Why Apple is Facebook's worst enemy.
Apple is attacking the ads that pay the bills for Facebook.
“We increasingly see Apple as one of our biggest competitors.”
This was Mark Zuckerberg, Facebook’s co-founder and CEO, during the company’s Q4 2020 earnings call.
But why?
There are many reasons for this. Reasons both big and small.
Small reasons include things like:
Apple pre-installing iMessage and gives it special permissions and preference.
Apple’s App Store recently released a nutrition label-like privacy information table that tells you what all data an app collects — for all apps except Apple’s own.
And that Facebook argues WhatsApp is more privacy-friendly than iMessage.
But the big reason is this: Apple is attacking the core of Facebook’s business — personalised ads.
Business models and what they make a company do
Apple’s business is primarily based on hardware . ( Though they’re trying to grow the software and services side too). Product sales make for most of what they earn. Followed by subscriptions to services like Apple Music+, TV+ etc. Ads on the App Store and Apple News are the last thing Apple earns from.
On the other hand, Facebook’s business is the complete opposite. They make most of their money from ads shown to the 2.6B people who use Facebook, Instagram and other FB projects. While the last thing they earn from is their products, like the Oculus VR headsets and the Portal video call devices.
What ad businesses do
Facebook’s business depends on ad revenue. And advertisers will only pay FB more money if people click their ads on FB.
This is why Facebook has to show you more relevant ads: so that you’re more likely to click/buy and they earn more.
Thus, Facebook’s business effectively depends on how much it knows about you. How much data Facebook has of you. So, where does this data come from?
For starters, Facebook takes information about how you use its own apps like Messenger, Instagram and recently-added-here WhatsApp: Who you follow. What you ‘like’. Who you chat with. Which products are you interested in. Things like that.
But that’s not enough. So Facebook also takes data from websites and apps owned by other people. This data is called Off-Facebook Activity. These non-FB-owned websites agree to give FB their data so that they can target people who come to their website on Facebook.
Take Flipkart for example. Flipkart uses Facebook Pixel, a little piece of code by Facebook to keep track of who visits their site. So that after you search for a product on Flipkart, Facebook can show you more ads of that product, from Flipkart.
What consumer businesses do
Make products better for customers. Better than what’s out there already. And better also means safer. So in a way, Apple is incentivised to protect the privacy of their customers. And it’s quite the only Big Tech company that’s incentivised to do so.
And so, to enhance privacy controls on their devices, Apple launches a bunch of privacy and security features every year.
For instance, long back in 2012, Apple announced that users can now go to their iPhone’s Settings and stop apps like Facebook from tracking their activity outside the app. That means you could turn a switch off and Facebook wouldn’t be able to track your Off-Facebook Activity (that is, what you do on any other apps or website).
But this switch was buried deep down in iOS Settings. (Settings > Privacy > Apple Advertising > Personalised Ads). So it didn’t have any major impact on Facebook’s revenue.
But last year, Apple released another privacy feature that brings this switch in front of people. Apple’s calling it AppTracking Transparency:
“App Store policy now requires apps to ask the user for permission before tracking across apps and websites owned by other companies.” ~ Apple’s Katie Skinner
That means apps like Facebook will have to ask if you’d like being tracked everywhere on the internet before they can do so.
This means all apps submitted to the App Store after April 26 will have to show you a pop-up like this:
What this means for Facebook
Rejections. A lot of rejections. Most people will likely say “no thanks” when Facebook asks for this permission. And Facebook is reportedly testing this pop-up with some of its users.
But Facebook wouldn’t sit still and watch it happen. Facebook bought two full-page ads in major US national newspapers: the Washington Post, Wall Street Journal and the New York Times.
(Click to enlarge, Summary below)
The first ad is about small businesses and how they depend on Facebook ads to get customers. Facebook says that an average advertiser will see 60% fewer clicks/buys for every dollar he/she spends on ads.
The second one is about the Internet and how Facebook’s ads keep it free for all. Basically, many websites display Facebook Ads to earn money. And Apple’s policy changes will reduce what they earn from ads. So they will have to start charging for a subscription. And thus making the internet not-so-free.
Facebook also published a blog post, where it argues:
“Apple’s new prompt suggests there is a tradeoff between personalized advertising and privacy; when in fact, we can and do provide both.”
“They’re not playing by their own rules. Apple’s own personalized ad platform isn’t subject to the new iOS 14 policy.”
And finally, Facebook is reportedly preparing an anti-trust lawsuit against Apple.
One stone, three birds
The problem is, the world isn’t with Facebook right now. People don’t want to be tracked. And until now they almost didn’t have an option — or they didn’t know they had. But Apple’s changing it all. Posing as the saviour of privacy.
But that’s not all. Apple’s killing two more birds with the same stone.
First, with such good privacy controls, Android users have a big reason to switch to iPhones. Because Google cannot provide the same level of privacy controls. Don’t forget: Google itself is an ad company.
Second, many websites and apps earn from displaying ads. But — as FB argued in one of the ads — money from ads will drop and they will be forced to ask readers to pay to read their articles. And Apple has another policy — infamously known as the Apple Tax — which says any app that sells subscriptions and digital goods on iPhones and iPads will have to pay Apple 30% of whatever they earn.
So for example, when you buy a subscription to, say, a news app for $10, the news app gets only $7. Apple takes the rest $3.
This is why you can’t subscribe to Spotify Premium on Spotify’s iPhone app. So that Spotify doesn’t have to give Apple the 30% cut. And this is also why Fortnite is not on the App Store. Because Fortnite refused to give Apple the 30% cut and got kicked out. There’s a lawsuit going on between Fortnite’s maker Epic Games and Apple. And Facebook announced its support to Epic in this legal battle. Enemy’s enemy is a friend, you know.
Is it time for Facebook to switch business models?
When advertising wouldn’t earn Facebook enough money, it will have to find another way to earn. Perhaps only on Apple devices. So what are Facebook’s options?
Subscriptions?
The idea is simple: Facebook Premium, with no ads. Kind of like YouTube Premium. But it comes with its own trade-offs.
First, Apple will take 30% of Facebook’s revenue, which is huge. And second, ads on Facebook are the least annoying. You can always swipe/scroll past them. So, will people pay for a Facebook Premium?
Besides all that. Will a Facebook Premium ever happen? And why doesn't something like this exist already? There are times when the company suggested it might, like in 2018, when Mark Zuckerberg said, “Yes, there will always be a version of Facebook that is free.” during his testimony in front of US Congress.
But a year later, in an interview, he said that if he had to give privacy controls to users, he’d rather give it to everyone, and not just the people who pay for it.
And half a year after that interview, Facebook updated its homepage to change its tagline from “It’s free and always will be” to be “It’s quick and easy.” Thus, again suggesting the possibility of a Facebook Premium. So we really don’t know.
E-commerce?
Facebook has already started testing the e-commerce waters with Instagram Shopping. The idea is to allow people to buy/sell stuff on Instagram natively.
And the opportunity is enormous. 130M people click on Shopping posts every month. For context, Instagram has a billion monthly active users. Millions of influencers, with hundreds or millions in following, already use third-party websites to sell their merch and then post links on Instagram.
With Instagram Shopping, this experience becomes a lot more frictionless. If Instagram encouraged people to buy more, it can take a cut from their sales revenue.
Then, there’s WhatsApp for Business. Used by 5M businesses, who can sell directly to clients, 1-on-1. And WhatsApp Pay will make this more frictionless.
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