Apple faces a major test of how it enforces its policies in a key market as China’s tech giants explore a way to skirt its privacy changes (AAPL)

Apple CEO Tim Cook in China, March 2019

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Apple could soon face a major test of how strictly it plans to enforce its forthcoming app privacy policies after it emerged that some of China’s biggest tech companies are testing a solution to skirt the change.

The Financial Times reported Monday that ByteDance and Tencent were among the companies testing a China Advertising ID, known as CAID, which is being developed by the state-backed trade group the China Advertising Association. Early documentation for the solution suggests such an ID would let apps track users for advertising purposes even if those users didn’t explicitly opt in.

Sources with direct knowledge of the Chinese mobile ad market also separately confirmed to Insider that testing of the CAID has been underway since last year.

“The App Store terms and guidelines apply equally to all developers around the world, including Apple,” said an Apple spokesperson in an emailed statement. “We believe strongly that users should be asked for their permission before being tracked. Apps that are found to disregard the user’s choice will be rejected.”

China Advertising Association and ByteDance had not responded to Insider’s requests for comment at the time of publication. A Tencent spokesperson said the company had no comment.

Apple’s privacy changes, expected to take effect in March, will require app developers, like Facebook, to ask users for permission to track them around the web and other apps via Apple’s Identifier for Advertisers (IDFA) in order to zap them with targeted ads.

Most of the mobile marketing community expects consumer opt-in rates to be low, which would hamper advertisers’ ability to precision-target users and measure the effectiveness of their advertising.

A tech specifications document for the CAID’s software development kit (SDK), seen by Insider, explains that the technology is intended to work even if a developer or advertiser is unable to get access to the IDFA.

Translated from Mandarin to English using Google Translate, the document reads: “Because CAID does not depend on Apple IDFA and can generate device identification ID independently of IDFA, it can be used as an alternative to device identification in iOS14.”

The tech spec also states (again, translated from Mandarin to English) that the CAID does not collect private data and that it only transmits an encrypted, irreversible result, which the document says would protect user privacy.

The China Advertising Association told the Financial Times that the CAID “does not stand in opposition to Apple’s privacy policy” and said that the technology has not been officially implemented.

“I feel like it flies not just in the face of regulation but in the face of where things are going where consumer choice must be central to all that happens,” Brian Kane, chief operating officer at privacy-compliance platform Sourcepoint, said in reaction to the news of the CAID.

 

Apple has explicitly stated that developers cannot use an identifier beyond the IDFA to track a user if that user hasn’t given consent.

China is a key market for Apple’s future growth

If ByteDance and Tencent plan to press ahead with using the CAID, it would follow that Apple would then need to decide whether to boot some of China’s most popular apps — including WeChat and Douyin, the Chinese version of TikTok — from its App Store. The Douyin iOS app was downloaded more than 125 million times between March 1, 2019, and February 28, according to app-data firm Sensor Tower; WeChat has been downloaded some 93.9 million times over that period.

Beyond its statement, Apple did not respond to a specific request for comment about whether the company would remove from the App Store globally any apps found using the CAID to obtain indentifiers from iPhone users who had not opted into tracking.

Such a bold move could have serious implications on Apple’s position in China, a massively important market for the company and where it manufactures many of its electronics. The US and China were the only countries that each accounted for more than 10% of the company’s net sales in 2020, generating $109 billion and $40 billion of sales, respectively, last year.

Apple also has plenty of room to grow in China. Rival Android has a 78% share of the Chinese mobile operating system market in the country compared with iOS’s 20%, according to Statcounter. Apple devices made up 19% of smartphone shipments in China in the fourth quarter of 2020, according to IDC, behind Huawei, which had a 25% share in the period.

The company could decide to make an exception for China, though such a move would be unprecedented as its operating system updates to date have rolled out simultaneously to countries around the globe. Plus, a decision of this kind would run counter to its yearslong lobbying and marketing positioning around privacy being “a fundamental human right.”

Apple has removed thousands of apps from its App Store over the years at the request of Chinese authorities, often to the chagrin of free speech and anti-censorship activists. The company published a document last year outlining its human rights policy and its commitment to freedom of information and expression.

“Apple is now in a tricky situation because I don’t think they can generally say, ‘Oh China is special’,” with regard to its app privacy policies, said Jürgen Galler, CEO of 1plusX, a data management company that works with advertisers and media companies.

Complications with Apple’s privacy changes extend beyond China

Outside of China, Apple’s intended privacy changes, which were already delayed once to give developers more time to adapt, face other wrinkles.

Facebook has launched a high-profile campaign to protest against Apple’s IDFA proposals. The social network, which also faces a dent to its own advertising business as a result of the changes, recently launched paid for ad space in newspapers that argue Apple’s proposals would be damaging to small businesses who rely on personalized advertising.

Apple is also awaiting a decision from the French competition regulator about whether to impose interim measures on the tech giant that could force it to push back the app-tracking changes even further. The French Autorité de la Concurrence’s investigation came after a group of influential French internet advertising associations alleged Apple was leveraging a dominant position to distort competition in the app advertising market. Apple said in response to the complaint last year that it had received strong support from regulators and privacy advocates for the new feature. The ADLC’s decision is expected at around 10 am Central European Standard Time (5 am Eastern Daylight Time) on Wednesday, a person with direct knowledge of the matter confirmed.

Meanwhile, it appears advertisers and developers still aren’t fully prepared for Apple’s changes. Branch, a mobile measurement provider, this month released results of an internal audit of its clients that found that just 6% of advertisers are testing the SKAdnetwork — Apple’s measurement platform, which provides basic data such as which ad campaigns resulted in ad installs.

Factoring in the slow SKAdnetwork adoption, French antitrust case, and the emergence of a China-specific advertising identifier, there are “quite a few weak links in the chain” for the smooth rollout of Apple’s app-tracking proposals, said Eric Seufert, strategy consultant at Heracles Media and owner of the Mobile Dev Memo blog.

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