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Feb 4, 2022 11 min read

Facebook v Apple; The Battle of Privacy Versus Surveillance

Facebook v Apple; The Battle of Privacy Versus Surveillance
Facebook v Apple

Wiser! #60 (Premium): A disaster for Mark Zuckerberg as $241 billion is wiped off the value of Facebook. The largest one-day wipe-out in corporate history. But who's to blame? Apple and their privacy changes, or TikTok's addictive attention machine.




w/BigTech


A Battle of Wills between Two Tech Giants

Over the space of just a couple of days this week, the battleground in the Privacy versus Surveillance titanic tussle has been laid out in stark contrast.

On the one hand, you have the White Knight that goes by the name of Apple, defending the honour of Privacy. On the other hand is the Black Knight, aka Meta, formerly Facebook, fighting on two fronts to defend Surveillance Capitalism and mounting a rearguard action against TikTok.

Ding, ding, seconds out!

Apple, defenders of Privacy

💰
Apple earned over $2.5 billion a day in profit between October and December 2021.

BackStory:  It started with Apple’s 1st quarter earnings call. In just 3 months, from October to December, the most valuable company in the world reported a record quarter of $124 billion in revenue and $34 billion in profits.

Apple reported total sales were up 11% YoY despite the global supply chain issues, chip shortages and continued economic uncertainty resulting from the pandemic.

  • iPhone sales were up 9%,
  • Services were up 25% (Services, which include iCloud, Apple Music and App Store fees,  is Apple’s most profitable business unit),
  • Wearables, Home and Accessories (which Apple calls Others and includes the Watch and AirPods) was up 13%,
  • Macs had the strongest growth of any of Apple’s hardware lines, growing 25%,
  • iPad was the only disappointment with sales down 14%.

At $34 billion, Apple made more profit in just 3 months than Barclays or Netflix earned in top-line revenue in a whole year!

Apple: World's Most Admired Company

To cap off a satisfying 24 hours for Apple CEO Tim Cook, Fortune Magazine then announced the latest list of “World’s Most Admired Companies”. For the 15th year in a row, the world's most valuable company was also named the most admired.

The annual rankings from Fortune Magazine are based on the opinions of around 3,750 corporate execs and analysts across 9 categories. Apple came top in 3 of them and in the top 10 in 8 out of the 9.

Amazon and Microsoft were 2nd and 3rd respectively. This is the 3rd year in a row that the Top 3 were Apple, Amazon, Microsoft, in that order.

Meta: fighting the corner for surveillance capitalism

TheBombshell:  Late on Wednesday, after the markets had closed, the 37-year old Mark Zuckerberg led the quarterly earnings call that wiped $241 billion off the value of Facebook.

A combination of disappointing numbers, stagnant and declining user numbers and a weak outlook spooked the markets. One of the surprise data points was around user numbers that have always had an upwards trajectory. For the first time ever, user numbers are trending down, by over a million a day in North America (which is its largest market for advertising revenue).

Having said all of that, Facebook is still an impressively profitable company. Despite the dismal outlook, the corporation reported almost $40 billion in profit last year.

Facebook laid the blame squarely on Apple, saying that their privacy changes would cost them $10 billion in lost advertising revenues. They also blamed a shift in attention as the TikTok effect takes hold and users switch to video (which generate less advertising revenue than from posts.)

When trading closed on Wednesday (prior to the earnings call), MetaFacebook had had a market cap of $900 billion. When the markets opened on Thursday morning (after the earnings call), the value of MetaFacebook was 25% down at $670 billion. Reuters reported that The Zuck's personal wealth took a $29 billion hit and he is now only worth $85 billion!

SideNote:  Zuckerberg owns just under 13% of Facebook having sold $4.5 billion of MetaFacebook stock last year (when it was at its peak) .

Meta/Facebook drags BigTech down

The fallout from the MetaFacebook earning call was felt right across the technology sector.

The 5 BigTech giants felt it the most. And whilst it is the case that a market correction is long overdue, this one wasn't expected!

It wasn't just the big boys that felt it either.

  • Spotify was down 16% (the majority of their income is from subscriptions, not advertising, but the competitive threat of Apple and TikTok is all to visible. I wrote about it here.)
  • Twitter was down around 8% as it struggles to decide what it wants to be in the aftermath of Jack Dorsey’s departure from his 2nd reign as CEO. Read this.
  • Snap was down 18% and Pinterest fell by 11%.

The 4 reasons why Apple is doing so well and Facebook isn't

On the face of it, there are three reasons why Facebook (and the rest of BigTech built on the advertising business model) are doing so badly. The first is Privacy, the second is Competition, aka TikTok, the third is the pursuit of the Metaverse. But I think there’s a 4th, more subtle but still significant, force at play, which I’ll call Harm.

