In the midst of impending regulations that will directly affect its ability to continue using unfettered its successful business model, Apple Inc. (AAPL, Financial) fired a shot against Facebook Inc.’s (FB, Financial) bow recently, taking aim at its core business process. News that Facebook allowed a select group of companies access to its users’ friends’ data without their knowledge is the latest chapter in the ongoing privacy abuse scandal that continues to plague the social network.
This embarrassing disclosure has only heightened regulators' scrutiny over how the social media company conducts business without regard for its users' private information. There is also the additional issue of whether or not CEO Mark Zuckerberg was entirely truthful during his testimony before a congressional committee when he intimated that Facebook had walled off such information.
Disclosure of Facebook’s business practices and how it conducts its lucrative, and essential, data harvesting techniques has had enormous adverse ramifications for the company. Apple has deftly and propitiously capitalized on the data privacy imbroglio engulfing a now penitent Facebook and sensed an opportunity to profit at the expense of its FANG sibling by offering irate social media users a way to prevent Facebook from tracking them. There is no better way to describe the object of Apple’s social media blocking mechanism contained within its upcoming iOS 12 than the words of its chief software executive at the company’s recent annual worldwide developers conference:
“We’ve all seen these ‘like’ buttons and ‘share’ buttons,” Craig Federighi told the audience, with the ubiquitous Facebook button in full view on the screen. “Well it turns out, these can be used to track you, whether you click on them or not. And so, this year, we are shutting that down.” This is Apple unmistakably painting a bullseye on the back of Facebook
When the Cambridge Analytica data privacy scandal first erupted, Apple's CEO was one of the first to take a shot at Zuckerberg. Tim Cook’s comments were unvarnished and amounted to a stinging and very public rebuke of the social media giant’s willful disregard for its users' private data. Indeed, it was Cook who said facetiously that Facebook’s product is its customers.
“We care about the user experience, and we’re not going to traffic in your personal life,” Cook said. “I think it’s an invasion of privacy.”
With its new announcement, Cook’s previous invective has been replaced with a direct attack on Facebook’s core business model.
The move may not necessarily have been prompted for altruistic reasons. As iPhone growth stalls, Apple is looking to make its highest margin device more attractive to users.
Facebook is, at heart, an advertising broker and there is no doubt that allowing iPhone users the ability to block tracking by the social media giant will impact its revenue stream. Facebook’s envious operating margins to date have been achieved because it has been allowed to collect data with impunity. Although it is hard to predict the exact impact Apple’s new blocking tools will have on Facebook, it is almost certain that the company will no longer be able to sustain its high margins.
Disclosure: I have no positions in any of the securities referenced in this article.
