tooth and nail.

• Deprecate IDFA entirely - The equivalent of Apple taking it’s ball and going home. Seems unlikely, but Google seems to be universally deprecating its mobile ad ID. Who knows…

• Nothing - The moral victory of winning these cases without a net negative impact to Apple is certainly on the table. My guess is that the CMA will most likely be the European regulator who tries this approach - albeit with respect to Chrome.

• Access to Apple data and/or systems? - Some are talking about requiring that Apple open up it’s ad platform to enable third-parties to leverage targeting data and/or the iOS ad platform itself in something analogous to the Privacy Sandbox tools. I have a hard time seeing a world where Apple is willing to agree with this. (As an aside, I believe that PART of what Google was attempting with the Sandbox was to invite regulatory discussions comparing Google’s open approach while Apple remains closed.)

If anyone has additional realistic outcomes, I’d love to hear them and would encourage you to share them on TMR pod.

Addressability: Apple vs Google, Browser vs App

One more thing. I’m struck by the difference in the way the ad tech market has responded to Android deprecation (with little more than a shrug) relative to the way the market has responded to ATT (raised eyebrow) and TPC deprecation in Chrome (much more consternation).

That’s probably worth it’s own article, but it strikes me that part of the story there lay in a combination of: (a) the historical differences between Apple’s closed and Google’s open ecosystems, (b) the fact that Google is a core part of AND competes directly with the rest of programmatic world, (c) the fact that alt tracking tech is well-used in mobile, and (d) timing as regulators are only recently starting to see the tension between privacy and competition.

The timing issue is of particular interest to me - given that I DON’T think competition regulators will try to un-ring a bell 4-7 years after the fact.

To bring it back to “Horace & Pete” analogy — perhaps it’s helpful to water down drinks before doing so was recognized as potentially illegal.

Alan’s Hot Takes…

If you’ve actually managed to read down this far. (1) CONGRATS! (2) THANKS! and (3) Please check out the below…

• ACLU Pizza Video – We’ve just passed the 25th anniversary of the release of ACLU pizza video. Pls take a second and watch it here. This video is the best piece of privacy advocacy I’ve ever seen. More importantly, think about how close we are to this reality.

• FTC under Trump - FTC Chair Andrew Ferguson sat down for his first interview. A few takeaways: (1) Section 230 is in big trouble (see this week’s pod), (2) Lina Kahn merger rules will remain in place (sorry, Terry Kawaja), (3) Going after big tech via antitrust laws remains a priority. Some of this should be taken with a grain of salt (e.g., I can think of at least one Titan of big tech who currently has little to worry about from the FTC).

• Perplexity builds a web browser(?) - It’s as if Perplexity timed this announcement to coincide with this week’s TMR newsletter. Of COURSE Perplexity is building a web browser. How else are they going to break free from the duopoly’s vice grip on distribution? If only the large news publishers were able to think this big.

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