Apple breaks up advertising. When will the DOJ and the EU break up Apple?
Last month, with the release of iOS and iPadOS 14.5, Cupertino rolled out its long-awaited App Tracking Transparency (ATT) framework for software developers, which is likely to create a sea change in how internet advertisers and social media platforms handle personal identifying data and targeting of audiences.
The use of the new ATT framework is now a requirement for any developer that has an app on the App Store if it collects data about end-users and shares it with other companies to track across apps and websites.
Apple's default setting for App Tracking Transparency in iOS 14.5 and above is set to deny tracking permission.
By default, under iOS and iPadOS 14.5, the system tells all apps not to track -- a user can instead opt-in for a request to track if they want to do so on an app-to-app basis. They can approve or deny the tracking. However, it is expected that most users will leave the default settings as-is, and we will see a significant revenue shortfall (expected to be as high as 40 percent) by internet advertisers due to an inability to personally target ads and content across apps and websites displayed on Apple devices.
This ATT feature is, of course, implemented strictly for third-party apps and advertisers, not Apple itself. Apple has its own advertising network for use within its apps and platforms. Still, it has stated quite emphatically to users -- within iOS and the terms of service of its platforms and services -- that it does not track between apps and websites. Apple does, however, show personalized, context-sensitive ads, which -- although the user can optionally turn these off -- are buried at the very bottom of the Privacy settings menu at the end of a very long list.
Apple's own advertising network does not track, but it does do personalized targeting.
Despite these disclosures, the company still has a captive advantage over other advertising platforms, which can no longer take advantage of similar personalization data by default.
This expected shortfall in advertiser fortunes has raised the ire of advertising revenue-dependent companies like Facebook, which has been howling for months (and taking out full-page ads in the New York Times) about the changes, both publicly and privately, and has had to brace themselves and their advertiser partners regarding the expected impact of reduced audience sizes.
Many end-users, including myself and my ZDNet Jason Squared podcast co-host, Jason Cipriani, welcome these changes by Apple to prioritize privacy over advertising personalization. But this spat with Facebook is by no means the end of Apple's public scrutiny over how it handles its platforms -- and may very well bring greater attention to how dominant the company is in the mobile industry.
Facebook is not going to take this attack on their livelihood lying down -- the company has reportedly been preparing an antitrust lawsuit against the company, which would allege that Apple has abused its power in the mobile devices market by forcing app developers to abide by its App Store rules that the company's own apps do not need to follow.
Facebook is simply the beginning of Apple's antitrust woes. Last Friday, after a two-year investigation into the company's App Store practices -- stemming from an initial complaint by Spotify in 2019 regarding Apple's strict requirements of using the App Store's in-app payments system -- the European Union issued charges against Apple for anti-competitive violations of its antitrust laws. If convicted, the company could face fines as high as 10 percent of one year of global revenues, or about $27 billion.
The EU would also likely ask Apple to remediate these anticompetitive practices, as it has in the past with companies like Microsoft, which faced a similar antitrust suit in 2009 over its built-in Internet Explorer browser and, in addition to hefty fines, was forced to remediate by providing additional choices to end-users.
This remediation could involve requiring the company to permit third-party apps to be sideloaded on the platform without using the App Store, allowing the sideloading of third-party app stores, or even asset divestiture or spinoffs of businesses within the company that affects European consumers.
And this, of course, is just the European Union. Should the EU levy fines of this magnitude and demand remediation, the United States likely follow suit. Senator Amy Klobuchar (D, MN), as the lead Democrat on the Judiciary Subcommittee on Antitrust, is one of the strongest voices in Congress regarding antitrust issues with technology industry companies introduced bipartisan legislation -- the Competition and Antitrust Law Enforcement Reform Act.
If passed into law in its entirety, Klobuchar's bill, which would amend the Clayton Act, will increase enforcement resources, strengthen prohibitions against anticompetitive mergers, and prevent exclusionary conduct of the type Apple is allegedly engaging in. Klobuchar recently outlined possible paths of remediation in her recently published book Antitrust: Taking on Monopoly Power From the Gilded Age to the Digital Age.
What would remediation mean for a company as large and powerful as Apple? Well, aside from requiring the company to allow sideloads -- introducing another set of potential issues, which includes diminishing the iOS platform and Apple ecosystem's inherent security advantages -- it could mean divestiture of things like Apple's content business, such as its Music and Video platform, and Apple TV Plus. It might also spill over to newer businesses and services such as Apple Card and Apple Fitness Plus, which have also raised the ire of competitors in those spaces.
It's difficult to predict at this point just how severe the remediation penalties for Apple will be, beyond massive fines, in both the European Union and the United States. Could Apple be required to allow its competitors more free reign on its platforms, restricting them from exclusionary behavior they are being accused of now? Or will there be more severe penalties involved, requiring the company to divest itself or spin divisions off? Talk Back and Let Me Know.