Facebook's (FB) Standoff with Apple (AAPL) Intensifies

Facebook, Inc. (FB) and Apple Inc. (AAPL) have criticized each other for years on a range of issues, including privacy and consumer rights. Fueled by intensifying competition and the crisis of misinformation, this recent chapter is the most heated dispute yet, expanding the standoff between the tech giants to include a broader set of issues.

Why is this spat happening now? Apple's looming change in privacy policy is expected to have a negative impact on revenues of Facebook and other advertisers. Facebook is also increasingly on the offensive, seeing Apple as a competitor when it comes to its areas of growth, including messaging as well as its computing platform.

"In terms of the competition with Apple specifically, I laid out three or four product focus areas," Facebook CEO Mark Zuckerberg said during the company's most recent earnings call on Jan. 27, projecting a "very significant competitive overlap with Apple" going forward.

The outcome of this dispute will likely be a win for consumers as well as have far-reaching consequences for the future regulatory framework and the landscape of the tech sector as a whole.

How It Started

Going back to at least 2010, Apple CEO Tim Cook strived to differentiate the way Apple views privacy from the views embraced by other companies. More recently, Cook criticized Facebook's handling of the Cambridge Analytica scandal in 2018, in which the data analytics company was able to obtain personal information of millions of Facebook users, according to the Federal Trade Commission (FTC). The FTC imposed a record $5 billion penalty on Facebook in 2019.

"The truth is, we could make a ton of money if we monetized our customer – if our customer was our product," Cook said at the time. "We've elected not to do that."

In the recent weeks since the incitement of violence and insurrection on Capitol Hill, Cook's criticism has sharpened further. "At a moment of rampant disinformation and conspiracy theories juiced by algorithms, we can no longer turn a blind eye to a theory of technology that says all engagement is good engagement – the longer the better – and all with the goal of collecting as much data as possible," Cook said last Thursday at the Computers, Privacy and Data Protection Conference. "It is long past time to stop pretending that this approach doesn't come with a cost – of polarization, of lost trust and, yes, of violence."

Facebook's response has been the plan to unveil its own in-app prompts to educate users about the handling of their data as well as speak out against Apple's market position and impact on small businesses. "In messaging, certainly, iMessage is the most popular service in the U.S.," Zuckerberg said on the earnings call. "I think because of the fact that they pre-install it and give their app several advantages that other apps don't have. In commerce and supporting small businesses, I think there, you have some of the iOS 14 changes that we think are going to be very problematic, especially for small businesses."

In fact, Facebook may go even further and file an antitrust lawsuit against Apple, accusing it of abusing "its power in the smartphone market by forcing app developers to abide by App Store rules that Apple's own apps don't have to follow," according to a report by The Information.

Existential Battle

For Facebook, the standoff represents an existential fight for its main source of revenue and continued growth. The social media company could lose billions as a result of Apple's privacy change, preparing investors and analysts for this impact.

"We also expect to face more significant ad targeting headwinds in 2021. This includes the impact of platform changes, notably iOS14, as well as the evolving regulatory landscape," Facebook CFO David Wehner said on the earnings call. "While the timing of the iOS14 changes remains uncertain, we would expect to see an impact beginning late in the first quarter."

While previous regulatory penalties have addressed specific violations, many areas of Facebook's operations such as groups and privacy settings remain out of lawmakers' reach. Consumers are likely to be immediate beneficiaries of the standoff, with most consumers currently not aware of the tracking. The vast majority of Facebook users, 74% of them, did not know Facebook was tracking their interests until asked about it, according to Pew research. Apple's new policy would prompt more users to opt in, and Facebook's own policy will also inform more consumers about their rights.

While the disagreements between Facebook and Apple have been the most publicly pronounced, these underlying arguments about the morality of consumer rights and their business models are not limited to these two technology companies. With misinformation becoming a bigger social threat and looming regulatory pressure threatening the tech companies' revenues, the tension between Facebook, Apple, and other technology giants is unlikely to dissipate on its own. If anything, it's likely to grow and spill over into other areas such as messaging, immersive computing, and monitoring of social groups and communities to prevent the spread of disinformation and extremism.

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