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CMO Confidential
Dan McCarthy | Professor - University of MD | The Unfairness & Disparate Impact of Privacy Policy
00:39:47
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The podcast that takes you inside the drama, decisions and choices that go with being the Head of marketing. Hosted by five time CMO Mike Linton.
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C
Yeah, it's great to be back and yeah, it's a fun topic. So yeah, excited to dive into it.
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A
It's a lot more. Yeah, it's a lot more fun than it sounds. And let's discuss this research which was titled Evaluating the impact of Privacy Regulation on e Commerce firms. Evidence from Apple's App Tracking Transparency. Now, I know this is a lot more exciting than it sounds, and I can probably hook you up with some marketing creative folks for your next research title. But for now, let's just tell our listeners what this is all about.
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C
Yeah, so the basic story is that, as a lot of you may be familiar, a lot of people have not been happy with how they feel. They've been tracked and they kind of talk to their friends. Next thing they know, they see a Google Ad about that thing, Even though they're like, I never, you know, I never even went on the web about that thing. How are they collecting this data on me? And what Apple had done with one of their previous iOS updates was this. They instituted this app tracking transparency policy. And all that means is you download a new app, you know, the Nike Run Club app, and you open it up and the first question that it asks is, do you want this app to track you across, you know, across devices, et cetera? And 80, 90% of people, they. They just. They have no idea really what exactly that means. But they say, well, this kind of sounds like something that's bad. I don't want that to happen to me. So they ask app not to track. All that means to a company like Nike is that before, if you're kind of scrolling through your Facebook feed, you see that new pair of Nike Vapor flies, you click through on the link. Well, now suddenly you're not on Facebook anymore. And if the person then made a purchase at the Nike website, previously, Nike would have known that the Facebook ad is what caused that conversion to occur. But now we don't have that identifier anymore. So you might make that purchase, but now Nike won't know that it came from the Facebook ad. So that's really the big thing. They call it this idfa. It's basically a customer id, but the customer ID was shared you kind of across all the different domains that people would go to. And so companies like Facebook, they kind of rely on these ads for their ad revenue. They kind of took a big hit because now they can't really say definitively this ad caused this or that to occur. So it's like a big source of data that effectively went away for them.
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A
And when did this get put in? And I'm thinking back, like, if I look for, like, you know, if I'm cooking and I need a new pan, I look in there and I look for the pan, and then suddenly I get like 10,000 ads for pans or pots. Tell me like when did this come in? And then, you know, what was it like? How did the ads get served beforehand?
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C
Good question. So this policy went into place in late April 2021. But interestingly, like some of the other iOS updates, they kind of slow roll it at the beginning. They don't kind of push people aggressively to do the update. But it was kind of in June where they started to really nudge people to update to the new iOS. I think it was 14.5. And so it was really at that point that it went into effect. So yeah, so before there was this little kind of meta pixel that was kind of put on Nike's website. And so Nike, Adidas, Puma, just kind of all of these different advertisers and that's really what allowed meta to know, oh, this person came from a Facebook ad, you know, and that kind of was all that info about the purchases that happened on Nike's website. It was all being then sent back to Meta so that meta could say, well this customer made this purchase at Nike on this day. And I know that they also, that same person using that same identifier did all of this other stuff on these other websites on these other days. So it's really kind of this unified identifier that Meta had, you know, that allowed it to, to basically serve up more effective ads for all of the people who wanted to advertise on meta.
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A
So this has blown up attribution. Did, did, and this is only iOS, right? Is it? Is did everyone else have to do this too? Or it's just iOS, just iOS and.
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C
That kind of is one of the other big things. So you have, you know, everyone's heard of gdpr, you've heard of ccpa.
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A
Why don't you tell everybody what those mean? Just because everybody might not know.
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C
Yeah, those are basically other kind of government instituted privacy initiatives. So in Europe they institute gdpr. Now all these companies have to effectively do other things to be more privacy compliant. Apple's ATT is kind of an example of what they call self regulation, where it's kind of the companies themselves that are instituting these privacy policies. And in some sense it's a really good setting for an academic paper like ours because Apple, they had full control and kind of every, it applied to everybody all at the same time, you know, and so it made for a pretty clean analysis. But you know, because it was only Apple, they did it on the iOS device. But it's not like Android devices would have been subject to the same thing.
