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February 5, 2021updated 01 Aug 2022 5:44am

Apple and Facebook’s ad privacy feud is escalating. Here’s what’s at stake

Facebook argues that Apple's new App Tracking Transparency feature will hurt small businesses but it stands to lose most.

By Laurie Clarke

Apple and Facebook’s decade-long feud over ad privacy has kicked up another gear, with the latter poised to bring an antitrust suit against the iPhone maker. Facebook is, as usual, frothing over Apple’s App Store policies. The social media giant is obliged to comply in order to reach Apple’s enormous userbase but is adamant that the ecosystem is rigged against Facebook and other businesses.

Facebook and Apple have long squabbled over privacy but, ultimately, they need each other. (Photo by Chandan Khanna/AFP via Getty Images)

The most recent battle centres on Apple’s iOS 14 update, due to roll out in early spring, which will force apps to ask users to opt into third-party data tracking. Specifically, developers will have to ask for permission to use IDFA identifiers, which allow advertisers to track the behaviour of individual devices. The move is billed as giving users far more control over how data about them is used.

Developers predict that only 10–30% of users will explicitly embrace having their data tracked once granted the choice – spelling trouble for businesses heavily reliant on such methods. Anticipating cracks in its ad-targeting empire, Facebook has gone on the offensive – claiming that Apple’s privacy plans will harm small businesses. Apple, meanwhile, claims to be championing its users’ rights in the face of invasive data-tracking practices.

Apple’s pro-privacy stance

The relationship between Apple and Facebook has long been characterised by animosity. Steve Jobs was a fierce champion of user privacy, repeatedly stressing the need to ask customers before using their data. In a landmark speech in 2010, he made a careful distinction between Apple and “some of our colleagues in Silicon Valley”. 

Apple’s privacy-first approach has repeatedly collided with the business model of many of its fellow tech giants, often described as ‘surveillance capitalism‘. The company’s current plans are ratcheting up tensions further. Given that advertising accounts for more than 98% of Facebook’s global revenues, which in 2019 totalled over $70bn, Apple’s new App Tracking Transparency (ATT) feature threatens to rip a substantial chunk out of the company’s profits. 

Apple CEO Tim Cook is even more forthright than his predecessor. “If a business is built on misleading users, on data exploitation, on choices that are no choices at all, then it does not deserve our praise,” he said at the Computers, Privacy and Data Protection conference last month. “It deserves reform.” Apple’s Privacy Day blog post explicitly named Facebook in graphics explaining the iOS update. 

“Users should know when their data is being collected and shared across other apps and websites – and they should have the choice to allow that or not,” Apple said in a statement. “App Tracking Transparency in iOS 14 does not require Facebook to change its approach to tracking users and creating targeted advertising, it simply requires they give users a choice.”

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Facebook: defender of small businesses?

Facebook has responded with a publicity campaign lambasting Apple. A series of ads and a dedicated campaign website portray Facebook as the unlikely hero of small businesses. Perhaps understanding that painting itself as the victim would be a stretch (something its own employees have said could undermine its court case against Apple), instead Facebook has adopted the position of defender of a free and fair online ad marketplace. 

Facebook argues that without the use of its hyper-targeted ads, small businesses wouldn’t be able to effectively target prospective customers, and would lose out on revenue. 

One particular target of Facebook’s ire is Apple’s ability to enforce overarching rules as a condition for appearing on its App Store. Facebook has repeatedly taken aim at what it sees as the prescriptive and haphazardly applied rules governing the App Store ecosystem. The company’s upcoming lawsuit reportedly alleges that Apple plays favouritism with its own apps, thus harming developers and small businesses. 

Facebook is not the only one. Epic Games, the maker of popular video game Fortnite, filed an antitrust suit against Apple last year. Last summer, Epic Games, Facebook and others including Spotify, collectively challenged Apple over its App Store policies and accused the iPhone maker of undermining small businesses with its 30% in-app commission fee. 

Facebook has also questioned Apple’s motives. Dan Levy, Facebook’s vice-president of ads and business products, told reporters in December that Apple could benefit from the iOS update if developers are driven to rely more on in-app transactions (on which Apple levies a fee) than targeted ads, or turn to Apple’s (currently much smaller) targeted ad platform instead. 

