Why did the CPMs increase after Apple's ATT policy?

This question is getting more and more asked in the mobile industry, everyone wants to know why this is actually happening. The Apple Tracking Transparency (ATT) privacy policy created a digital environment where it is more difficult for Advertisers to reach relevant customers due to the difficulty of ad targeting and data restrictions. 

 

If the targeting efficacy is lower and the campaigns are not generating the results they were generating before, advertisers are probably having a lower return on investment on their campaigns, and the users acquired are not that relevant, resulting in a lower lifetime value, therefore they should be bidding less for iOS inventory and the prices of CPM should be dropping. But this is not what we are seeing, we don’t see the CPMs getting cheaper, it is happening quite the opposite, they are getting more expensive, this is quite an enigma for the whole industry. 

 

Even Facebook noted that their average price per ad increased 23% in Q3 of 2021. In the same report but for the Q4 of 2021 when the ATT policy was already operative on a large scale in iOS all over the world, they reported a rise of 6% on the average price per ad. What could explain this raise of CPM? Well, there are a few theories. 

 

The first one, which was mentioned by Facebook is that the digital market is still trying to adjust and adapt the CPM's prices after the COVID. Right after the burst of the COVID pandemic in 2020, there was a decline in the CPMs all over the world since there was a lot of uncertainty about what would happen to the global economy and the companies themselves. Now, according to Facebook the CPMs are getting back to their pre COVID prices, even if with the ATT privacy policies Advertisers feel more confident and are getting back to investing heavily in digital campaigns. 

 

The second explanation is that the advertisers are actually lowering their margins because of the ATT policy. The need to scale their apps fast and beat the competitors is so crucial that they are shrinking their margins to be able to do that. If a company had a positive return on ad spend before the ATT spread, now they are just reducing their margin but still having profit out of it and growing their active user base which is very important. 

 

The third explanation refers to the way advertisers are actually running their campaigns. The CPM metric (cost per mille) at the end is just an accounting of the cost of a campaign and its reach. The cost of CPMs is not set by most of the ad platforms and it’s determined when the auction of the banner impression to the user is made. Apps and performance advertisers are creating more and more campaigns focused on outcomes that are performance-driven like installs or in-app purchases,  not really focusing on the impressions number. The different objectives of the campaigns and the likeability to convert can raise the CPM price.

 
 
 
 

 

In the example above we can see clearly how advertisers bid against each other for the same impressions having different campaign objectives. The objectives of the campaigns above are based on user actions, such as click, purchase, add to cart, etc. They are focusing on a CPA model campaign, a cost to action, meaning they will pay up to the bid price to get the objective conversion from the campaign. As we can see, the winner of the auction is the advertiser who has a higher probability of conversion outcome, meaning that the user is very likely to perform the campaign objective action when he sees the impression of the advertiser. It is important to remember that if the user does not perform any actions or even click on the ad, the advertiser will still pay for the impression that didn’t result in any conversion, that’s why we talk about the probability of conversion.

 

This is how most ad platforms' auction mechanism works, they take the campaign bid logic and conversion probabilities to determine which ad to serve. After the implementation of the ATT in the whole industry, there was also a raise of the most known cost-per-action (CPA) in several countries, since to learn the probability of conversion the algorithms used to take user data and create lookalikes. Now that this type of data is reduced and also the targeting possibilities, algorithms along with advertisers are focusing more on demographics data, such as gender or age to try to refine their optimizations and get to an accurate and positive conversion rate. 

 

We cannot know for sure which explanation actually is driving the costs of the CPMs higher, but what we do know is that there is one important factor in this formula of media buying that you should focus way more now, the creatives. Engaging ads will raise your campaign conversion probability straight away and make you reach more users by showing more impressions, so even though the CPM is higher across the whole industry if your click-through rate (CTR) and conversions rate (CR) are also high you will manage to grow your app and user base without being terribly affected by Apple ATT privacy policies.

 
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