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Right.
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Or desktop devices. It really was just the iOS devices that were directly affected. So I think that there are kind of spillovers that were happening. Like a lot of people, they get a lot of info about their audience, who they should be targeting, what is my best audience from that sort of metadata. And so when that went away, it would also reduce the effectiveness of your Android spending and your desktop spending because suddenly you just have a less good view of how good your base is. But yeah, the direct effects were strictly with iOS.
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So we're going to go to the direct effects in a minute. Just a reminder to our listeners, ATT is not the phone company. It is app tracking transparency. So when we shorthand it and talk about att, where it is, about app tracking transparency, and you kind of talked about why you wanted to research this, but there's an economic and consumer and marketing and financial story behind this, this research. Right. You were like, hey, how's this going to affect everybody? I think that's it.
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C
Now back to our discussion with University of Maryland Professor Dan McCarthy. Yeah, and, you know, kind of this speaks to some of our previous interviews. I'm all about, like, the big company effects. Yeah, I think that that's. It's an area that I just, I'm really excited about. And you look at a lot of the other literature and, and it's just not about, like, what effect did this have on companies that are advertising at the company level? You know, did it hurt their revenue? Did it help their revenue? And so that was really the focus that, you know, that we had kind of brought to this paper. It was to say, well, it has these effects on consumers. It might do. It might have other effects. But what we want, what companies really care about is they did this, you know, privacy thing. How did it hurt my revenue? You know.
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Right.
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C
That's where the pedal hits the metal.
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Well, and this is the thing One of the reasons I wanted to have you on the show talking about this is you look at this and you think, oh, it's just a privacy thing. You don't think about the financial impact or the targeting impact or the, or your ability to read results impact on it. You think, oh, it's just one more thing I have to do. And what you're saying is this is actually blowing up a lot of the attribution in the funnel, if I'm reading it right, yes.
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C
It means the amount that you spend on your marketing, you're going to get less revenue for that spending. And that means you're, you know, for the same amount of marketing budget, your revenue is going to go down.
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A
You know, so let's talk about, you said they slow rolled it. Let's talk about how it rolled out and then any specifics you saw in what happened and then we'll talk about the disparate impact on businesses.
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What we found was that the click through rate on the click through rate effectively got 37% worse after ATT went into effect. So, you know, you spend your money on, you know, on those Facebook ads, 37% fewer people are clicking through, you know, so that would kind of translate into, you know, that many fewer purchases.
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You know, and also this will make your CAC go up. Your, your customer acquisition cost explode, Right. For the same amount of money, you're getting a lot less click through. So by definition, your CAC is rising, right?
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Yep. And so then the big question is, all right, imagine that you're one of these companies. You say, oh shoot, you know, we're.
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Getting so worse at marketing right now. Like our CAC has declined by a huge amount and gosh, this stuff is so much more expensive to buy. You were just going into that. I didn't mean to jump the question on you, but you were going to explain. Yes, it's ramification.
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The other thing that the firm might be thinking then is no one's putting a gun to this company's head to say you have to spend this much amount of money on Facebook ads. If the effectiveness goes down a lot, you would think they'd reallocate a bunch of budget away from Facebook to other channels. Right. And I think that's much easier to do if you're a Nike, you know, because you have all these channels, you've got a very well built out and diverse marketing function. But if you're a direct to consumer brand, a lot of them they only invest in like Facebook and Google, you know, that's Kind of like the main. And so effectively what we found was there was some amount of kind of reallocation of marketing budget away from Facebook, but it wasn't very much. So maybe just to take a step back, there's kind of like two data sets that we had.
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Yeah, let's go over the data sets and then talk about Facebook. All the different ways you could do this and then why direct to consumer companies used Facebook so much?
