Inside the Apple vs. Facebook Privacy Fight

The two companies weren’t always at odds. In fact, they were almost business partners.

In the years before the change, Apple suggested a series of possible arrangements that would earn the iPhone maker a slice of Facebook’s revenue, according to people who either participated in the meetings or were briefed about them. As one person recalled: Apple officials said they wanted to “build businesses together.”

One idea that was discussed: creating a subscription-based version of Facebook that would be free of ads, according to people familiar with the discussions. Because Apple collects a cut of subscription revenue for apps in its App Store, that product could have generated significant revenue for the Cupertino, Calif., giant.

The companies also haggled over whether Apple was entitled to a piece of Facebook’s sales from so-called boosted posts, said people familiar with the matter. A boost allows a user to pay to increase the number of people that see a post on Facebook or Instagram. Facebook, which considers boosts ads, has always contended that boosts are a form of advertising, in part because they are often used by small businesses to reach a bigger audience, said one of the people.

Apple, which doesn’t take a cut of advertising from developers, argued that Facebook boosts should be considered in-app purchases, according to a person familiar with the matter. Apple’s standard terms would entitle it to take a 30% share of those sales.

Apple and Facebook, which has since changed its name to Meta Platforms Inc., didn’t reach agreements on any of the proposals to work more closely together.

Around the same time, Facebook was considering making its own privacy-related changes. Chief Executive

Mark Zuckerberg

chose to delay significant changes to its data practices to keep its advertising business humming, the people said, an approach internally dubbed a “rear-guard” strategy.

The negotiations between the two companies, and Facebook’s internal discussions about privacy, haven’t been previously reported. They provide fresh insight into the origins of the contentious rivalry that is changing the kind of advertising consumers see online and putting billions of dollars in ad spending up for grabs.

Among U.S. iPhone and iPad users, 37% have opted into allowing companies to track them on their devices, according to research firm Insider Intelligence. With so few users opting in, the ramifications of Apple’s changes to its mobile operating system have been felt broadly across the digital advertising ecosystem. Among U.S. and U.K. mobile advertisers, 59% have shifted advertising budgets from iOS to Android, Google’s mobile operating system, according to a June survey by Tenjin and Growth FullStack, which develop tools used by mobile advertisers. The privacy shift has resulted in $17.8 billion in lost revenue among Facebook,

Twitter,

Snap and YouTube so far in 2022, according to an estimate by Lotame, a data-management company.

Facebook, in particular, is scrambling to patch its ad-tracking systems, after Apple’s moves were the primary cause of a sharp business slump that has shaved approximately $600 billion from the company’s market value in less than a year. Last month, a little more than a year after these changes, Facebook’s parent company, Meta, reported its first year-over-year decline in quarterly revenue since it went public in 2012.

In prominent advertising campaigns and public statements from their top executives, the two tech giants have staked out rival positions, with Apple focused on user privacy while Meta highlights the benefits of personalized online advertising.

The discussions between the two companies, mostly between the years 2016 and 2018, represented efforts to find common ground in a period before their positions hardened.

“Every day, we meet and collaborate with developers of all sizes to make suggestions, address concerns, and help them continue to grow their businesses,” said an Apple spokesman, who added that the rules for app developers like Facebook are “applied equally to all developers because we think that fair enforcement results in the best user experience.”

A Meta spokesman said that the company has “made significant changes over the past five years to protect people’s data while also allowing businesses of all sizes to grow.” He continued: “The decisions we make aren’t dictated by another company, but by our commitment to the people using our products and our belief that privacy and personalization are not at odds.”

Apple and Facebook for years enjoyed a unique symbiosis: Apple controlled the App Store, the gateway for hundreds of millions of users to download the flagship Facebook app as well as the company’s other popular services, including Instagram, Messenger and WhatsApp.

But while Facebook’s products were among the most popular apps on the iPhone, they didn’t generate sales for Apple. This was a persistent frustration for some Apple executives, according to the people familiar with the matter.

