Smartphone behemoth Apple and social media giant Facebook have long been frenemies. Apple’s late co-founder Steve Jobs once mentored Facebook CEO Mark Zuckerberg. More recently, however, the tech titans have been squabbling a lot. Their quarrel is about to spill over into your phone. Apple will soon send an “app-tracking transparency” software update that will give iPhone users more control over their own privacy. When you access an app, a question will pop up: “Facebook would like to track you across the internet and gather your personal data, which it wants to sell for profit. Do you wish to grant it permission to do that?” You have two options: “Allow” or “Ask not to track”.

I use a MacBook Pro laptop and iMac desktop. A click on Safari browser’s shield-like icon tells me who the website I am accessing is trying to pass my data to. When I accessed CNN.com today, I was told it had prevented 32 websites from tracking me, including Facebook and Google. Facebook fears that the language Apple is using to prevent tracking on iMacs will also be used to stop tracking on iPhones and most people will just say “No” or “Ask not to track”.

Facebook, which earns almost all of its revenues from selling targeted ads, sees Apple’s move as an existential threat to its business model. Zuckerberg was so angry when he first heard that the iPhone maker would roll out app trackers to prevent his firm from extracting data that he reportedly told his team that “we need to inflict pain” on Apple.

The showdown between two of the world’s largest tech companies will change the way we use the internet. Will Apple be able to prevent internet firms such as Facebook from obtaining a customer’s data without permission and profiting from it? Or will Facebook succeed in making the privacy battle all about “the future of the free internet”?

The giant social network with the eponymous Facebook platform, Instagram and WhatsApp reaches most of its users through mobile apps by putting trackers in its apps and collecting data across all the apps and websites. With a huge trove of data, Facebook builds a comprehensive profile of you, which it then uses for ad targeting. Its business model is to drain as much personalised data about you as it can from all the apps you use, or websites you visit, and then sell ads itself, or sell the data to others. Just last week, Facebook apologised for collecting sensitive health data of women from a popular period and pregnancy tracker called Flo. Facebook has since vowed not to collect data from children or on sensitive topics like sexual health, medical conditions and finance.

Facebook does not just sell data to facilitate targeted ads. For years, it has been accused of targeting voters, inciting violence or pushing people towards more extremist political causes. In 2015, it sold data to Cambridge Analytica, which targeted voters in the UK to influence them on Brexit. In 2016, Russian bots and extreme right-wing groups in the US used Facebook data to help catapult Donald Trump to the White House. More recently, conspiracy theory groups such as QAnon have thrived on Facebook.

For Facebook, you are the product that it sells to advertisers or anyone who might need it for nefarious purposes such as an extremist group like Proud Boys that might want to take over the legislature and install election losers in the seats of power. As a 20-year-old setting up Facebook in his Harvard dorm room, Zuckerberg called people who handed over their personal data to him with utter disregard to privacy as “dumb f****”.

Facebook says by preventing it from extracting whatever data it wants, Apple is interfering in its freedom and ability to profit from iPhone users. Apple CEO Tim Cook recently noted that the Facebook model which harvests sensitive personal data leads to more polarisation and violence. “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.

Subscription vs ad business model

Apple sells devices such as the iPhone, iPad, Apple Watch, AirPods and iMac and, reportedly in a few years, an Apple Car. Its business model is subscription-based. The smartphone giant bundles services such as Apple Music, AppleTV+, video gaming service Apple Arcade, data storage service iCloud, fitness app Apple Fitness and Apple News in a subscription service. Apple owns the highway and collects toll. It earns 30% in fees of what developers make on its App Store. Increasingly, Apple is also selling devices such as iPhones on multi-year subscriptions — where you pay a monthly fee and, after two years, return the phone and get a new one while continuing to pay the same fee. “Their game plan is to eventually sell you a subscription that includes hardware, software and services,” Gene Munster of Loup Ventures told me recently.

Apple has made privacy the core of its own brand. Jobs, who died in 2011, often complained about ad-focused firms soaking up data and violating user privacy. In 2010, he explained that user privacy was at the cornerstone of everything that Apple did. “Some people want to share more data than other people do,” he said. “Ask them. Ask them every time. Make them tell you to stop asking them if they get tired of [your] asking them. [And] let them know precisely what you’re going to do with their data.”

