Aug. 13 (Xinhua) — Apple Inc. and social giant Facebook could have become closer business partners, but with a secret negotiation that ended inconclusively, the two sides turned against each other, people familiar with the matter said.
▲ Apple and Facebook fall out over privacy tweaks
The feud between the two giants erupted last year. At the time, Apple released iOS 14.5, which made it easier for iPhone and iPad users to block apps like Facebook from tracking their device activity. The privacy dispute is roiling the digital economy. As users continue to limit the data available to advertisers, the companies are shifting billions of dollars in ad spending.
However, the two sides have not always been at odds. In fact, they almost became business partners.
Splitting the Feud
Just a few years before Apple made this privacy adjustment, the company proposed a series of potential arrangements to Facebook aimed at getting a cut of Facebook’s revenue, people familiar with the matter said. Apple executives said at the time that they wanted to “build the business together,” a person familiar with the matter recalled.
One of the ideas they discussed was creating an ad-free subscription version of Facebook. The product could have generated significant revenue for Apple, which takes a cut of App Store app subscription revenue.
The two companies also haggled over whether Apple would have the right to take a cut of so-called “promoted posts. Promoted posts allow users to pay to increase the number of people who see a post on Facebook or Instagram. Facebook, which has considered launching promoted ads, has maintained that promotions are a form of advertising, in part because small businesses often use them to reach a wider audience, people familiar with the matter said.
▲ Apple iOS privacy tweaks make it hard for Facebook to track users
Apple doesn’t take a cut of developers’ ads, but the company argues that Facebook promotions should be considered in-app purchases, people familiar with the matter said. Under Apple’s standard terms, it is entitled to a 30 percent cut of those sales.
As a result, Apple and Facebook have not reached an agreement on any proposals to strengthen their partnership. Meanwhile, Facebook is also considering making privacy-related adjustments. Facebook CEO Mark Zuckerberg has chosen to delay major adjustments to its data practices in order to keep its advertising business thriving, a strategy known within the company as the “fallback,” people familiar with the matter said.
Negotiations between the two companies took place mainly between 2016 and 2018. This suggests that the two companies struggled to find common ground for some time before their positions became hardened.
Turning against each other
For years, Apple and Facebook have maintained a unique symbiotic relationship: Apple controls the App Store, a portal for hundreds of millions of users to download Facebook’s flagship apps as well as the company’s other popular services, including Instagram, Messenger and WhatsApp. Yet while Facebook’s products rank among the most popular apps on the iPhone, they don’t generate revenue for Apple. This has been a source of frustration for some Apple executives, people familiar with the matter said.
As the maker of the iPhone, Apple also controls device identity tracking, which has been key to Facebook’s ability to collect data on users and deliver personalized ads to them for more than a decade. Apple says its commitment to privacy is a core principle of the company that predates its disagreements with Facebook. An Apple spokesman said there was no connection between any discussions about the partnership and the ad tracking adjustments that were later implemented. Apple has discussed a similar business model with many developers, people familiar with the matter said.
▲ Apple CEO Cook
The negotiations with Facebook come at a time when Apple is shifting its business focus from hardware sales to software. 2016 saw Apple’s iPhone revenue decline year-over-year for the first time, and CEO Tim Cook began to focus more on efforts to strengthen its digital services business, promising in 2017 to double services revenue by 2020. As a result, the company achieved that goal six months ahead of schedule. According to Apple’s latest quarterly earnings report, the services business (which includes the App Store, cloud storage products and its own advertising business) generated $19.6 billion in revenue, up 12 percent year-over-year.
A significant portion of Apple’s services revenue comes from its partnership with Google. This partnership was not known until the U.S. Department of Justice filed an antitrust lawsuit against Google in 2020. Under an agreement between the two parties, Google pays Apple billions of dollars a year to be the default search engine for the Safari browser. Apple has not yet been accused of wrongdoing. Google has said in response that it spends money to promote its services, as many businesses do.
Some Facebook executives are concerned about Apple’s impact on their business, in part because of Cook’s criticism of companies that rely on collecting user data. Also, Facebook’s use of user data is increasingly at odds with European privacy concerns. In addition, public issues such as the Cambridge Analytica scandal in 2018 have sparked a wave of scrutiny of Facebook by U.S. and European lawmakers and regulators. Cambridge Analytica is a consulting firm that improperly accessed the private data of 87 million Facebook users and used it for partisan political research.
By the summer of 2018, Apple tweaked its Safari desktop and mobile web browsers, which hampered Facebook’s web presence and led to the company’s inability to track users without their permission when they visit different websites. Apple’s next big goal: to stop apps from performing similar tracking functions.
Meanwhile, at Facebook’s headquarters in Menlo Park, Zuckerberg and his executives are already considering changes to the business, including stopping the use of data collected by other companies to target ads to users. That would have been unthinkable before.
▲ Zuckerberg
In June 2020, Apple announced privacy tweaks to iOS, a move that sent shock waves through the advertising industry but was seen as a victory by data privacy advocates. Apple officially implemented the tweaks the following April.
Shortly thereafter, Facebook reconsidered the idea of launching a subscription version of its flagship app, people familiar with the matter said. But a subscription-based service would face a number of challenges, including whether a person using multiple social media accounts would have an ad-free experience on all of them. Ultimately, the company decided to abandon the idea in order not to impact its advertising business.
4 Trillion in market value evaporates
The impact of Apple’s privacy tweaks has been significant. According to research firm Insider Intelligence, only 37 percent of iPhone and iPad users in the U.S. have opted to allow companies to track them on their devices. With so few users opting to allow tracking, the impact of Apple’s iOS overhaul is being felt across the digital advertising ecosystem in general.
A joint survey conducted in June by mobile market analytics firm Tenjin and mobile advertiser tools developer Growth FullStack revealed that 59 percent of mobile advertisers in the U.S. and U.K. have shifted their ad budgets from iOS to Google Android. data management firm Lotame estimates that the shift in Apple’s privacy policy has so far caused Facebook, Twitter, Snap and YouTube to lose $17.8 billion in revenue in 2022.
The losses have been heaviest for Facebook, which is rushing to fix its ad tracking system. Apple’s privacy tweaks have been the main reason for the company’s steep decline. In less than a year, Facebook’s market value has evaporated by about $600 billion (about $4 trillion). Last month, more than a year after those adjustments took place, Meta reported earnings that said the company’s quarterly revenue fell year-over-year for the first time since it went public in 2012.
Both tech giants have made their positions clear on the dispute. Apple focuses on user privacy, while Meta emphasizes the benefits of personalized online advertising.
“Every day, we meet and work with developers large and small to make recommendations, address their concerns and help them continue to grow their businesses,” an Apple spokeswoman said, adding that “the rules for app developers like Facebook apply to all developers because we believe fair enforcement will result in the best user experience.”
A Meta spokesperson said the company “has made significant adjustments over the past five years to protect people’s data while allowing businesses of all sizes to grow.” “Our decision will not depend on another company, but rather on the commitment we make to the people who use our products and our belief that privacy and personalization can coexist.” The spokesperson said.
