Shulou(Shulou.com)11/24 Report--

Beijing, Aug. 13 (Xinhua) Apple and social giant Facebook could have become closer business partners, but as a secret negotiation failed, the two sides turned into enemies, according to people familiar with the matter.

▲ Apple and Facebook fall out over privacy adjustment

The dispute between the two giants broke out last year. At the time, Apple released iOS 14.5, which made it easier for iPhone and iPad users to prevent apps such as Facebook from tracking their device activity. This privacy dispute is stirring up the digital economy. These companies are shifting billions of dollars in advertising spending as users continue to limit the data available to advertisers.

However, the two sides have not been at odds with each other. In fact, they almost became business partners.

In the years before Apple made the privacy adjustment, the company proposed a series of potential arrangements to Facebook to take a share of Facebook's revenue, according to people familiar with the dispute. Apple executives said they wanted to "build the business together", according to one person familiar with the matter.

One of the ideas they discussed was to create a subscription version of Facebook without ads. Because Apple takes a share of App Store app subscription revenue, the product could have generated significant revenue for Apple.

The two companies also haggled over whether Apple had the right to take a cut of the so-called "promotion posts." Promotional posts allow users to pay to increase the number of people who see posts on Facebook or Instagram. Facebook, which has considered launching promotional ads, has insisted that promotion is a form of advertising, in part because small businesses often use it to reach a wider audience, according to people familiar with the matter.

▲ Apple iOS Privacy Adjustment makes it difficult for Facebook to track users

Apple does not take a share of developers' ads, but the company believes that the promotion of Facebook should be seen as in-app purchases, according to people familiar with the matter. Under apple's standard terms, it has the right to take a 30% cut of those sales.

As a result, Apple and Facebook did not agree on any proposals to strengthen cooperation. At the same time, Facebook is also considering privacy-related adjustments. Facebook CEO Mark Zuckerberg (Mark Zuckerberg) has chosen to postpone a major overhaul of his data practices to keep the advertising business booming, in what is known as the "guard" strategy within the company, according to people familiar with the matter.

Negotiations between the two companies took place mainly between 2016 and 2018. This shows that the two companies were trying to find consensus for some time before their positions became tough.

For years, Apple and Facebook have maintained a unique symbiotic relationship: Apple controls App Store, which is the gateway for hundreds of millions of users to download Facebook's flagship app and the company's other popular services, including Instagram, Messenger and WhatsApp. However, while Facebook's products are among the most popular apps on iPhone, they do not generate revenue for Apple. This has been frustrating for some Apple executives, according to people familiar with the matter.

As the maker of iPhone, Apple also controls device identity tracking, which has been the key to Facebook collecting user data and delivering personalized ads to them for more than a decade. Apple said its privacy commitment was a core principle of the company and existed long before the disagreement with Facebook. An Apple spokesman said there was no link between any discussion of the partnership and subsequent ad tracking adjustments. Apple has discussed similar business models with many developers, according to people familiar with the matter.

▲ Apple CEO Cook

The negotiations with Facebook come as Apple shifts its focus from hardware sales to software. When Apple's iPhone revenue fell for the first time in 2016 compared with the same period a year earlier, CEO Tim Cook (Tim Cook) began to pay more attention to efforts to strengthen the digital services business, and pledged in 2017 to double service revenue by 2020. As a result, the company achieved this goal six months ahead of schedule. According to Apple's latest quarterly results, revenue from its services business, which includes app stores, cloud storage products and its own advertising business, was $19.6 billion, up 12% from a year earlier.

An important part of Apple's service revenue comes from working with Google. The partnership was unknown until the Justice Department filed an antitrust lawsuit against Google in 2020. Under the agreement, Google pays Apple billions of dollars a year to become the default search engine for Safari browsers. Apple has not been charged with wrongdoing. Google says it spends money like many companies to promote its services.

Some Facebook executives are concerned about Apple's impact on its business, in part because of Mr. Cook's criticism of companies that rely on collecting user data. And Facebook's use of user data is increasingly at odds with European privacy concerns. In addition, public issues such as the Cambridge Analytics scandal in 2018 triggered a wave of censorship of Facebook by US and European lawmakers and regulators. Cambridge Analytics, a consulting firm, improperly accessed the private data of 87 million Facebook users and used it for party politics research.

In the summer of 2018, Apple adjusted its Safari desktop and mobile web browser, hampering Facebook's web business and making it impossible for the company to track users without permission when they visit different sites. Apple's next big goal is to prevent apps from doing similar tracking.

Meanwhile, at Facebook's headquarters in Menlo Park, Zuckerberg and his executives are already considering business reforms, including stopping the use of data collected by other companies to deliver targeted ads to users. This was unthinkable in the past.

▲ Zuckerberg

In June 2020, Apple announced privacy changes to its iOS system, a move that sent shockwaves through advertising but was seen by data privacy advocates as a victory. In April of the following year, Apple formally implemented this adjustment.

Shortly after that, Facebook reconsidered the idea of launching a subscription version of its flagship app, according to people familiar with the matter. However, a subscription-based service will face a number of challenges, including whether a person using multiple social media accounts will have an ad-free experience on all accounts. In the end, the company decided to abandon the idea in order not to affect its advertising business.

4 trillion yuan of market capitalization evaporated Apple's privacy adjustment has a significant impact. Only 37 per cent of iPhone and iPad users in the US choose to allow companies to track them on their devices, according to Insider Intelligence, a research firm. Because there are so few users who choose to allow tracking, the impact of Apple's iOS changes can be felt throughout the digital advertising ecosystem.

A joint survey conducted in June by Tenjin, a mobile market analytics company, and Growth FullStack, a developer of mobile advertisers tools, found that 59 per cent of mobile advertisers in the US and UK had shifted their advertising budgets from iOS to Google Android. Lotame, a data management company, estimates that so far, changes in Apple's privacy policy have cost Facebook, Twitter, Snap and YouTube $17.8 billion in revenue in 2022.

Facebook has suffered the most, and the company is scrambling to fix its ad tracking system. Apple's privacy adjustment is the main reason for the sharp decline in the company's performance. In less than a year, Facebook has lost about $600 billion in market value. Last month, more than a year after these adjustments, Meta reported its first year-on-year decline in quarterly revenue since it went public in 2012.

Both tech giants have made clear their positions on the dispute between the two sides. Apple focuses on user privacy, while Meta emphasizes the benefits of personalized online advertising.

"every day, we meet and work with developers, large and small, to make suggestions to address their concerns and help them continue to develop their business," an Apple spokesman said. "the rules for app developers such as Facebook apply to all developers because we believe that fair enforcement will lead to the best user experience."

A spokesman for Meta said the company had "made significant changes over the past five years to protect people's data while allowing businesses of all sizes to grow". "our decision will not depend on another company, but on our commitment to the people who use our products and our belief that privacy and personalization can co-exist." The spokesman said.

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