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Yeah, so the two data sets, one is the advertising data set and it was kind of this. I'll show you mine if you show me yours. Data co op type model companies, they would supply. This is how much we spent on all of our different channels over time. If you provide that data to this company, then the company will also provide you aggregated insights about all of the other companies that they're tracking. They have thousands of companies in this data set. We can directly observe from, from the companies themselves. They spent this much on Facebook, this much on Google, this much on TikTok, et cetera. And we had that before until after ATT. So we could just empirically observe how did the budget allocation change. And then we had this second data set that gave us really nice insight into the revenue impacts. And it was this company called Grips Intelligence. I don't know if you've heard of them before, but super data again. Thousands of websites, thousands of companies that they track and for each of those companies they can see how much revenue, how many clicks, how many visits to the site. They can also see the source of purchases. So did these purchases come from Facebook? Did they come from other sources? And they can see the device that was used to make the purchase. So if someone was on their iOS device and they made a purchase on that device, then Grips would directly observe that in their data. Yeah, effectively through Grips we could, we could see all the data that companies would make available in their Google Analytics pages.
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So this is how you get to the minus 37, right?
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Exactly. Yeah.
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Okay. And then so tell me why the direct to consumer smaller? I think it's mostly smaller companies too lean so heavily on Facebook and not other channels.
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It was easy to use and it was relatively quite effective. It was also a pretty deep channel, so you could put a whole bunch of money in it and it wouldn't get kind of capacity constrained. So a lot of companies, they had kind of great success, especially these direct to consumer companies like Warby Parker back in the early days and all those different Shopify businesses that sell this wide range of doodads, they would all Pretty heavily rely on Facebook ads. And there was really good tracking of the effectiveness of that channel. So they could know, I put in this amount of money, this is how much revenue I got back for that spending. And so they could very easily see we seem to be doing pretty well in this channel.
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So.
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Yeah, so it's a channel that they leaned on very, very heavily for demand generation.
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So I think this is super interesting because suddenly you are driving all this marketing. You have a really clear view of your acquisition, a really clear ROI look, and suddenly this privacy thing rolls out, actually probably slowly over time. So it's not like you hit a cat cliff. You probably are. Your CAC is decreasing as the adoption goes and then, then boom. Suddenly if the average is 37, I'm sure there's a bunch of people that just completely fell off the cliff and. Oh, go ahead.
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Yeah, the people where it completely fell off the cliff were. Well, so there's the, the effectiveness of that form of advertising and then there's like the downstream consequence for revenue. The downstream consequence for revenue was like super bad for the smaller companies. They were the ones who took almost all of the hit. One thing that we had done was we said, imagine that we kind of rank sorted all the companies that we're tracking and then just get that middle 50% customer. The ones bigger are the big companies, the ones that are smaller are the smaller companies. You know, so just kind of split it up by the median in that way. The big companies actually were unaffected by.
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Att, because I can move, I can move all my money to anywhere. And I, I have practice with all those other channels as well. But if I'm a little company, I only have practice with one channel. I'm kind of. This is why you think it's really unfair, right?
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C
Yeah. So for the small companies, um, so for the overall average, the impact on revenue was again about 37%, although it depends on exactly how you do the measurement. Yeah, but for the smaller companies, it was like north of 60%. Yeah. So they really got, they got flacked. So. Yeah, so this was, this was very tough for them.
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And are they, are the little companies recovering or did this put just a lot of them out of business?
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I think a bunch of them likely went out of business. Now, I would say that you hear 60 plus percent revenue decline, I should kind of clarify, it's like a relative.
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Revenue decline right within the channel. Right. It's. It's only the part you can see. Yeah.
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Well, so it's actually overall revenue for these companies. But it's kind of like relative to other companies that did not have exposure to the Facebook ads. So what we effectively found was if you were primarily investing like Google and these other marketing channels, your revenue kind of continued to kind of move up. The companies that invested very heavily, they were very, very reliant on the Facebook ads. The revenue had been going up before ATT and then it kind of went flat. And so it wasn't like the revenue fell by 60%. That'd be, I mean that'd be cat, that'd be catastrophic.
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You'd be pushing. Hey, I have a question. When stuff like this gets done, how come your research is not done in advance or how come like Apple or the government or who's ever putting this in doesn't think about this kind of research done in advance to see what would happen? Why is it after the fact?