  • Privacy. Apple changed the game for the advertising business model in April 2021 when they changed the way tracking works (this is how Facebook et al collect the data to figure you out). Instead of it being a default “opt-in”, every app on an iPhone or iPad has to ask the user if they are OK to be tracked. Initial reports indicated that 95% of users chose to opt out of tracking (thereby cutting the life blood that feeds the Facebook advertising machine).
  • Competition. I’ve said it more times than I care to mention over the past year, but TikTok is the next big thing. It is the most addictive of all the social media platforms and the app of choice for Gen Z. User numbers in Facebook’s home market of North America has been stagnent for 2 years as users switch to short-form video entertainment.
  • Metaverse. MetaFacebook reported a loss of $3.3 billion pursuing its land grab of virtual reality. With a decade to go before MetaFacebook expect to turn the Metaverse into the growth engine that replaces ad-fuelled social networks, this is going to be a huge drag on the business.
  • Harm. Last year was a brutal year for MetaFacebook as whistleblowers exposed the inner workings of the world’s largest social network. Facebook used technology to pursue the ultimate goal; growth (at any cost). Whilst ignoring the data that showed the cost was measured in increased suicide rates, depression and self-harm. As Francis Haugen put it, Facebook put “profits before people”.

#1: Privacy is a fundamental human right

The impact of Apple’s Privacy changes is not only felt at Facebook. Every platform that relies on advertising revenues has been knee capped by Apple’s changes to tracking. Basically, anyone that needs to use surveillance to track you, learn about you, understand you...and then target you with relevant adverts is royally screwed by this single and fundamental change in the way that Apple decides how apps should run on iOS devices.

According to a report by Market Insider, Apple’s privacy changes have wiped $278 billion off the value of just 4 firms that rely on an advertising business model: MetaFacebook, Snap, Twitter and Pinterest.

At the heart of the matter is privacy, or surveillance depending on your POV. In ye olden days, advertisers bought space in newspapers and magazines. There was only one version of the ad at a time and everyone would see it, whether they were interested or not. Now, 1,000s of variations of the same ad can be shown to 1,000s of different groups of people based on 1,000s of personalised characteristics. This is the advertising business model that feeds many parts of BigTech.

Proponents of the advertising model focus on personalisation. The technology means that you only see adverts that they think you’ll be interested in. Vegetarians don’t get ads for New Zealand lamb, pensioners don’t get ads for creches, but they get them for toys (they have grandkids, right?).

However, the same technology is also open to manipulation. Think Russian bots and Cambridge Analytica, where political campaigns (Brexit and Trump) used highly targeted advertising on Facebook to send messages of manipulation to voters who they had identified could/would be swayed. To win an election, it usually only needs a very small minority of voters to determine the outcome for the majority.

#2: Addiction to TikTok

TikTok has over 1 1/4 billion monthly active users. It was the most downloaded app and the most visited website in 2021. It's the short-form video platform that everyone is trying to copy. MetaFacebook, Twitter, Instagram, Linkedin, have all introduced new copy-cat features to emulate what TikTok does so well. But whereas they are all failing to find the hook, TikTok user numbers continue to grow (remember, MetaFacebook numbers are not!).

TikTok is ranked number 1 in engagement when measured by average time per session. At over 100 minutes, it is twice the number 2 ranked platform, Pinterest. In 2019, it is estimated that 68 billion hours of attention were spent on TikTok.

Not bad considering TikTok is only 5 years old!

The thing that makes TikTok different is that it commands your attention by serving up content that YOU like. Every other social media platform gives you content based on what your friends and network of connections like.

As Mark Zuckerberg put it in the earnings call;

“The balance of content that people see in feeds is shifted a little bit more towards stuff that isn’t coming from their friends, which they may discuss with their friends, but it’s kind of shifting towards more public content.”

Bloomberg reported that Zuckerberg told MetaFacebook employees to zero in on video because they're up against an 'unprecedented level of competition' from TikTok.

In other words, the appetite for nosey neighbour content, like “what are my friends talking?”, or “who are they going out with?” that has been the staple diet of Facebook for almost 2 decades has been replaced by watching videos that are either funny, entertaining or informative.

The thing about TikTok is that it collects more data signals, more quickly than anybody else, TikTok figures out your likes and preferences quicker than it takes to heat up a frozen pizza. The algorithms quickly “learn” what makes you tick and tock. Then, bam, you’re fed a continuous stream of content that reinforces these preferences and makes you even more addicted than you were at the outset.

