Ten-year war for Internet business

Apple CEO Tim Cook (1) and Mark Zuckerberg, CEO and founder of Facebook.

Getty (L) images | Reuters (R)

In October 2018, Apple CEO Tim Cook criticized the business practices of Big Tech rivals in a passionate speech at a privacy conference in Brussels.

“Every day, billions of dollars change hands and countless decisions are made, based on our likes and dislikes, our friends and families, our relationships and conversations. Our desires and fears, our hopes and dreams,” said Cook. “These fragments of data, each harmless in itself, are carefully assembled, synthesized, marketed and sold.”

Although Cook did not call Facebook by name, it was clear that Mark Zuckerberg’s company was one of the targets. Facebook has built a tremendously successful business by collecting user data to inform its targeted advertising system. Its revenue exceeded $ 20 billion in the last quarter, and almost 99% of that comes from advertising.

The speech was just one of a series of public assaults that Cook and Zuckerberg gave each other over nearly a decade. Tensions between Facebook and Apple date back to the childhood of the iPhone and the search for control over the next wave of computing.

In a 2014 cover story on Time, for example, Zuckerberg criticized Apple and Cook’s stance on privacy:

“One frustration I have is that many people increasingly seem to equate an advertising business model with being somewhat out of line with their customers,” Zuckerberg told Time. “I think it’s the most ridiculous concept. What, do you think, because you’re paying Apple that it is in some way aligned with them? If you were aligned with them, then they would make your products a lot cheaper.”

The war of words over the past decade highlights the fundamental difference of opinion between two giants about how business should be done on the internet.

In Facebook’s view, the internet is the Wild West, with a multitude of competing platforms that offer innovative services for free. You may not pay for them with your money, but you do pay by allowing your data to be tracked and packaged so that advertisers can place things you want to buy right in front of you as you travel between devices and services.

In Apple’s view, the internet is just an extension of the personal computing revolution that the company helped start in the 1980s, and its phone is the most personal device of all. You must know what companies will do with the information collected through this phone before sharing it.

A decade-long struggle

Facebook CEO Mark Zuckerberg appears on a monitor behind a stenographer while testifying remotely during the Senate Commerce, Science and Transport Committee hearing “Does Section 230 comprehensive immunity allow Big Tech bad behavior?”, In Capitol Hill, October 28, 2020 in Washington DC.

Michael Reynolds | Pool | Getty Images

The war of words culminated last week with Facebook’s two-day campaign against Apple. The ads saw an imminent change in the iPhone’s operating system, designed to alert you when an application will track your personal data, such as location and browsing history, that companies like Facebook use to target their ads. The alert offers the option to block tracking before using the application.

Facebook said Apple’s move was designed to crush small businesses that depend on targeted advertising to reach their customers online. He also warned – without evidence – that Apple’s decision would force app makers to stop offering free apps with ads to their customers. Instead, they would have to charge customers through digital subscriptions or other fees. Conveniently for Apple, a portion of the transactions carried out through its platform are required, including purchases or subscriptions that users make through applications that they download from their App Store.

Facebook painted a tortuous image of Apple in the campaign: this is a company with complete control over the rules of its platform, making a change aimed at squeezing small businesses and forcing them into a paid model, of which Apple will have a part. Facebook delivered that message in newspaper ads, blog posts, Instagram posts and a flashy website with small business owners who use Facebook to advertise.

Apple rejected Facebook’s accusations. The company said that the pop-up you will see in the applications is only intended to inform you when and how an application plans to track it, and not to completely prohibit tracking. Application makers like Facebook also have space in the pop-up and other screens to explain why you should allow tracking. Applications are still free to collect all the data about you that they were before, but you will have to give them deliberate permission to do this first. According to Apple, it is just the latest in a series of privacy-centric features added to products over the years.

A mockup of the pop-up window that iPhone users will see before using an application that tracks their data. This image was provided by Apple.


The roots of the dispute go back more than a decade.

In the childhood of the iPhone, there was a big debate about what the mobile internet should be like. Would he search the Internet on a desktop PC, where people mostly used a mobile browser to visit websites, with everything built on openly published standards? Or would users switch between a collection of software “applications” connected to the Internet, giving more control to companies that owned mobile platforms?

