Friday, August 12, 2022

Wall Street Journal scoop on pre-ATT Apple-Facebook talks vindicates publishers' class action in Northern California, German antitrust investigation: Facebook comes across as Evil Empire's victim

The Wall Street Journal's Salvador Rodriguez has scored an incredible scoop by reporting on revenue-sharing negotiations between Apple and Facebook of a few years back--before the former decided to introduce "App Tracking Transparency" (ATT)--that make Cupertino look really bad. 9to5Mac has published a short (non-paywalled) summary.

The key thing is that Apple wanted a bigger piece of Facebook's cake. It sought to extend its 30% app tax to Facebook's iOS revenues, such as by having Facebook offer an ad-free subscription service via Apple's In-App Payment (IAP) system, through which even payments for promoted posts (which is just a form of advertising on social media) should be paid. The talks unsurprisingly failed, and meanwhile Apple has not only kneecapped Facebook and numerous other app developers (such as makers of hypercasual mobile games, but also done enormous harm to countless companies depending on cost-effective customer acquisition. A venture investor says this could be a key factor leading to a recession. On Tuesday, the Financial Times' Patrick McGee reported on small businesses now "finding it prohibitely expensive to target likely consumers as they once did," and some small companies are really suffering.

Hausfeld partner and competition law professor Thomas Hoppner ("Höppner" in German) rightly described ATT as "Privacy by Default, Abuse by Design" in an academic paper he published last year.

M. G. Siegler, a journalist-turned-venture-investor, also sums up nicely how Apple was trying Facebook--based on today's WSJ story--to pressure into a deal that would have given Cupertino a substantial chunk of Facebook's revenues:

Dare Obasanjo, whom I hold in the highest regard as the thought leader on product management and adjacent industry topics, pointed out in light of today's WSJ article that there are very popular advertising-financed apps like TikTok, Google, YouTube (which belongs to Google), and Facebook's Instagram on which Apple makes no money, while Apple can and does tax IAP-centric apps like Tinder, Bumble, Candy Crush, and Roblox.

With the WSJ and the FT, the world's two leading financial papers have shed light on ATT this week--a harsh light for Apple.

In the ATT context, Apple has so far benefited from being viewed by many people as the lesser evil than Facebook, sort of the synonym for surveillance-based advertising and user engagement. Apple claimed to stand on higher ground--think about it, privacy!--and capitalized on Facebook's popularity problems.

Here's my perspective on Meta/Facebook: while I can relate to some of the criticsm leveled at it, and while I never thought it was a good idea that antitrust enforcers allowed them to acquire WhatsApp and Instagram (instead of forcing them to compete with those nascent competitors), I think the public perception is unfairly negative. I actually find many of the positions that Mark Zuckerberg has taken on critical industry issues--such as the need to regulate major platforms, but also on free speech issues--totally reasonable. It also says something that Senator Ted Cruz (R-Tex.) considers Mr. Zuckerberg more receptive to his concerns than some other tech leaders. I hardly use Facebook anymore--somewhere between once a month and once a quarter, but I do use WhatsApp every day (though I slightly prefer Signal). So I'm not a hardcore Facebook fan. But I think that company has been unfairly vilified and demonized.

That made Apple's ATT scheme easier to implement. Now, with what the WSJ's Salvador Rodriguez has just reported, and with the impact on innocent small businesses and the economy and society at large becoming clearer (not only--but also--thanks to the FT's Patrick McGee's article I mentioned), more and more people--especially those who make important decisions, such as at regulatory agencies--will understand the grand evil scheme centered around ATT.

I expect more public enforcement and more private litigation against ATT, and those WSJ and FT articles may serve as Exhibits 1 and 2. Two major enforcement activities are already ongoing:

In the N.D. Cal. litigation, Hagens Berman will appreciate the WSJ article as a treasure trove in terms of starting point for discovery requests, interrogatories, and questions to ask witnesses. The German FCO may also have some questions for both Apple and Meta/Facebook.

No one should make the mistake of cutting off one's nose to spite one's face. If there are respects in which Meta/Facebook can, should, or needs to improve, bring them up. Talk to Meta, as there really are indications (such as what Senator Cruz said) that Mark Zuckerberg is constructive. But don't let Apple get away with a scheme that has a devastating impact on many companies large and (especially) small.

Privacy is largely a pretext. If it was about privacy, Apple wouldn't display a "salesman's" message that strongly encourages authorizing the use of data for advertising purposes when its own interests are at stake while scaring users away from the same kind of authorization when it's requested by third-party apps.

In recent weeks, it became known--based on Apple's job ads--that they're building a demand-side platform (DSP), which means Cupertino wants to scale up its Search Ads business. The DIGIDAY article I just linked to explains DSP as "a core part of an ad tech stack for any company with designs on winning more media dollars" and explains that it "lets a marketer advertise with the help of automation," meaning that "marketers can set up campaigns and manage them with relative ease"--and as a result, advertisers are "likely to spend more."

ATT is a power and money grab. It's not unstoppable. Regulation and litigation--and, if necessary, legislation--can address the problem.