As the iPhone’s maker, Apple also controlled device-identification tracking, which for more than a decade was central to Facebook’s ability to harvest data on users and deliver to them personalized ads.

Apple says its commitment to privacy is a core company principle that predated its rift with Facebook. An Apple spokeswoman said there is no connection between any discussions of partnerships and the ad-tracking changes that were later implemented.

Apple has discussed similar business models with many developers, according to a person familiar with the conversations.

The discussions with Facebook came as Apple was shifting its focus away from hardware sales and toward software.

Apple in 2016 saw its first ever year-over-year decline in iPhone revenue, and CEO

Tim Cook

began putting more attention on the company’s effort to bolster its digital-services business, promising in 2017 to double that revenue by 2020, a goal the company reached six months ahead of schedule. Apple’s hardware business generated more than $63.4 billion in revenue during its most recent quarter, down nearly 1% from a year ago, as computer and tablet sales slipped. Meanwhile, revenue for the company’s services business—which includes the App Store, the company’s cloud-storage offerings and its own advertising operation—came in at $19.6 billion, up 12% from the same period last year.

An important part of Apple’s services revenue came from a partnership with

Alphabet Inc.’s

Google, which wasn’t publicly known until it was cited in a 2020 antitrust lawsuit against Google by the Justice Department.

Under the arrangement, Google pays Apple billions of dollars annually to be the default search engine in the Safari web browser. Apple hasn’t been accused of wrongdoing and Google has said it pays to promote its services just as many businesses do.

Some Facebook executives worried about Apple’s sway over their business, in part due to public comments by Mr. Cook that were critical of businesses that depended on collecting data about their users. Facebook’s use of user data was also increasingly out of step with privacy concerns in Europe, and public stumbles—including the 2018 Cambridge Analytica scandal—prompted a wave of scrutiny from lawmakers and regulators in the U.S. and Europe. Cambridge Analytica was the consulting firm that inappropriately accessed the private data of 87 million Facebook users and used it for partisan political research.

That summer of 2018, Apple rolled out changes to its Safari desktop and mobile web browser that hindered Facebook’s web business, eliminating its ability to track users without their permission as they visited different websites. The next big target for Apple: Apps doing the same kind of tracking.

At Facebook’s Menlo Park headquarters, Mr. Zuckerberg and his executives were already considering changes to their business, including the once-unthinkable move to stop using data collected by other companies to target ads to users, according to people familiar with the discussions.

The Facebook executives who internally proposed ending the collection of third-party data argued that by ceasing its reliance on such data, the social-media giant could also reduce the company’s dependence on Apple and Google’s mobile operating systems.

Mr. Zuckerberg opted instead to leave the bulk of its data-collection practices in place. The company shut down an ad-targeting option that relied on information collected by data brokers shortly after the Cambridge Analytica scandal was reported in March 2018, but otherwise Facebook continued to rely on third-party data to target users with personalized ads.

There were a number of reasons for rebuffing the proactive approach, according to some of the people familiar with the discussions. Some in the internal Facebook meetings believed the public would never accept Facebook as a leader in consumer-data privacy. Others worried that if Facebook gave up some of its data collection, there would be no end in sight for what practices the public would call on the company to also shut off. Some believed the hit to revenue would simply be too great.

When Apple announced its changes in June of 2020, it sent shock waves through the advertising industry and was hailed as a victory by advocates of data privacy. The company implemented the change the following April.

Soon thereafter, Facebook revisited the idea of a subscription-based version of its flagship app, said a person familiar with the discussions. A subscription-based service would have presented numerous challenges, including whether a person who uses multiple social-media accounts would have an ad-free experience for all of their accounts. Ultimately, the company decided against the idea so as to not undermine its advertising business.

—Tim Higgins and Suzanne Vranica contributed to this article.

Write to Salvador Rodriguez at [email protected]