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C
Well, from a researcher standpoint, now that the dust has settled, we've seen all these, we've seen multiple years kind of post implementation of attention that gives us really good data to be able to say this had this effect. And we can do all these different analyses. Imagine that it was like April 1, 2021, right before they were planning to roll it out. We wouldn't have had any data to directly observe to be able to see the effects. I'd say now that we have a paper like this that's out there, one could imagine if another privacy initiative was being contemplated, they should certainly look to papers like ours for guidance. You know, like, well, this might hurt small firms.
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You know, let's, let's, let's talk about what marketers around the world should be thinking about this particularly if they're with smaller companies or Facebook heavy. You got also AI creating a lot of zero click search. So maybe some of your Google, Google search is, is declining as well or maybe more expensive. How. What advice do you have for the brands looking down the barrel at gosh, this attribution is getting harder and harder.
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C
Yeah, I'd say, you know, for one, you want to make sure each of these, you know, kind of key quantities that I talk about a lot, cac, customer, lifetime value, you name it. They're all channel specific and they're all evolving over time. They're changing. And I'd say that this further reiterates the importance of first having channel specific metrics. It's not just how much am I spending on marketing, what is my overall blended cac. But you really want to break it down channel by channel. And then the second big thing is as we've seen with this example, your CAC today is going to be different from your CAC a year from now. And so you really want to be paying very close attention to how these figures are tracking over time. The same goes for customer lifetime value. So I'd say one of the other implications of these privacy measures is that you're not going to be as effective at getting exactly who you might have wanted to acquire, you know, and so it could mean now that you kind of have more of a spray and pray type of acquisition approach, you might bring in a different type of customer than you did before. And so it really pays to be tracking, you know, post acquisition value and CAC in a channel specific way over time.
- [24:23]
A
I hear in your comment there also, if you are averaging CAC across all your channels and you're averaging customers across all your channels, you will be lost in this world. I used to have saying averaging is killing us. And I think that's what you, what you just said here.
- [24:40]
C
Yeah, you're leaving so much money on the table, you know, you wouldn't be able to see, oh this, this channel's doing like really well and this other one seems to be, you know, doing terribly. You know, I think that sort of insight, it all gets glossed over into the average. And so again, theta my company, that's kind of what we do day to day. But even though this was not a CLV paper, it really highlighted the importance of having those sorts of metrics and tracking them religiously. I think that effectively what it all boils down to is different channels have different returns on investment at different points in time. If you're an investor or you're a company marketing manager, the key is you want to be making as much money as you can. You want the highest return that you can. And so if you have CAC and you have post acquisition value, that gives you the basis for the ROI calculation. So just you really want to make sure that you're kind of doing all of your investing in the most intelligent way and having kind of the most up to date granular numbers is what really makes that possible.
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A
Yes. Another reason to not average your marketing results. I want to go back because you mentioned the pellet. We did the rise in our first show with you. The rise and fall peloton has seen through the lens of cltv. We talked about doordash and subscription models. What has transpired in those pieces of research, if anything that is new and newsworthy to our listeners?
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C
Good question. So peloton continuing to Tread water big time.
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A
Yeah.
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C
Yeah. I think that, that, you know, they're all the things that we talked about. I think they've kind of continued to hold, and it doesn't seem like the company has yet been able to really crack that. I know that they brought in new leadership, so it's going to be interesting to see whether they're able to do something that the previous leadership was. Was not able to do. But, you know, I would say I was, I was kind of optimistic that Barry McCarthy, not just because he shares my name, but because of his, you know, his really good track record.
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A
Yeah, look, he had a great subscription model track record.
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C
Yeah. Netflix, Spotify, cfo. I mean, this guy, he is solid. Yeah. So he, he. I won't say that he kind of exited with his tail between his legs, but they're still sucking wind big time.
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A
So they rolled through a couple CMOs, I believe as well. So I think it's probably a tough model to make money on. How about, you know, we talked about the power of subscription models for not just the company, but also the category. Any updates on that or is that just still rock solid?
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C
Actually, we just had a big update on that paper just a week or two ago and, and in fact, a lot of the. The things that we added to the paper were things that we talked about, Mike. So I was kind of thinking of you as we were putting it together.
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A
If you want to credit me in one of your papers, I would love to be credited in an academic paper and we would love to have CMO Confidential called out paper.
- [28:03]
C
So the acknowledgment section.