Last month, Facebook CEO Mark Zuckerberg told investors, “Apple may say they’re doing this to help people but the moves clearly track with their competitive interests”.

Apple may say they’re doing this to help people but the moves clearly track with their competitive interests.
Mark Zuckerberg, CEO, Facebook

Will the iOS update really harm small businesses?

Many businesses rely on Facebook’s advertising network to publicise their wares – particularly during the pandemic when other channels have become less viable and in-person shopping has been repeatedly suspended. 

Levy told reporters that if Apple moves forward with its plans: “Small businesses will struggle to stay afloat and many aspiring entrepreneurs may never get off the ground.” The argument is that for small businesses, social media ads are more affordable than traditional media, and efficiency in targeting is necessary to maximise their small ad budgets. 

But is this true? Pro-privacy organisation the Electronic Frontier Foundation (EFF) has argued that the ad-tech system is fundamentally exploitative and that highly targeted ads don’t create more value to site owners such as publishers. Instead, the additional cost of targeted ads goes to brokers such as Google, Facebook and other third-party data handlers. 

Facebook announced $11bn in profit in the most recent quarter, boosted in part by a 22% leap in advertising revenue. But companies that rely on advertising that isn’t displayed through Facebook, such as online publishers, have foundered during the same period. 

If ads weren’t as highly personalised, they’d be cheaper, meaning that small businesses would have more budget to allocate to other types of advertising. This could mean profit being rerouted back into publishers or other ad businesses that provide more advertising options to businesses, EFF argues.   

Facebook’s ads claim that “average small business advertiser stands to see a cut of over 60% in their sales for every dollar they spend.” But co-director of the Digital Platforms & Democracy Project at the Harvard Kennedy School, Dipayan Ghosh, disputes this in Wired. Ghosh dug into the technical changes Facebook told its developer community to expect from Apple’s update and found that Facebook’s claims are far from convincing. 

In response to the changes, Facebook will tweak engagement measurements so that advertisers are unable to track more than eight types of “conversion events” (in-app user actions that are tracked to determine the effectiveness of ad-targeting algorithms). “There will also be some minor technical changes to the implementations of Value Optimisation, Facebook’s algorithmic tool that maximises revenues generated from ad targeting by predicting how much a given user will spend in an app, as well as dynamic ads, measurement of performance of ad campaigns, and a subset of Facebook’s developer APIs,” writes Ghosh

The real question is, will businesses really lose out on revenue because of these changes? Based on the evidence, Ghosh contends that the real losers will instead be Facebook and its affiliated network of ad brokers. 

What’s next in the Apple-Facebook feud?

Ultimately, Facebook and Apple need each other. Facebook needs to be allowed to remain on Apple’s App Store, and Apple needs to be able to offer Facebook apps (including Instagram and Whatsapp) to its users. To this end, Facebook has said it will comply with Apple’s ATT diktats, and Apple has said that it will not eject Facebook. 

Facebook has been trialling pop-ups that communicate Apple’s changes to its iOS users. The notification explains: “If you decline, you will still see ads, but they will be less relevant to you.”

Facebook is not the only company affected by Apple’s ATT policies. Google, which also uses third-party tracking data, has declined to join Facebook’s public attacks. Instead, it has told developers that Google apps will jettison IDFA identifiers entirely. This means that users of these apps won’t be presented with the opt-in choice at all. 

Meanwhile, Apple and Facebook are firmly in the crosshairs of growing regulatory fervour. Cook and Zuckerberg were both grilled by the US Congress last summer as part of an antitrust investigation. In the subsequent Antitrust Subcommittee report, both companies were accused of anti-competitive practices – Apple for its App Store policies and Facebook for its stranglehold on the online advertising market. 

Apple may even have devised its iOS 14 changes in response to increasing data-privacy pressures from the European Commission and the state of California. The company could be intending to shore up its privacy credentials as a bulwark against accusations of anti-competitiveness too. 

Facebook is facing an antitrust suit brought by the Federal Trade Commission as well as being sued at the state level on similar grounds. Both firms are facing regulatory action in the EU as well. In light of Big Tech’s internecine struggles, not all of this is unwelcome. A Facebook spokesperson told CNBC that the company hopes the EU’s Digital Markets Act legislation “will also set boundaries for Apple”. 

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