SideNote:  There is a downside to TikTok. Steve Huffman, the Reddit CEO called TikTok "fundamentally parasitic, it's always listening, the fingerprinting technology they use is truly terrifying". It's a subject I explored in this article. ☟

TikTok, teenage girls, eating-disorders and the curious rise in Tics
Wiser! Essay: a billion people watch short videos on TikTok every month, but what are they about? New evidence links TikTok to harmful content on eating disorders and a disturbing rise in Tics amongst teen girls.

#3: Metaverse

Last October, The Zuck announced that Facebook would be renamed Meta Platforms. It signalled a new destination for the social media giant: the Metaverse.

The business would be divided into two. One called the ‘Family of Apps’ (that’s Facebook, Instagram, WhatsApp and Messenger). The other called ‘Reality Labs’ (which is the virtual reality business that includes the Quest VR headsets, VR software and, coming soon, AR glasses).

In the earning call and for the first time, Facebook broke out the financials for Reality Labs. It shows a loss of $10.2 billion on revenues of $2.3 billion. MetaFacebook reported that they invested $9 billion last year on their Metaverse vision.

At the time of the Meta announcement last October, it begged the questions of Why? and Why Now? Well, it seems like we have some answers now.

Zuckerberg was preparing investors for what was about to come.

He would have seen the numbers and the forthcoming impact of the disruption that Apple was about to cause to the advertising business model. When The Zuck told investors that it could take a decade for the transformation to evolve, he was giving advance notice of a future only he could see at the time.

What’s clear is that the advertising business model is in for a rocky run, especially when Google finally make their minds up over cookies and what will replace them.

#4: Harm

The steady stream of insight into the inner workings of MetaFacebook and especially the leadership team from Zuckerberg down, has shown an organisation that puts profits before public safety. Zuckerberg’s unrelenting focus on growth at all costs will eventually be his undoing. Whether MetaFacebook can survive is another matter, although without a change in the business model and a new innovation to regain your attention it is hard to see how it can.

Cards on the table:  I think of MetaFacebook as the Evil Empire.

I’ve seen enough to be convinced that when humanity looks back at the impact of social media at the start of the 21st century, it will shake its head in disbelief. That technology could be used in ways that nobody fully understood, on a scale that nobody had ever seen before, to a global population that didn’t know what was happening. Questions will be asked and (probably) never fully explained.

This is why I look to China when it comes to this issue because I think they have seen what’s happening in the West and decided it’s not good and isn’t for them. Unconstrained by capitalist ideology, China has put public safety and well being before corporate profits. (I wrote about China’s BigTech Crackdown here and here.)

Clutching at straws

Facebook is almost 20 years old, its users are almost 20 years older, and there’s not much new or innovative about Facebook anymore. Facebook looks tired by comparison to TikTok (and Twitch and all the other video streaming platforms that are instant and entertaining).

Zuckerberg knows that he needs to plough a new furrow and he’s chosen to farm a virtual one. It’s just that the market isn’t buying it. The Zuck has failed to convince investors that spending $9 billion on a Metaversal future is the way to reinvent Facebook.

Which takes us back to the beginning of this piece. Because Apple sees a different tomorrow. Tim Cook has been saying for years that the future is in AUGMENTED reality. Whereas The Zuck sees it as a VIRTUAL one.

They’re related but not the same. For VR you need to strap a brick to your face and immerse yourself into a 100% computer-generated landscape. You are no longer in touch with the world around you.

For AR you put on a pair of spectacles and see the real world in front of you, but enhanced with additional data and information.

As we’ve seen with privacy, Apple is winning. When it comes to the Metaverse, I’d put my money on Cook over Zuckerberg. The Metaverse is definitely happening, but it’s going to be an augmented one, not a virtual one. Which doesn’t bode well for Zuckerberg or the Evil Empire.


w/Promotion

The easiest tool in the world for writing, scheduling and managing Tweets.

w/Further Reading


Google and Facebook accused of collusion to create unfair advantage
Wiser! Essay: Unsealed documents in the anti-trust lawsuit against Google has revealed a 2018 agreement with Facebook to collude to fix prices and unfair advantage to Facebook.

The Worst Day of Mark Zuckerberg’s Reign at Facebook. Source: Intelligencer

Disappointing Meta. Source: WSJ

Mark Zuckerberg’s Disaster Is Taking Silicon Valley With It. Source: The Intelligencer

Facebook Blames Apple for $10 Billion Loss Due to Ad Warning. Source: Business Insider

Facebook loses daily users for the first time as stock sinks - Source: The Verge

The Metaverse: Facebook’s big bet (Part 1)
Wiser! #43 (Premium): When Facebook, the world’s largest social network, renames to “Meta”, it positions the Metaverse as the Next Computing Platform, aka Web3, the next generation of the Internet.

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