The privacy battle of Apple (AAPL), Facebook (FB) is just beginning

It’s hard to pinpoint exactly where things with Facebook and Apple went wrong, but like so many relationships that went sour, the first signs of real problems seemed to be petty complaints. In March 2018, Facebook Inc. was in the middle of a scandal involving political consultancy Cambridge Analytica and faced serious doubts about the administration of its users’ personal data. An MSNBC commenter asked Apple Inc. CEO Tim Cook, what would he do if he were in place of Facebook CEO Mark Zuckerberg. “I wouldn’t be in this situation,” said Cook.

A week later, Zuckerberg hinted that Apple products were only for “rich people”. Then Apple showed a feature to help phone users reduce time spent on applications. “If you see an app that you might want to spend a little less time on, you can set your own limit,” said an Apple executive, as the Instagram app appeared on a big screen behind him.

Competition in Silicon Valley can be brutal, but for much of the past decade, Apple and Facebook have shared a mutually beneficial, though not always friendly, relationship. Facebook depends on Apple’s iPhones to reach millions of users, and Apple needs Facebook’s hugely popular apps on their phones to prevent people from accessing competing platforms. Both companies have prospered since the launch of the iPhone and, for the most part, have not made products that compete directly.

But Facebook and Apple are on a collision course. Their messaging competition has heated up for years. Facebook is focusing on products that are also in the Apple script, like augmented and virtual reality headsets. “We increasingly see Apple as one of our biggest competitors,” Zuckerberg told analysts in January. “Apple has every incentive to use its dominant position on the platform to interfere with the way our apps and other apps work, which they do regularly to give preference to theirs.”

The dispute has escalated rapidly with Apple’s next update to the software that powers its iPhones, which includes the requirement that developers obtain explicit permission to collect certain data and track user activity on applications and websites. Such a move can undermine the effectiveness of Facebook targeted ads. In December, Facebook ran full-page ads in a trio of American newspapers saying it was “taking on Apple by small businesses everywhere” by opposing the changes, which it described as an abuse of market power. Facebook is considering opening an antitrust suit against Apple, according to a person familiar with the company’s thinking.

Apple says the software update will give users more clarity about who is collecting their data and why. He describes privacy as a “fundamental human right” – and his record on the issue is a way of differentiating himself Alphabet Inc.’s Google, which makes Android the software that powers most non-Apple smartphones.

Cook looked like take a look at Facebook on January 28 at the Online Conference on Computers, Privacy and Data Protection. “If a business is built on deceptive users, on data exploitation, on choices that are not choices at all, then it doesn’t deserve our praise, it deserves reform,” he said. Cook added that some social networks facilitate the spread of dangerous misinformation and conspiracy theories for user involvement. “It is past time to stop pretending that this approach does not come at a cost – of polarization, of loss of confidence, but of violence,” he said.

Discussions between the two companies over updating the software were unproductive, says Graham Mudd, vice president of advertising and business product marketing at Facebook. He says that attempts by Facebook and others to discuss the software update with Apple “have failed”. “Apple did not respond, in any way or with any degree of collaboration.”

The recent outbreak is now centered on the pop-up text that leads iPhone users to decide whether to allow tracking. Facebook executives fear that Apple will structure the choice in an alarmist way, effectively leading users to reject tracking. Facebook’s chief financial officer, Dave Wehner, told analysts that he expects “high exclusion rates” for Apple’s request, and Facebook said that these changes will impact its business in the future. She plans to lead the Apple prompt with her own messages, framing advertising as a way to have a better Facebook experience and to support companies that rely on sales-targeted ads.