The Privacy Spat Between Facebook and Apple Is Just the Beginning

(Bloomberg Businessweek) -- It’s tough to pinpoint exactly where things with Facebook and Apple went wrong, but like so many relationships gone sour, the first signs of real trouble looked like petty sniping. In March 2018, Facebook Inc. was in the midst of a scandal involving political consulting firm Cambridge Analytica and was facing serious questions about its stewardship of its users’ personal data. A commentator on MSNBC asked Apple Inc. Chief Executive Officer Tim Cook what he would do if he were in Facebook CEO Mark Zuckerberg’s shoes. “I wouldn’t be in this situation,” Cook said.

A week later, Zuckerberg implied Apple’s products were just for “rich people.” Then Apple showed off a feature to help phone users cut down on time spent inside apps. “If you see an app where you might want to be spending a little bit less time, you can set your own limit,” said an Apple executive, while Instagram’s app appeared on a large 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 relationship, if not always a friendly one. Facebook relies on Apple’s iPhones to reach millions of users, and Apple needs Facebook’s wildly popular apps on its phones to keep people from going to competing platforms. Both companies have thrived since the iPhone’s release, and for the most part they haven’t made products that compete directly.

But Facebook and Apple find themselves on a collision course. Their competition on messaging has heated up for years. Facebook is focusing on products that are also on Apple’s road map, such as virtual and augmented reality headsets. “We increasingly see Apple as one of our biggest competitors,” Zuckerberg told analysts in January. “Apple has every incentive to use their dominant platform position to interfere with how our apps and other apps work, which they regularly do to preference their own.”

The feud has escalated rapidly over Apple’s forthcoming update to the software that powers its iPhones, which includes a requirement that developers get explicit permission to collect certain data and track users’ activity across apps and websites. Such a move could undermine the efficacy of Facebook’s targeted advertisements. In December, Facebook took out full-page ads in a trio of U.S. newspapers saying it was “standing up to Apple for small businesses everywhere” by opposing the changes, which it describes as an abuse of market power. Facebook is considering filing an antitrust lawsuit against Apple, according to a person familiar with the company’s thinking.

Apple says the software update will give users more clarity about who’s collecting their data and why. It describes privacy as a “fundamental human right”—and its record on the issue is a way to differentiate itself from Alphabet Inc.’s Google, which makes Android, the software powering most non-Apple smartphones.

Cook seemed to take a shot at Facebook on Jan. 28 at the online Computers, Privacy & Data Protection Conference. “If a business is built on misleading 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 disinformation and conspiracy theories for the sake of user engagement. “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,” he said.

Discussions between the two companies about the software update have been unproductive, says Graham Mudd, a vice president for Facebook’s ads and business product marketing. He says attempts by Facebook and others to discuss the software update with Apple have “failed.” “Apple did not respond, either at all or with any degree of collaboration.”

The recent flareup now centers on the wording of the pop-up prompting iPhone users to decide whether to allow tracking. Executives at Facebook worry that Apple will frame the choice in an alarmist way, effectively pushing users to reject tracking. Facebook Chief Financial Officer Dave Wehner told analysts that he expects “high opt-out rates” for Apple’s prompt, and Facebook has said these changes will impact its business moving forward. It plans to front-run Apple’s prompt with messaging of its own, framing advertising as a way to have a better experience on Facebook and support businesses that rely on targeted ads for sales.

Whatever the outcome, the dispute points to further tension ahead. Elizabeth Renieris, a data protection and privacy lawyer who runs the Notre Dame-IBM Technology Ethics Lab, says the clash over tracking has exposed how much both companies dominate their respective markets, which could be problematic since both are under antitrust scrutiny. Facebook’s argument that small businesses won’t be able to reach customers after these changes demonstrates how critical it is in the world of small-business advertising, she says. Apple’s claim that it must create and enforce industry-standard rules on user privacy illustrates its outsize influence on the smartphone market.

“They’re presuming their ongoing dominance for the next decade or more. They’re already talking about their next feud,” she says, referring to Facebook. “It’s quite insane to me that they would publicly air all of this.”

Zuckerberg warned analysts last month about “very significant competitive overlap” in the years to come. Facebook owns three messaging products with more than a billion users each—WhatsApp, Messenger, and Instagram—that compete with Apple’s iMessage. Zuckerberg accused Apple in late January of giving its own app unfair advantages over competitors, though he also has pointed to iMessage’s success as a way to prove Facebook doesn’t have a monopoly over private messaging.

The two companies will compete in hardware when Apple releases a virtual reality device to rival Facebook’s Oculus Quest headset as early as next year. Both companies are also developing their own augmented reality glasses, though those are further off. Apple and Facebook are also beginning to compete in the home. Facebook now has an array of smart home devices for video chat that somewhat compete with Apple's own TV set top box, HomePod speaker, and iPads for FaceTime.   

Given its bruised reputation, Facebook is at a serious disadvantage in a fight over privacy, and Zuckerberg has tried to stress what he sees as the nonbenevolent motives behind the phonemaker’s business decisions. “Apple may say that they’re doing this to help people, but the moves clearly track their competitive interests,” he said on Jan. 27. “I think this dynamic is important for people to understand, because we and others are going to be up against this for the foreseeable future.”

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