Facebook, which was born on the open Internet, favored the former and pushed for rich web applications written in emerging standards. But it lost the fight largely because of Apple, which pushed the app model as the standard way to perform tasks on the iPhone, so it insisted that its own App Store would be the only legal and easy way to find and install these apps. (Google acted intelligently on both sides, investing in the Android mobile platform and its own Google Play app store, as well as developing its Chrome browser and influencing web standards.)

As the future became clear, Facebook made attempts to build its own smartphone so it wouldn’t have to give Apple or Google so much control. The device never saw the light of day, and instead Facebook developed a software skin for Android devices that featured its own services. This was also a failure.

Today, Facebook is laying the groundwork for owning the next big computing platform so it doesn’t have to play by another company’s rules again. That is why it is currently developing products such as digital glasses, which the company is expected to launch in 2021.

Meanwhile, Facebook needs to deal with Apple.

The final Facebook game is unclear

It is ironic that Facebook accused Apple of abusing its market power last week, just days after the FTC and a group of attorney generals sued Facebook, alleging antitrust violations and recommending the company’s break up.

In addition, Facebook’s argument exposed its own influence in the digital ad market. Small businesses would not have to rely so much on Facebook if Facebook had a viable competitor for those companies to advertise.

Apple faces similar government scrutiny, although there have been no formal antitrust lawsuits yet. In October, the House Judiciary’s antitrust subcommittee released an epic report on the “monopoly power” of the four biggest tech giants, claiming that Apple uses control of the App Store to crush potential competitors.

Both companies rejected claims that their businesses violate antitrust laws. But Facebook has now created an environment where two giants facing antitrust scrutiny in the United States and around the world are exchanging barbs about which one is More guilty when it comes to abuse of market power.

It is also difficult to say which is the final Facebook game here. Apple will not back down on a key privacy feature for the iPhone, and Facebook will not risk losing millions of users by removing its apps from the App Store.

Steve Satterfield, Facebook’s director of privacy and public policy, told CNBC in an interview this week that the company will still comply with Apple’s new rules and there is no chance that Facebook will violently flagraise them to start a legal battle like Apple’s and “Fortnite” Developer Epic Games is now involved. (Facebook said last week that it would support Epic in its lawsuit against Apple.)

“Our goal is simple,” said Satterfield. “We want Apple to start listening. They abandoned this policy in June, without any significant consultation … Given the far-reaching impact, it is important that companies can plan for it.”

It is also difficult to accept Facebook’s stated argument against the pop-up. For years, the company has argued that its users prefer the personalized, targeted ads that its data collection allows, rather than random ads served to a broad audience without targeting. If this is true, users should have no trouble enabling tracking when Apple shows them the pop-up.

In August, Facebook countered this argument by releasing data from a study that showed that enough people would disable tracking to cause a 50% drop in revenue through its third-party ad networks. The company also warned investors this year that its own revenue will be affected when Apple starts applying the tracking tool.

Facebook said it prefers to use its own privacy verification tools to help users limit the data to be shared, rather than the notification that Apple will show you.

Apple said its customers want more privacy controls built into the iPhone. After years of criticizing Facebook’s business practices, the company has routinely added privacy features to curb the abuse it sees on its devices.

“Look at what we’ve done with the controls we’ve built,” Cook said in a 2018 interview with Axios when asked why companies like Google and Facebook are allowed to thrive on the iPhone, despite their criticisms of their practices. “We have private web browsing. We have smart crawler prevention. What we try to do is find ways to help our users through the day.”

It wasn’t just Apple resisting Facebook’s arguments. Groups of small business advertisers, the same ones that Facebook said it was trying to protect, took over the hashtag #SpeakUpForSmall from Facebook on Twitter and filled it with complaints about the lack of attention they get compared to Facebook’s big ad clients on day the campaign was launched.

And Bloomberg published a report earlier this week full of similar complaints from advertisers about the company’s automated ad buying tools. BuzzFeed published a story on Tuesday citing Facebook employees who were just as confused by the anti-Apple crusade as small business advertisers.

In turn, Facebook spokeswoman Ashley Zandy told CNBC that the company has listened to many companies that support it and that it allows its employees to speak freely and question the company’s strategy.

“I think we saw a lot of balanced and nuanced coverage of the ad,” said Satterfield. “I think we are satisfied.”