Wednesday, December 16, 2020

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A scorched-Earth campaign

Apple (AAPL) and Facebook (FB) have one of the fiercest business rivalries in the world, and the tech giants just launched dual scorched earth campaigns that could hurt both companies’ businesses.

The tech titans have been at each other’s throats for years, with Apple CEO Tim Cook saying Facebook deprives people of the human right to privacy, and Facebook CEO Mark Zuckerberg claiming Cook’s comments on the company don’t align with the truth.

Apple — which has been pushing its privacy capabilities as a major feature — has even taken steps to limit Facebook’s ability to track users through the iPhone maker’s Safari browser. That strikes a blow to the social network’s advertising capabilities, which require information about how users spend their time surfing the web to better target ads.

But the latest salvo is bigger than any before it. On Wednesday Facebook VP of ads and business products, Dan Levy, revealed the company is working with Epic Games in its antitrust lawsuit against Apple alleging that its App Store is an illegal monopoly designed to benefit Apple to the detriment of app developers.

At the heart of the suit is a 30% fee Apple charges for the sale of apps through the App Store, which developers, such as Epic, claim forces them to artificially raise prices on end users.

“Facebook agrees that it is critical for the Court to understand the broader implications of the unfair policies that Apple imposes on iOS developers, among many other businesses,” Levy wrote in his post.

The announcement came as part of Levy’s post decrying a new privacy change Apple is set to make to the App store that will force app developers to seek user permission to track their interactions across the web.

The fear is that with the new pop-up, large numbers of users will refuse to opt into having their interactions tracked. And without the ability to more accurately track consumers, businesses that use Facebook’s advertising features will be less successful in driving new and returning customers.

As a result, Facebook, citing its own research, says small businesses could see their revenue cut by as much as 50%, as the number of users most likely to click on their ads is reduced.

Of course, that would also hurt Facebook, which earns the vast majority of its money through advertising. Apple’s App Store, meanwhile, is an integral part of its Services segment, which drove $53.8 billion in revenue in fiscal 2020, making it Apple’s second largest business behind the iPhone.

A small change that will have broad implications

Apple’s new privacy feature relates to what is known as an Identifier for Advertisers Number or (IDFA), a randomized set of numbers that help advertisers target ads through apps based on user interactions.

If users choose to prevent advertisers from seeing their IDFA, advertisers won’t be able to know if they are reaching people most likely to interact with their ads.

“Put simply, by dramatically limiting the effectiveness of personalized advertising, Apple’s policy will make it much harder for small businesses to reach their target audience, which will limit their growth and their ability to compete with big companies,” Levy wrote in his blog post.

To further drive its point home Facebook, on Wednesday, took out full-page newspaper ads including The New York Times and The Wall Street Journal saying Apple’s move will crush small businesses that use advertising services like Facebook’s.

The irony that Facebook, which itself has cut into newspapers’ advertising revenue, is using those victims to plead its case against Apple for hurting its ad business is almost palpable.

Apple wants to make it clear to users that if you’re being tracked around the web on your iPhone, it’s a third party’s doing, not Apple’s. And so in 2018, the company moved to block trackers found on websites such as Facebook’s “Like” button, in its Safari browser — a clear shot at Facebook, as well as the likes of Twitter and Google.

Apple’s change to the IDFA policy would serve as a similar blow to advertisers seeking to track user activity to more effectively target ads.

The antitrust twist

In explaining why Facebook is joining Epic’s suit, Levy wrote in his post that the social giant believes that rather than protecting user privacy, Apple’s new policy is simply a means of cutting down on app developers’ reliance on ad-supported revenue models.

Without such revenue sources, Facebook claims, developers would be forced to begin charging users directly to make money. And with Apple taking a 30% cut for every transaction through its App Store, the iPhone maker would stand to gain a good deal at the expense of developers.

In Facebook’s view, this is just another move by Apple to exert its control over app developers.

Facebook’s move comes as Apple faces investigations by the Department of Justice and state attorneys general into whether its App Store policies constitute an illegal monopoly. By helping with the Epic case, Facebook is piling onto the pressure.

And now the stakes in the battle between Apple and Facebook have never been higher.

By Daniel Howley, tech editor. Follow him at @DanielHowley

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Tech Support

Yahoo Finance’s Daniel Howley answers your most pressing questions about the various gizmos, gadgets, and services you use in your everyday life. Have a question of your own? Reach Dan on Twitter at @danielhowley or email him at [email protected].

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