Tensions with Facebook and Apple have been growing and in the press quite a bit recently…particularly as both are facing antitrust scrutiny. Facebook already has a lawsuit filed against them by the FTC and multiple state AG’s. Both companies seem to be helping regulators make their case against each other. The focus of each companies criticism is very much in line with how each is being scrutinized by regulators…
- Facebook is upset that Apple changed software on the iPhone w/ iOS14 that will make it harder for Facebook and others to track people across apps. In the coming weeks, users will have to “opt in” to allow developers to share personal information (like location) with other apps and advertisers. Most consumers likely will not opt in, blocking Facebook from a lot of data. That won’t apply to Apple’s own apps. Facebook argues that’s an unfair advantage. Apple says that, unlike Facebook, they don’t share user data with others for advertising purposes and that the changes are meant to protect privacy.
- FB earnings call: Last week, Zuckerberg was critical of Apple on their earnings call saying they’re just focused “on gaining share in apps and services against us and other developers” and “Apple has every incentive to use their dominant platform position to interfere with how our apps and other apps work, which they regularly do to preference their own.”
- Increasing competition between them: on their earning’s call, Zuckerberg also brought up pending competition w/ Apple with “very significant competitive overlap” in the future on private messaging and augmented reality glasses. Facebook has Oculus and Apple is developing AR glasses.
- Facebook may sue Apple: Rumors are now circulating that Facebook may file a lawsuit against Apple related to their App store policies. Cases like this often get settled and often don’t make it to trial. Monetary damages likely unimpactful to Apple…forcing changes to Apple’s app store rules would be much harder.
- Tim Cook critical of Facebook on privacy: At a privacy related tech conference last week, Tim Cook criticized ad supported revenue models and their implications for privacy. “Technology does not need vast troves of personal data, stitched together across dozens of websites and apps, in order to succeed. Advertising existed and thrived for decades without it. And we’re here today because the path of least resistance is rarely the path of wisdom.” He also criticized companies for using algorithms to drive user engagement that perpetuate the spread of disinformation and conspiracy theories. He didn’t name Facebook specifically but has been critical of Facebook along these lines for a while. Privacy is a big focus of regulators as a source of harm suffered to consumer’s by Facebook’s monopoly and content moderation is at issue with Section 230.
- Apple & antitrust…
- Apple’s app store policies are the focus of the antitrust scrutiny against them.
- Key issues are their 30% fee (lower in some cases) and their rules aimed at preventing apps from skirting the fee…like forcing apps to use their in-app payment service and forbidding apps to point consumers to transact or subscribe outside the app, etc.
- Apple’s defense re: their app store is that they don’t have majority share in the smartphone market and that their app store rules protect consumers from malware and help maintain the quality of the app experience.
- Challenges to Apple’s treatment of third-party developers could lead to lower app store fees which would be a headwind to growth in their high margin services business. However, the long-term drivers mitigating this is their growing ecosystem of devices, including wearables, and the evolving utility of applications that continually progress with new technologies. For example, as computing power in mobile devices increases and 5G delivers better connectivity we should have the ability to use their products in enhanced ways like apps that take advantage of augmented reality and Internet of Things (IoT) related technologies. Moreover, improvement in the economics to developers could spur innovation and lead to greater availability of higher quality apps.
Sarah Kanwal
Equity Analyst, Director
Direct: 617.226.0022
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square, Suite 500
Boston, MA 02109
$AAPL.US
[category equity research]
[tag AAPL]