Now with that behind us, and iOS  adopting device-level legal compliance, it is poised to become a juggernaut of mobile advertiser revenue – and eventually will be second only to television in overall ad spending.

UDID inadvertently stifled advertising

The legal gray area around UDID became a serious and expensive issue for two of the biggest apps in the iOS ecosystem in May of 2011. Pandora and The Weather Channel were both named in a lawsuit because of how they used personal data, namely UDID, and combined it with location-based data or other demographic data. The lawsuit specifically called out the fact that with UDID, users were not able to opt out of ad tracking. In response to this lawsuit, both apps stopped using any ID at all for tracking. Many other apps followed suit and some platforms in the ecosystem switched to using different IDs.

This stymied advertisers and marketers, who understandably sought a legally compliant way to track downloads, and so many simply stopped advertising via mobile at all. Others opted to advertise apps without any tracking in place – they would rather market their products blindly than deal with the legal fallout from the use of UDID – drastically reducing their ability to track ROI.

The good news is this legal gray area will be cleared up on May 1. In response to critics of UDID, Apple has created a legally compliant alternative called, simply enough, IFA, or ID for Advertisers that is built directly into iOS 6. Crucially it also allows users to opt out of any advertising tracking method by changing a setting at the device level. This solution means that starting next month, anyone advertising on the iOS platform will be legally compliant. The device level solution also puts iOS somewhat ahead of the PC web, where legal compliance with ad tracking has to be handled on a site-by-site basis and is currently a messy struggle with no system-level opt out.

Why accurate conversion tracking matters

For a new medium to grow, showing clear ROI to marketers is key. Once they know the ROI, their ability to scale budgets is only limited by maintaining that ROI. Google has shown just how scalable this model is on the PC with AdWords, with massive year-over-year growth.

Facebook also clearly understands the value that conversion tracking can provide. After testing their conversion tracking system with major advertisers for almost a year, it recently opened up the program to all its advertisers. With conversion tracking in place and the ability to optimize campaigns, it claims a 40 percent lower cost per conversion. The savings per acquisition can now be applied to acquiring more users, effectively increasing the total budget.

Even Apple’s iAd, which has always had conversion tracking, has seen significant growth in this transition period away from UDID. The platform was originally marketed as a rich-media advertising option for brands, but pivoted to performance advertising. The high prices and low ROI of rich media ads sent a chill up the spine of the Madison Avenue executives who bought them.

At TapSense, we meet with agencies and customers all the time that tell us their number one barrier to spending on mobile is conversion tracking (Disclosure: the author’s company is one of many that offer mobile tracking services, among other things.) They don’t know what options they have and how it works without UDID, which means they’re not spending. Once conversion tracking is in place on iOS, marketers will be able to see beyond the download and deep into their conversion funnel.

iOS revenues will skyrocket in 2013

With the legal issues around UDID cleared up, a lot of the friction that was holding back large advertising budgets will be reduced. Additionally, the 14 percent decline in PC sales in the first quarter of 2013 confirms that consumers are quickly moving to mobile. Despite having a smaller overall mobile market share, Apple’s iOS  dominates both mobile ad traffic and mobile revenue; a recent study shows overall that iOS accounts for 44.5 and 49 percent respectively, versus Android’s 31 and 26.7 percent shares. And so with the continued shift away from PCs, marketers will flock even more to iOS, where they can best reach an affluent demographic.

Gregory Kennedy is vice president of marketing at TapSense. Follow him on Twitter @tapsense.

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On its developer site Apple writes:

Starting May 1, the App Store will no longer accept new apps or app updates that access UDIDs. Please update your apps and servers to associate users with the Vendor or Advertising identifiers introduced in iOS 6.

UDIDs, which were intended to be anonymous, have been used by publishers, developers and advertisers to track their app’s usage and more accurately target advertisements almost since the App Store opened in 2008. But there are huge privacy implications with that practice: with just a bit more identifying data, a device’s UDID can be traced to a specific owner.