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A
There we go.
- [28:05]
C
I think one of the things that we talked about was when a category matures, do the effects change if you're the last one in to create a subscription program? What does that mean? And I'd say one of the things that we found. So we really did a deeper dive into how things were different when Postmates launched their subscription versus when DoorDash launched their subscription. And the good thing about DoorDash was when they launched DashPass, Postmates Unlimited had been in the market for a while. And so you have some people that are signing up for DashPass for the very first time. But you had some people who. They sign up for DashPass, but they actually previously had a Postmates unlimited subscription, and then they canceled it. And so you've got these people who've got kind of varying degrees of prior experience with, with these restaurants with these delivery subscriptions. And what we found was the people who had prior Experience with a competing subscription, you still saw a big bump. They were spending a lot more at doordash but there was no category expansion. So I think there tends to be. If you sign up for a subscription like this for the very first time, there's a novelty effect, you know that, oh, I've got Uber one right now. You know, I got to use this thing.
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A
You got to get a lot of food delivered.
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C
So you see this big increase in restaurant delivery spending not only with Uber, but with Uber Eats. But you just in, in the category as a whole. When you're on your like third, you know, or fourth subscription, you're, you kind of know what you're doing. You know, you see, you're like, I've got this amount of spending I'm going to be doing.
- [29:55]
A
Yeah. And you're, are, you can do arbitrage and all kinds of stuff.
- [29:58]
C
Yeah. It becomes more strategic. So you still will spend more at the company that you have the subscription with, but you're not going to, you don't have that, you know, honeymoon effect of just going bonanzas in the, in the category. It's going to be, I've got $100 to spend, you know, for the next couple weeks. This, I'm just going to reallocate more of that towards this company where I get free delivery from now. So yeah, so that was really interesting. And there's actually, there's two other things I thought are just super cool. So I'm really, I don't know that I've ever been so excited about a revision, but palpable.
- [30:37]
A
It's coming right over the zoom.
- [30:40]
C
Either that or the coffee that I had before. The second thing that was really neat was you sign up for DashPass, you cancel DashPass. Now suddenly you're not getting a monetary benefit for placing orders at DashPass anymore. But what we found was after you cancel, those people still subsequently spent significantly more at doordash than the people who never had a subscription to begin with. And so it has this kind of long lasting effect that even extends beyond like the duration of the subscription itself. So I think a lot of people, when they think about am I going to be, am I making money on my subscription? Typically they'll say, well, how long did the people stay and how did the spending change while they were subscribed? But here what we're saying is, well, you want to go even further than that.
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A
What you're saying is the subscription has brand power.
- [31:43]
C
Yeah.
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A
Even after it's gone.
- [31:45]
C
And that's exactly the sort of thing you want, you know, that it doesn't even need to be there anymore. And there's still. Their behavior has changed.
- [31:52]
A
Yeah. You can raise the price and when people disappear, you can still maybe get some of the benefit. So that's interesting. I have to ask before we get to our traditional last question, you also wrote a piece called Everyone is Cheating their way Through College. Tell me about. I'm sure that's AI based, but tell me about it. Well, certainly, Professor.
- [32:16]
C
Yeah.
- [32:17]
A
Close to your league. But I want to hear this.
- [32:20]
C
I didn't write. Well, so I didn't write that piece. But I was commenting on that piece. Yeah. I do think that we're kind of entering this weird era where students have just super easy availability to, to these LLMs. And these LLMs are now very, they're very smart. So you know Ethan Moleck, he's this Wharton professor that's done a lot of great work in the space and he's showing how a lot of case studies. Now if you go to the discussion questions at the end, these LLMs will do a better job of answering those questions than the students would. So, so they can kind of crack the case. So it's kind of changed the game for how we evaluate students, you know, that you can ask them to, to answer a certain question and if they could just feed it through the LLM and get the right answer, did they actually learn? And I think that a lot of professors, you know, we, we should be changing how we evaluate. You know, we should be changing our homeworks in our exams to kind of accommodate. To account for the fact that it's now just much easier for people to kind of look to, to these LLMs. But, but you know, people get busy, you know, they don't want to change all of their homework. And so there, there could be this, this inertial effect. And, you know, we have to change.