Apple operates a walled garden. When you visit a park, there are rules like no littering, chopping down trees or rowdy behaviour. When Facebook wants to reach iPhone’s users, it submits apps to the App Store and agrees to comply with Apple’s rules. It does not matter whether it is the eighth most valuable company on earth with a market value of US$744 billion ($988 billion), sits on US$65 billion in net cash or operates the world’s biggest social media platform. If you want to be in the App Store and want iPhone users to download your app, you just need to follow the rules.

Though Facebook happily signed on to all the rules when the App Store was set up, it does not like some of the new rules. Now it is lobbying to have them changed. It wants Apple to dismantle its own store or allow other stores on the iPhone real estate. Facebook also accuses Apple of operating a “monopoly” even though iPhones make up less than 30% of all smartphones in use globally.

If Facebook cannot collect as much data as it wants, it cannot sell as much data or do precise ad targeting. Without such granular data, advertisers may not be willing to pay Facebook as much as they used to. In reality, things are not as dire. Facebook is a monopoly of sorts, particularly for localised targeted ads. Advertisers cannot go anywhere else. If the social media giant is giving them 25% less data, they might still be willing to pony up 90% of what they have been paying for the ads. If you run a neighbourhood store or a plumbing business, how else would you reach your customer if not on Facebook, which can target the ads right down to the section of your street? Facebook is unlikely to go out of business without the data that Apple prevents it from tracking. Analysts estimate Facebook’s revenues might decline just 7% to 12% in part because Apple does not have a monopoly on smartphones.

The social media giant argues that, as the world reopens post-Covid pandemic, struggling local small businesses must have the ability to target their customers or they will collapse, causing bigger problems for the global economy. Facebook is also trying to pre-empt Apple’s move by asking users for permission to track their data so it can target them with ads. The request will take the form of a pop-up, which tells users that allowing trackers means they “get ads that are more personalised” and “support business that rely on ads to reach customers”. For now, few are buying Zuckerberg line that “Facebook is the saviour of small business”.

It is unlikely much will change over the next few years. Apple might prevent the social media giant from gathering some data causing it lose some of its revenues, but technology will eventually improve and Facebook will figure out a way to collect data surreptitiously from other sources and make up for a lot of the data that Apple prevents it from gathering. Advertisers might not get as much of a return on their investment without the tracking as they used to, but will soon realise there is no alternative to Facebook’s reach. Eventually, they might push ad-focused firms to embrace something like Google’s Federated Learning of Cohorts, or FLoC, which tracks internet users’ interests and serve them ads relevant to those interests rather than soaking up sensitive personal data.

A bigger impact will be psychological. If your phone continues to warn you every time you open an app that you are being tracked and your data is being sold, at some point, you will get upset with the trackers and take action. You might tell your friends, who might stop using Facebook or Instagram. Facebook’s fear is that Apple’s move will severely damage its brand because users and advertisers will come to view Facebook, Instagram and WhatsApp as apps that steal and sell their data.

Facebook, Apple need each other

Facebook now sees Apple as  its “biggest competitor.” Having copied Snap, TikTok, Google and Pinterest to stay in the game, Facebook is now imitating Apple. A decade ago, Facebook spent millions to develop its own smartphone only to abandon it when it realised that it would be an embarrassing flop. Hardware projects like Facebook Portal, which makes video calls such as FaceTime on the iPhone or iPad, have made little headway. Facebook is now developing a smartwatch to challenge the AppleWatch. It is upgrading its Oculus virtual reality headsets before Apple releases its own augmented reality/ VR headset next year. Both Facebook and Apple are set to release their AR smart glasses in 2023. Facebook is also working on a blockchain-based payment system Libra (since renamed Diem) to dethrone ApplePay.

The irony is that Facebook and Apple need each other. If a huge, popular app such as Facebook is not available on the world’s most popular smartphone, iPhone users who are hooked on Facebook apps might switch to a different phone like one that runs on Android. Yet Facebook does not want to walk away from the iPhone because Apple’s upmarket users are among the most desirable demographics that advertisers want to reach. It is in the best interest of both firms for the Facebook, WhatsApp and Instagram apps to be on the iPhone. But before we get there, expect more squabbling and posturing. [Text Box: E]

Assif Shameen is a technology and business writer based in North America

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