Watching Cassius Clay pummel Sonny Liston in Regina King‘s terrific One Night in Miami put me in a pugilistic mindset these past few days, but the real heavyweight bout–between Internet giants Apple and Facebook–is just beginning.
At stake is the direction of the internet, with wide-ranging implications for now, but also for the internet of our future.
On one side is Apple, about to change how it operates a crucial part of the modern net. Among other shifts, it will be changing browser settings on its ubiquitous iPhones so that users must actively opt in to allow sites to track them across the rest of the web. Up to now, that hard-to-find setting was automatically opt-in, and most users likely had no idea it was even an option.
That tracking allows a company such as Facebook to target ads to ever more precise audiences, charge brands more to reach those precisely defined audiences, and give them better results.
It’s a key part of Facebook’s fabulously lucrative monetization engine, helping the company generate more than $11 billion in net income (profit) in its most recent quarter. But that gravy train may be about to end.
Hitting Facebook where it hurts
The change could cost targeting kings Facebook and Google between $5 billion and $20 billion this year, according to Matthew Ball, a consultant and former digital media executive, in one of his recent, typically deep dives on digital media business models,
“Crucially, Apple’s policy adjustment was not prompted by any real-world law or push,” Ball wrote. “Indeed, it’s not clear legislators have either the power or inclination for such a move. Instead, it reflects part of Apple’s new privacy initiatives and distaste for ad-targeting (it’s notable that Apple collects (zero percent) of advertising-based mobile app revenues, but substantial portions of payments).”
As you might imagine, Facebook isn’t happy about the pending Apple punch to the face.
In December, Facebook rather comically took out ads in newspapers(!) saying it was fighting for small businesses in opposing changes that undercut ad targeting. I’m sure Joe’s Cleaners deeply appreciates the class solidarity.
More recently, reports have surfaced that Facebook will file an antitrust suit against Apple over its rigid App Store policies. CEO Mark Zuckerberg used Facebook’s earnings call to say mean things, though Apple CEO Tim Cook rather effortlessly swatted them away.
The suit, whenever it comes, may be a little harder to swat. It joins one already filed by Fortnite publisher Epic Games, another big company with deep pockets controlled by a highly motivated founder/CEO.
And the Biden administration also may wade in, following efforts in India, China, the European Union, Australia and elsewhere to increase regulation and diminish concentration of the tech giants.
Apple feeling the pressure
Amid all this, there are signs Apple is feeling pressure.
Last fall, it announced a program giving small developers a big break on the 30% cut that Apple takes from some App Store transactions. The program is promising, but laughably limited given that it comes from a company that sold $111 billion of stuff last quarter, and has $196 billion in cash.
More tangibly, the next version of iOS will let users set their own default music and podcast services.
That shift doesn’t erase other Apple homescreen advantages, like preinstalling Apple Music to avoid any customer acquisition expenses. Spotify, Tidal, and other audio competitors still must spend millions to get there, and then have to either pay Apple a huge share of subscription revenue, or sign up their customers in some other way than through the App Store.
Facebook, like Epic and many others, has chafed at Apple’s iron grip on its lucrative App Store, and at Apple’s sometimes arbitrary imposition of rules. But to get access to the more than one billion i-devices, the companies have little choice but to put up with it.
As Ball pointed out, Apple’s approach has downsides whose full effects we may not appreciate for years. That iron grip throttles far more than spam, fraud, and trolls, as Apple regularly claims.
It’s also choking innovation, new business models, and the potential development of the Metaverse–that immersive digital future that consumes a lot of tech-erati these days.
Changing how the future works
So really, as important as the money disputes are now, this heavyweight fight is also every bit about what the Internet looks like 10 or 20 years from now.
“In the coming decade, many analysts and technologists believe the iPhones will take on the role of “edge servers” for local computation,” Ball wrote. “This would mean even more of the world around us will run off, be powered by and governed through the iPhone (e.g. our glasses, television, bikes). This also reduces the likelihood of iOS being supplanted by a “new OS” (as iOS displaced Windows).”
Remember that Facebook makes the most successful virtual reality headset ever, the Oculus 2. Google parent Alphabet keeps trying to make augmented-reality hardware work, and Microsoft does too, tied in with its huge gaming investment. More recently, reports have surfaced that Apple is building a $3,000 AR/VR headset.
Basically, everyone’s trying to build the devices that will rule the next era of computing. The mobile era has been fabulously lucrative for Apple and Facebook. The next era likely will be too, but it will revolve around new computing interfaces, wearables, smart devices, 5G connections, and AR/VR.
So, once Facebook files that lawsuit and comes out swinging at Apple, remember these two heavyweights are fighting not just for here and now, but for the ways we’ll be consuming entertainment, news, information, education and so much else in the MetaPossibleVerse of our future.
Just one more thing…
The Wall Street Journal recently confirmed what I had predicted in a couple of recent columns: that deeply problematic forced sale of TikTok‘s U.S. operations to companies headed by Trump donors has been “called off indefinitely,” political speak for “it’s as dead as Donald Trump‘s personal hotline to Vladimir Putin.”
The deal’s death comes as part of a much broader Biden administration review of Chinese government controls over tech companies there, and their data.
Whether the immense amount of data TikTok gathers about user preferences might be considered by some relatively innocuous, that won’t necessarily be the case in other situations.
TikTok won’t be the last Chinese company to become a worldwide hit, despite increasingly rigid authoritarian control back home.
It’s also likely the data collected by that next company will be even more important compared to what’s in TikTok’s dragnet, especially given other Chinese government priorities, like gathering vast stores of global biodata and genomic information.
So, here’s to a more thoughtful approach to the very real issues around Chinese tech control that the Trump administration raised, but then handled in typically ham-fisted fashion. Governments and regulators also need to get ready for the next generation of fights over computing’s future.