Why the unmusical gambling ads in the App Store worry me about Apple

Apple released iOS 16.1 and iPadOS 16.1 last week with a long list of new features, bug fixes, and high-priority zero-day security updates. The updates also included the latest version of SKAdNetwork, Apple’s ad services framework for the App Store, and placing ads outside of the Search tab, where it had previously been banned. Other changes included new App Store rules granting Apple a cut in NFT sales and purchases made to encourage posts on social media apps.

Whatever the intended impact of these new advertising-related updates, hints from Apple’s third-party app developers, bloggers, and users suggested the end result was a flurry of irrelevant and offensive advertisingquite often for crypto related scams and gambling. This included some instances where these ads were not only annoying but also inappropriate – alongside apps for kids games or apps for Recovery from Gambling Addiction.

We contacted Apple to see if they had anything to say about introducing ads, and the company told us (and other outlets) that it was “ads related to gambling and some other categories on the App Store product pages.” has paused”. In the short term, the most egregious issue was addressed, and in any case, “gambling apps advertised alongside gambling addiction recovery apps” appeared to be a result of unforeseen circumstances rather than something from Apple intended happen.

But whatever the intended effect, the outcry reminded me of something I’ve been concerned about for some time: the rise of Apple’s services division and why I’m worried about where the company is headed.

Where Apple makes its money

Apple still makes most of its money from what it always has: selling hardware. Apple has always had less profitable businesses simmering alongside its hardware business – the iTunes Stores for music and videos, sales for Mac OS X and Pro apps like Final Cut or Logic Pro, and .Mac/MobileMe/iCloud subscriptions all brought in some money. But those were mostly side hustles or services done to create a halo effect for Apple hardware.

It’s one of the reasons I’ve felt a little more comfortable inviting Apple’s products into my home compared to Google’s or Amazon’s or Facebook’s Metas or (to a lesser extent) Microsofts. It’s about Where Each of these companies make their money. When the products have no upfront cost and the majority of the company’s revenue comes from ads or other types of targeting and tracking products, the adage “you are the product” applies.

It might be Pollyannaish of me to base purchasing decisions on that gut feeling, but as long as Apple makes most of its money from hardware sales, I could at least tell myself that the internal and external pressures on the company would incentivize a continued focus on good hardware, on that runs good software instead of chasing click through rates and user interaction. As Apple began to increase its focus on privacy to create a stronger contrast between itself and Google, it seemed even more likely that Apple would resist the urge to stuff ads and intrusive notifications into all of its apps.

But things have changed and continue to change in Apple’s financial reports. Compare Apple’s non-hardware revenue a decade ago to today: In 2012, software, services, and sales of music and other media accounted for about $12 million of the $156.5 million that Apple earned that year, or 7.7 percent. In 2022, that’s up from $394.3 million to $78.1 million, or almost 20 percent.

That increase has been steady, and service growth has consistently outpaced Apple’s hardware business growth in recent years; also in 2022, a relatively slow year for services growthRevenue increased nearly $10 million (14.2 percent) year-over-year, while all Apple products combined grew $18.8 million (6.3 percent).

Services aren’t exactly eating the life of the company’s hardware business, but at this point it’s larger by revenue than the Mac and iPad combined. And while growth has slowed somewhat into 2022, there’s likely still more growth to come potential There’s more to it than hardware, because your pool of potential subscribers includes people who aren’t Apple hardware owners.

It’s still just little things, but there’s more to come

Ever since Apple stopped advertising gambling apps, I’ve mostly seen relatively innocuous ads for hotel booking apps, coloring book apps, and no-name free-to-play games alongside App Store listings — to which they’re not remotely relevant are me, which is a problem of its own, but they don’t hurt anyone. And ads, auto-generated lists of suggested or sponsored content, and news about ecommerce features and browser switching aren’t nearly as ubiquitous in iOS or macOS as they are in (say) Windows or Microsoft Edge. The sort of behavior I’m complaining about, at least for now, happens on the outer edges of the Apple experience.

But I’m still concerned about the general trend here. When I see these ads, when Apple TV+ notifies me of new shows I haven’t watched or shown interest in, when Apple News shows a notification in my feed even though I never open or use it, these represent small Intrusions from the Services department into the iOS experience. I can ignore the ads, I can turn off the notifications, but the default settings are to nudge me in the direction of things I don’t want using methods I don’t care about.

The icky gambling ads are just one data point, but reports suggest that Apple’s ads business is just starting to take off. Reports from Digiday earlier this month allege that Apple is building a larger ad operation for the Apple TV+ service, backed by a “demand-side platform” (DSP) so advertisers can target their desired audiences more efficiently.

More advertising for Apple’s services and devices isn’t necessarily the end of the world in and of itself, and ads that air during Apple TV+ streams aren’t going to suddenly appear on your iPad home screen uninvited. But my experience in 25 years on the internet is that advertisements don’t usually come fewer Intrusive or ubiquitous over time – the Chromium-based version of Edge is a great example of this, as it started out as a largely benign Chrome clone and over time has turned into a nightmare of ecommerce pop-ups and nagging. I don’t think I’m holding my breath when I say that these ads generally don’t to enhance the experience of using a product or service.

On the subject of Apple TV+ ads, consider this: It’s bearable to watch the same four or five ads six times apiece in an hour-long show on Hulu, but do they make you feel like a Hulu subscriber, or do they? Thinking about either upgrading to the ad-free tier or canceling your service entirely just to escape them? Do a Google or Amazon search along nothing but sponsored results above the crease and look forward to continuing to use these products, or use them because they are usually still in short supply less bad than all the alternatives out there?

Will Apple’s ads be as obnoxious as these? Probably not. An advertising agency executive speaking to Digiday said: “[Apple TV] will be a very good ad experience with likely low ad load. [Apple is] already very diversified in terms of revenue streams, so there’s less pressure to run lots of ads.” But ad experiences almost never start out as annoying as they eventually get.

That’s why I’m concerned about Apple’s forays into advertising and the increased importance of its services division to Apple’s continued growth. Not because I think Apple’s products will become obsolete, or because I think the iPhone or Apple TV home screen will be dominated overnight by Roku-style half-page ads, but because I think the pressure on Apple to change the experience for Impairing users and developers in the name of expanding its advertising business will gradually increase as Apple tries to please shareholders looking for steady growth.

That’s the same incline that took us from app ads in search results to “gambling apps advertised alongside literally everything,” and we’ve already seen many, many products and services slide down there. Maybe Apple will be different. But maybe not.