[jefftk]

Sure! Imagine we're talking about users searching in a way that indicates very strong intent to subscribe, like "how do I subscribe to Tinder". These users are almost certain to subscribe. There are two ways that can happen:

a) They can click through to a Tinder site, where they subscribe directly.

b) They can click through to the App Store, where they end up subscribing via Apple's in-app purchases. Apple gets a 30% cut.

Assuming your $100 LTV from before, in (a) Tinder makes $97 and Apple makes $0 while in (b) Tinder makes $70 and Apple makes $27. Tinder clearly prefers (a) while Apple prefers (b), but by how much?

Tinder: they make $97 - $70 = $27 more in (a)

Apple: they make $27 - 0 = $27 more in (b)

This means both companies are willing to bid approximately the same amount, since their profit on winning, relative to what would've happened otherwise, is $27.

[offtotheraces]

So are you saying that the clearing price for the ad inventory they’re competing over is $27? (If so I’ll explain why that’s not the case)

[jefftk]

Yes: I would expect them each to be willing to bid up to $27

[sokoloff]

I would expect Tinder might be willing to bid more than $27 (per conversion) even if they only ever used Apple payments.

Any marginal conversion that Tinder creates (either against a competitor or non-consumption) is worth over $50 net to them using Apple payments. ($50 would assume a generous $20 marginal cost to serve.)

That doesn’t mean that the data that Tinder’s ROAS team is looking at will guide them to spend more than $27 in this case, only that it might.

Likewise Apple could spend $27 on every customer they converted who was already going to be paying Tinder on the web to buying via the App Store plus $27 for every user they added to Tinder who paid on the App Store who would have not bought or would have gone to a competitor (minus any credit Apple would have earned there) plus an amount of cashflow and enterprise value created by people seeing ads for Apple’s store and concluding that Apple has more/better apps than their competitors.

If we confine only to first-order effects and assume advertising is exclusively about changing payment preferences of users who would convert anyway, I’d expect both companies to be willing to bid close to $27.