Apple first mentioned it would start rejecting apps that used UDIDs, due to privacy concerns, in late 2011. Then almost exactly a year ago, there were signs the company’s app review team had begun enforcing that rule. In September 2012, Apple introduced a replacement system for advertisers to use — the Advertising Identifier, an anonymized number that users can choose to reset, or opt out of altogether.

By May 1, the Advertising Identifier will have been available for eight months; plenty of time for those who want to understand how their apps are being used to switch over to the new system.

Besides UDID use, 9to5Mac notes that App Store reviewers will also be looking for apps that aren’t optimized for Retina displays and will reject them, along with iPhone apps that are not optimized for the 4-inch screen of the iPhone 5.

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It took serious privacy concerns to get Apple to move away from UDIDs, which were supposed to be anonymous: Researchers showed that it was possible to identify an iOS user by their unique ID with just a bit of additional information. A Wall Street Journal investigation in 2010 first brought public attention to the fact that dozens of apps they tested were sharing personal information with these companies, like age, gender and location. That kind of information could be connected with UDIDs to identify and track specific users’ behavior.

The Identifier for Advertisers, or IFA, is a new set of APIs rolled out quietly in September specifically for advertisers. Unlike a UDID, an IFA is not a number that is forever associated with a particular device — users can choose to reset it, or opt out altogether. Still, since September, the new identifier is not being adopted very quickly, according to Craig Palli, vice president of business development at mobile app marketing company Fiksu.

“What we see is currently less than 10 percent of the traffic is supporting IFA,” he told me in an interview last week. The traffic he’s referring to is from hundreds of thousands of app publishers’ data his company has access to. While usage rates around 10 percent are pretty small, he believes that over the next few months there will be a rapid shift coming, especially after the beginning of the year. He is forecasting that IFA use “will achieve a critical mass in the second half of Q1 or first half of Q2” 2013. By that time, it will have been about 16 months since Apple first announced it would crack down on publishers and advertisers’ usage of UDID to track users.

What’s taking so long

There are three big reasons the IFA transition has yet to take hold in meaningful numbers. One of them is Apple’s fault — an egregious bug in the system — BUT one is simply a function of bad timing, and the other relates to the sheer effort needed to steer a very large industry toward a new practice.

Many publishers, advertisers and ad networks were all set to adopt IFA. But when Apple rolled out the change in iOS 6, there was a big problem: a bug that rendered everyone’s IFA as a string of zeroes.

“It killed the whole purpose of IFA,” said Michael Oiknine, CEO of Apsalar, a mobile behavior tracking platform.

That meant companies like Apsalar and its clients had no way to measure app user behavior or the effectiveness of in-app ads. If a company tried to use Apple’s new system, it would have had a big gap in its usage statistics in trying to track users that upgraded to iOS 6, said Oiknine. In other words, moving to IFA would have been a big setback.

Bad time for a big switch

The bug is fixed now. But for many publishers, timing the transition to occur in the fall was not ideal. Making the transition from UDID to the new identifier takes time, and a lot of companies don’t want to try to make the switch around a time when a lot of people are getting new mobile devices and starting to use different apps, many for the first time. There were over 6 million iOS and Android device activations on Christmas Day alone last year. Advertisers and publishers want to get to know their new users and start showing them ads from the start.

“The industry could’ve moved a little faster if this were released in a Q1 time period and not up against a critical holiday time period,” said Palli.

But even without the timing aspect, the reality is that getting any industry to adopt a new standard quickly is always a challenge.

UDID remains the standard, Palli said — but there’s also digital fingerprinting, and first-party HTML cookies being used instead of IFA. However, he’s positive the industry is going to embrace Apple’s new solution.

“There is definitive contemplation that there be an industry transition period between UDID and IFA,” so it’s not a huge surprise it’s taking so long. It’ll happen, said Palli. “I think that the industry is highly interested and motivated to get there.”

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