- [33:56]
A
You know, because, because you're not going to teach them to think, which is probably the biggest job. Right?
- [34:03]
C
Yeah, I mean, that's. If the goal is to get students to learn, then they won't be learning. You know, they'll get the right answers, but they won't have learned anything. So I think, you know, I'll often say that you're learning when you're kind of struggling with something, and obviously you don't want to struggle for struggle's sake. But yeah, I would say that the learning is in the struggle.
- [34:28]
A
Well, and let's, let's go to the giant gap this will cause when you get to A real job where they don't give you a project where they already know the answer. They give you a project where there is no answer. And if you're not trained on how to get that answer and struggle through everything you're talking about, you are going to probably be terrible at that job. At least that would be my take from a business perspective.
- [34:53]
C
But it does also then speak to what sorts of classes and experiences are going to be most useful for the students in school. And I think a lot of people will talk about experiential learning and it's always been useful. But yeah, I think experiential learning is now much more useful in a post LLM world because there it's like go to town, use the LLMs. We're not going to try and stop you. Do whatever you need to do to make a good new product or whatever it is that they're having as the focus of that experience. I think that's exactly the sort of thing that it's always valuable but it's also like not GPT able.
- [35:41]
A
So yeah, yeah, because that, that what's going to be in the real world. I think that's a great way to get us to our last question which you are very familiar with. Practical advice for our audience we haven't discussed yet and or the funniest story you can share on the air. You have to pick one or both of those. But you must pick at least one.
- [36:04]
C
Practical advice I would say. And this also, this goes back to the. That subscription paper.
- [36:10]
A
Yeah.
- [36:11]
C
We found with this Postmates unlimited subscription. Yeah. The big concern was these people, they're signing up for a subscription because they know, you know, two months from now they're all going to have babies. And so it's not the subscription that caused them to spend more, it's the fact that they're going to have babies. Yeah. And so that's kind of a potential concern that all these people, they're just super rational, forward looking actors and that absolutely there's some effect that that will have. But what we found was that people are quite irrational with these subscriptions that here you know exactly what you're going to get. You get free delivery and you pay 10 bucks a month and that's it. There's no other intangible benefits of having a subscription. So if you're making less than, you know, like three orders a month, you've lost money on the subscription. So you think all right, I'm only going to keep this thing if I'm making money on this thing. And it's like no, 80% of people lost money on their subscription and the longer that they held the subscription, the longer that they had consecutive losses. There were a bunch of people that had like they went six for six every single month for six months losing money. And they still have a, they, they actually have a higher likelihood of keeping their subscription than the average person at the onset of signing up for the, the subscription. And so they're all, it's not that every single person is losing money, but most of them are. And so, so in terms of practical advice, look at your subscriptions, look at your order history. Are you making money on this or not? And you might want to take a closer eye to that because if you're like the average person, you might be losing money on your subscription.
- [38:09]
A
That's predictably irrational. So I think a great way to end the show. Thank you Dan for joining us once again. We will keep our eyes peeled for more research and thanks to everyone for listening to CMO Confidential. If you're enjoying the show, hit the like button and subscribe. Look for all of our shows on Spotify, Apple and YouTube, which include the Warby Parker case, I can see clearly now through my CLTV glasses, the Budweiser case, How not to manage a socio Political Issue, the Insomnia cookies case, and Northwestern's Ghost model, and managing the gray area, the fine line between marketing and lying, and of course, all of Dan's earlier shows. Hey all you marketers, stay safe out there. This is Mike Linton signing off for CMO Confidential. Typeface helps the world's biggest brands move from business brief to fully personalized campaigns in hours, not months with its Agentic AI marketing platform. They are the first enterprise platform with agentic AI marketing workflows designed to instantly automate work that used to take weeks. With Typeface, one campaign scales into thousands of personalized experiences across ads, email and video while staying true to your brand. The company's AI native platform integrates seamlessly into your martech stack and marketing workflows and includes enterprise grade security. Adweek named Typeface AI Company of the Year, Time magazine featured them as a best invention and Fast Company called them the next big thing in tech. See how major brands like Asics and Microsoft are transforming marketing with Typeface. Learn more at Typeface AICMO.