The internet economy’s recession

Hello! It’s Drake here in New York. Many of the companies laying off workers depend on ad tracking. But first...Today’s must-reads:• Amazon [View in browser]( [Bloomberg]( Hello! It’s Drake here in New York. Many of the companies laying off workers depend on ad tracking. But first... Today’s must-reads: • Amazon [wants workers back]( three days a week • SpaceX [faces an FAA fine]( • Saudi Arabia is [Nintendo’s largest outside shareholder]( Can we track you now, please? One of the ways in which the economy is weird right now is the gap between the fortunes of tech and non-tech companies. At a moment of steady US production growth and low unemployment, many American tech companies, including Alphabet Inc., Meta Platforms Inc., Snap Inc. and Twitter Inc., are seeing declining revenue and doing layoffs. There are various reasons for tech’s difficulties, among them rising interest rates, the [unsustainability of crazy growth during peak Covid]( and the [whims of Elon Musk](. A factor that’s gotten less attention, though, is something a bit more arcane, something more specific to the business models that have both enriched some of the world’s biggest tech companies and shaped the way many of us experience the internet. That factor is the iPhone. In 2021, Apple rolled out what it called App Tracking Transparency. Henceforth, iPhone users had to opt in to certain forms of digital tracking, in particular targeting that involves the sharing of information between different apps. Social media companies rely heavily on that technique to serve up the targeted ads that are their profit engines. The data they collect can form an ever-more-detailed mosaic of a user and, most importantly, a better sense of what kind of person responds to which types of ads. Apple presented its anti-tracking policy as a way for people to take control of their information, at a time when lawmakers around the world are championing a similar cause. Ads are intrusive and annoying, and being closely tracked on the internet is creepy. If you are a political dissident or a woman researching abortion in a place where the procedure is illegal, it is terrifying. At the time, however, Facebook’s parent company Meta saw the change as a serious threat. Social media executives feared that lots of iPhone users would opt out of this kind of app tracking when given the option. Almost two years on, they seem to have been right. Meta estimated that the change cost it $10 billion in 2022, or [9% of its total revenue](. Eric Michael Seufert, an analyst at Mobile Dev Memo, went so far as to call it “[the App Tracking Transparency recession](.” Seufert argued that the tech companies having the hardest time right now are those most directly affected by Apple’s policy. As he points out, revenue at YouTube, Google's video arm that relies heavily on third-party ad tracking, has lagged the company's search revenue, which is far less reliant on this type of tracking. This one Apple policy change doesn’t explain everything (see the other stuff mentioned earlier). But it does offer a harbinger of the kind of disruption that we’ll see when Google makes its own long-promised and repeatedly delayed anti-tracking move: getting rid of third-party cookies on its Chrome browser. What we’re seeing, in part, is tech companies fumbling around for a new way to make the kind of money they were accustomed to. It does not mean, though, that those ubiquitous ads are going away. The number of ads on Meta’s social media platforms has [actually increased]( of late, effectively trading targeted quality for quantity. As for tracking, that isn’t going away, either. Both Apple’s change and Google’s promised one, when it happens, focus on the sharing of user data between companies. Apple has its own targeted ad business, which runs off the information it gathers from customers and their Apple accounts. The company already shows ads in its stocks and news apps and is building a network for its video streaming service. The ad business is so promising that Apple now wants to put them in even more parts of the iPhone. —[Drake Bennett](mailto:dbennett35@bloomberg.net) The big story China’s top tech banker is missing. [Here’s what that means](. Get fully charged Google’s $168 billion in ad revenue is at risk in an [upcoming US Supreme Court case](. Activision Blizzard is pushing staff to come back to the office, and [workers aren’t happy about it](. BMC Software, owned by KKR, is planning an initial public offering that would [value the company at up to $15 billion](. 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