Apple (NASDAQ: AAPL) CEO Tim Cook has been critical of Facebook (NASDAQ: FB) CEO Mark Zuckerberg and his company’s handling of consumer data in the wake of the Cambridge Analytica debacle. At Apple’s developer conference in early June, though, the company did more than just criticize. It unveiled adjustments to its new Mac and iPhone operating systems (OS) to back up its critique of Facebook’s handling of sensitive information, making life potentially harder for businesses that make money off of online advertising.
A new feature on your Apple device
On the new Mojave OS for Mac and iOS 12 for iPhone and iPad, Apple said that securing user information was a top priority. Thus, with the launch of the new systems, new hardware functions like the camera and microphone, as well as backup data and message history, will be added to the list of things that need your permission before being accessed by apps. The current Apple OS already checks in with users before allowing an app to access things like location, photos, and contacts.
Perhaps the more radical change, though, is on Apple’s Safari web browser. “Like” and “share” buttons, as well as comment bars, can be used by advertisers to track a user’s activity, allowing them to deliver more targeted ads. Apple is blocking these functions to help make everyone’s online activity more uniform in appearance and making it harder for advertisers to gather info. Safari will also require users to give consent via a popup prompt if data is to be shared or tracked after hitting a “like” or “share” button.
Image source: Getty Images.
Apple, Facebook, and the future of data
For Apple device fans, this is a big change. But it’s a potentially even bigger change for Facebook and other online tech companies like Alphabet‘s (NASDAQ: GOOGL)(NASDAQ: GOOG) Google that make the majority of their money off of advertising.
Companies like Facebook don’t sell their users’ info, per se. Rather, they gather information that advertisers can tap to deliver targeted ads. This information gathering allows Facebook and Google to charge a premium for displayed ads as they have a better success rate when users see them.
It’s easy for Apple to take shots at this type of ad-based revenue model because it doesn’t make money that way. Instead, Apple sells hardware and has a growing paid services segment. No doubt the concerns over privacy are sincere, but it also behooves Cook and company to create doubt in the minds of consumers using hardware without the Apple logo affixed to it, potentially getting them to buy an Apple product and “freemium” services. The company has been unique in successfully turning launches of its devices like the iPhone into annual events that spur spending, but that feat has been getting more difficult to accomplish.
Facebook is still the top app in the app store, so Apple’s latest move in this game of chess is significant as it could hinder revenue growth for the social media leader. Facebook revenue growth is only beginning to slow down because of the company’s already massive size, but investors will want to watch just how quickly that slowdown happens in quarters ahead.
The saving grace here is that Apple still has just a small slice of the pie worldwide. Alphabet’s Android mobile operating system (OS) gobbles up more than 80% of global market share, and Facebook is a top app in that system’s app store as well, so big advertising revenues are unlikely to go away anytime soon. Even so, the battle between the tech titans is heating up, and the lack of any meaningful hardware or OS software business could put Facebook at a disadvantage long term if intense scrutiny over data use persists.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Nicholas Rossolillo and his clients own shares of Alphabet (A shares), Alphabet (C shares), Apple, and Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Facebook. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.
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