No, your phone's microphone isn't spying on you.

Of course it sometimes feels like that; why else did you suddenly see an ad for something you and your friend were discussing over dinner last night? You are certain you didn’t search for it online. 

The answer is more sophisticated and involves more players and moving pieces than you probably think. Even many in the digital advertising space don’t understand how this works.

Here’s an example of how you are getting those spookily relevant ads right now (pay close attention because we’ll address how this current model is changing shortly):

You visit a friend for a few days out of town. 

You and your friend enjoy some snacks at their house before a night on the town. 

You only order an appetizer for dinner. You say you’re full from the delicious hummus you scarfed down a while back at your friend’s house.

“Wasn’t that good?” your friend asks. “I never bought it before but they had samples in the store. I thought I should pick some up for you since I know you like that stuff.”

“Thanks for doing that!” You reply. “I definitely have to get some when I go home.”

The next day, you’re taking it easy after a long night out. You’re scrolling through your social media feed, and low and behold, you see an ad for the hummus. 

The very same hummus you and your friend were discussing over dinner. 

The very same hummus you said you needed to buy when you got home. 

What possible explanation could there be other than your phone listening to your dinner conversation?

As it turns out, your phone is not eavesdropping. But it’s doing a lot more than that. Here’s what that hummus ad looks like under the hood.

A few days before your arrival, your friend goes grocery shopping. They stock up on items ahead of your visit, including a fancy new hummus brand. 

While checking out, your friend uses their supermarket loyalty card (after all, who doesn’t like saving a few bucks on their groceries?). 

The data machine is now kicking into gear. After your friend’s purchase with their loyalty card, that data is sold from the grocery store to a data aggregator. This data includes your friend’s name, address, email, phone number, and a long, complete list of everything they’re buying at the store and when it was purchased. How does the grocery store have all this information? You give them your information when signing up for the loyalty card. From there, the grocery store simply packages that with what you’re buying and sells it off to the data aggregator.

(Just to be clear, the data aggregator is not Facebook or Google. It’s a separate entity. But we’ll get to that in a minute.)

Now you enter the picture. You arrive at your friend’s house with your phone in tow. Both you and your friend have Location Services enabled on your phones. You’re also friends on Facebook and in each other’s phone Contacts. This tells your apps that you’re friends in real life and that you’re spending time with each other (the location services data shows you’re in the same house for an extended period of time and the social media connections and contact book show you have a social connection).

All of this information is then packaged up and sold to the data aggregators. The very same data aggregators that know all about what your friend is buying at the grocery store. 

Next, that information gets pieced together to tell a story and create a potential sales opportunity. Here’s what that looks like all pieced together:

• Your friend just bought a brand new product (people are more likely to talk about new products they’re trying than things they buy all the time).
• You and your friend profile very similarly (age, lifestyle, diet, interests).
• You and your friend are spending a lot of physical time together.
• There’s a good chance you’ve either eaten the hummus, seen it in their fridge, or talked about it.

Enter the hummus marketing team. In an effort to build awareness around their brand, they are running an online advertising campaign. 

Online advertising platforms (e.g. Google or Facebook) want to create as much ROI as they can for their advertisers. It’s what gets them to come back and spend more. To achieve the best targeting possible, they buy information from the data aggregators and build it into their targeting algorithm. 

So if the intent is to show the ad to the most relevant audience, who better to see an ad for the hummus than the good friend of someone who just bought some while they are hanging out together? 

The chances are good that the friend who visited encountered the hummus in some capacity. And even if they didn’t, the fact that the two friends share so many physical and lifestyle traits means there’s an increased chance hummus will appeal to the friend. 

And if the friends later discover they both like the same hummus, that will trigger yet another conversation. 

So that’s a look into one of the many ways apps, retail stores, data aggregators, and advertisers work together to show you insanely relevant ads. 

Data is collected from a variety of sources, packaged up to build a comprehensive profile of you, then sold to advertisers so their targeting is more precise and effective. 

But as we mentioned, some of this data machine is starting to change. 

Apple Allowing Users to Opt-Out of App Tracking

In April of 2021, Apple made it super simple for users to opt-out of App tracking. Apps collect and sell your data to data aggregators. By cutting off this source of information, data aggregators are less effective at building a complete profile of you to sell off to advertisers. 

If you use iOS, you’ve seen this in action. You open up an app and are prompted to not allow tracking. Chances are you opted out. According to one report, 96% of users have done so. 

And with iOS holding 60% of mobile market share in the US, this is no small hit. 

What does this mean for advertisers? It could mean a few things:

1. Targeting won’t be as effective. Needless to say, the less the advertising platforms know about a user, the harder it is to place an ad in front of the right person. 
2. Advertising costs increase. Because marketers can’t target with the same level of precision, they will have to get in front of a larger audience (and compete with more advertisers). This will increase advertising bids, driving campaign costs up. 

Put those two together and advertisers end up paying more for a less effective ad. That’s not a great combination. 

But we don’t think this spells doomsday for advertisers. It will simply force us to adapt and get smarter. That said, those who don’t pay close attention to performance metrics will be the biggest losers. 

Upcoming Apple Email Tracking Change

There’s more. In the fall of 2021, Apple will allow users to opt-out of email tracking. 

Email tracking is what tells email marketers that a recipient opened an email. It’s done by placing a tiny 1x1 pixel inside the email. When the email is clicked and the images load, the 1x1 pixel loads as well, sending a signal back to the email platform that the email was opened. 

By blocking this signal from email marketers, it won’t be possible to track open rates and email engagement. 

Email marketers rely on these signals to optimize their campaigns. It helps them know which messages resonate and which don’t. It helps them segment their email lists so they can better tailor their message to certain groups. It helps them maintain good list hygiene by eliminating those that never engage. 

With 58% of all email opens happening through an Apple email app, this will have a major impact on nearly every email marketer. 

So how do marketers adapt? They become even more user-focused. When Google Analytics stopped reporting keyword data, search marketers became more focused on the user and less on the data. Would we like to have keyword data back? Absolutely. But we can still do effective SEO without it. Email marketing will be no different. 

Note: Email marketers should continue to pay close attention to their open rates, as some believe Apple will preload all images in an email (including the tracking pixel). This will make it appear as though every recipient has opened an email, causing open rates to skyrocket. 

The key takeaway here is that your smartphone isn’t a spy. But the data that is collected from your phone, your purchases, and your daily habits (such as visiting a friend, going to the gym, taking a trip, etc.) make up a fairly complete picture of you that advertisers can use to put the right ad in front of you at the right time.

Without some of the information that we now have access to (cutting out Apple app tracking and email tracking), we are all likely to see some less relevant ads and content. And marketers will need to continually adapt, not relying as heavily on some of the data that has been readily accessible.