Buzz
(Homeland) - Witnessing a decline in iPhone sales revenue, Apple strategically pivots towards deriving income from software and free apps like Facebook, turning them into enticing targets.
The clash between Apple and Facebook over privacy policies is reshaping the digital economy, compelling numerous companies to redirect billions in advertising dollars and impose limitations on user information for advertisers.
In 2021, Apple fired the opening salvo with the introduction of iOS 14.5, a version that enables iPhone and iPad users to easily block ads from Facebook. Specifically, Apple introduced a feature to manage how third-party apps, such as Facebook, collect user data.
This Apple maneuver cost Facebook billions in revenue, generating unprecedented tension between the two tech giants in the U.S.
However, a little-known fact is that before the full-scale battle, Apple proposed to share a colossal revenue source from Facebook's ads but was turned down. This is the primary reason that drove the Cupertino giant to pull the trigger first.
Proposal for a 'Symbiotic Relationship'
According to the Wall Street Journal (WSJ), Apple extended an offer to share a portion of the advertising revenue with Facebook years before engaging in open conflict. WSJ sources reveal that Apple was eager to 'collaboratively build a business alliance with Facebook.'
One of the proposed solutions was to create an ad-free version of Facebook. Since Apple charges fees on their app store, an ad-free version of Facebook, while losing App Store purchase revenue, could be mutually beneficial.
Additionally, Apple expressed interest in entering the boosted post advertising service. This service involves customers paying Facebook to have their ads appear more frequently.
WSJ sources state that Apple suggested transforming this service into an app, allowing the Cupertino giant to cut a 30% fee from the revenue. This is a rarity as Apple typically doesn't share revenue from advertising activities.
Apple's demands were not accepted by Facebook as the social media platform was unwilling to share its lucrative revenue source. CEO Mark Zuckerberg even postponed data updates to avoid impacting advertising business growth.
Finally, Apple took a decisive step in 2021 by introducing the App Tracking Transparency (ATT) feature, empowering users to manage data collection.
According to Insider Intelligence's survey, only about 37% of iPhone and iPad users allow third parties to collect and track their data, causing a seismic shift in the advertising landscape. Reports from Tenjin and Growth FullStack in June 2022 reveal that 59% of mobile advertising budgets in the UK and US shifted from Apple's iOS to Google's Android.
Meanwhile, Lotame estimates that Apple's changes will cost Facebook, Twitter, Snap, and YouTube a whopping $17.8 billion in revenue in 2022.
For Facebook alone, the company's market capitalization has evaporated by $600 billion in less than a year. Last month, Meta, Facebook's parent company, announced a decline in quarterly revenue for the first time since going public in 2012.
From Allies to Foes
According to WSJ, Apple and Facebook were once close allies as Facebook attracted a massive user base, including other services like Instagram, Messenger, or WhatsApp on the App Store.
However, despite Facebook's ecosystem being heavily downloaded on Apple's marketplace, it doesn't translate into corresponding revenue due to the predominantly free nature of these apps. This has left Apple's managers 'exasperated' as they generate no fees from these downloads.
To worsen matters, in 2016, Apple witnessed the first decline in iPhone sales revenue, compelling CEO Tim Cook to shift focus from hardware to software development.
In 2017, Apple's leadership pledged to double software revenue by 2020.
As predicted, Apple's recent quarter's hardware revenue reached over $63.4 billion, a 1% decrease from the same period last year due to declining sales of personal computers and tablets. In contrast, revenue from advertising, cloud computing, and the App Store reached $19.6 billion, a 12% increase from the same period last year.
A significant source of Apple's revenue comes from the undisclosed contract with Alphabet (Google), which wasn't publicly revealed until 2020. According to the contract, Google pays Apple billions annually to become the default search engine on the Safari web browser.
With the given example, Apple evidently wants Facebook to pay a sum commensurate with what Apple users bring to the world's largest social network, especially as Apple no longer sustains revenue growth from hardware sales.
According to WSJ, with its power, Apple is causing a shockwave in the entire online advertising industry with changes in user data privacy regulations. WSJ sources even suggest that Facebook had to consider the proposal of creating an ad-free version with a fee on the App Store to share profits and ease the conflict.
However, Facebook once again rejects this idea, unwilling to impact its substantial advertising revenue. Meanwhile, founder Mark Zuckerberg decides to pivot towards the metaverse, seeking a new direction for Facebook without constraints.
*Source: WSJ
