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How Apple's privacy push crushed Criteo and endangers the open web

Net neutrality isn't the only blow to the open internet lately. It is pretty rare to see cases of corporate assault as striking as what Apple has done to Criteo in the past few months. Though the technical details are wonky, the story is simple once you understand how Criteo fits in, and the threat to open web economics is very real.

What Criteo does:

Criteo is a dominant provider of advertising technology for the open web (think retailers like and publishers like Mashable). If you've visited a non-Amazon retailer lately and seen that retailer's products following you around the internet, that's called dynamic retargeting. It is Criteo's bread and butter and odds are it served you the ad: it is the dominant vendor by a wide margin. Closely integrated into the sites of thousands of retailers, Criteo has assembled one of the few datasets capable of competing toe-to-toe with Facebook, Google and Amazon. Using it, it is one of the largest ad-buyers on the internet on behalf of its clients and drives billions of retail sales- a typical Criteo client derives 8-10% of total online sales from retargeting powered by the platform. This is an hugely rich optimization problem, and Criteo is one of the only public companies that can credibly say its business is built on machine learning.

Why retargeting isn't all that bad:

People have strong reactions to retargeting. It feels intuitively creepy that Criteo knows what you've looked at on retail sites, and then serves ads up to you based on that data, especially since you never see the "Criteo" name anywhere. This is a side effect of the open-web, and the need for smaller retailers/publishers to pool resources to compete with the reach of the giants. That said, it works. People click the ads and buy stuff, which makes the ads valuable, which helps non-Amazon retailers compete and non-Facebook/Google publishers make money. In many ways, Criteo is a champion of the open web, doing the "dirty job" of tracking people across all the various sites to try to replicate the kind of data advantage the big guys have. It does it well, too, and is one of the few successful publicly traded ad-tech companies with hundreds of millions of annual revenue and (drumroll) meaningful profits and free cash flow.

Full disclosure: I know the team at Criteo from my days as a public markets investors, and was an investor at various points both professionally and personally (neither has been the case for some time). As a newbie to public company investing, I was drawn to ad-tech as a remarkably complex space few people understood, and so I spent time learning the various players and dynamics. The Criteo team is made up of genuinely good people who have built one of continental Europe's most successful tech companies. They are not nefarious French super-villains working from a lair in the Alps - they're more like nerdy data-nuts who have found a great big data use-case with some decent network effects and owned it.

What happened:

In recent weeks, Apple has launched a full assault of Criteo and its customers (publishers and retailers alike) in the name of privacy. Simply put, iOS 11 renders Criteo's tracking impossible via a feature called intelligent tracking prevention (ITP), effectively eliminating just over a fifth of the company's revenue. Until today, there were some technical workarounds but as of iOS 11.2 those are mitigated as well, making Apple's intentions clear: Criteo's style of tracking/retargeting is not kosher on iPhones anymore and won't be allowed. Criteo's share price reflects this, having fallen over 60% since before Apple's move was originally announced. This amounts to a remarkably public example of a goliath casually crushing a startup's valuation with a small tweak to its software its users might barely notice- even if in this case the startup was worth $3bn and one of the largest growth technology companies in France.

Why you should be wary:

At first take, I'm sure many are (infinitesimally) happier this way. The creepy Machiavellian ad-engine is gone and the web is the same. Product ads will be replaced with more generic, less eye-catching/revenue generative ones for cars and car insurance, content creators will continue content creating and the world will keep on spinning. This is a dangerous view that subverts the implicit social contract the long tail of the web is built on: content for data-driven advertising.

Criteo's tracking enabled algorithms mean more money in the pockets of publishers (and retailers!) and without them there will be less money in content and so less content in a world where publishers are already struggling. In the old equilibrium, users who truly didn't want to be tracked or see annoying ads had solid options (opt-outs, ad-blockers), and most users implicitly opted into the data-collection ecosystem. Now, the open web is at risk of a classic tragedy of the commons scenario where no one opts into tracking that allows higher value ads and as a result the overall ecosystem suffers to everyone's detriment. The old equilibrium of implicit consent was the right mix of privacy protections and a collective "nudge" via a set of default practices that left everyone collectively in a decent (though not perfect) place.

What worries me the most is that large platforms may continue to weaponize privacy and security for use against the open web. I'm not accusing Apple of having nefarious motive here: doubtless its view is that this is a pro-privacy move that users will appreciate, and that may be true. But if privacy means letting only a privileged few companies have access to all of our data to use as they please that only reinforces the oligopolistic power of the goliaths at the expense of innovative smaller companies like Criteo. It now seems to be to the big players' advantage to "protect" consumers from the perils of shady ad-trackers and unfiltered content, but when this has the convenient side effect of protecting them from competition we should be wary.

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