Here's why Apple won't punish Facebook with the 'nuclear option' (AAPL, FB)

January 31, 2019

Here's why Apple won't punish Facebook with the 'nuclear option' (AAPL, FB)

Tim Cook Mark Zuckerberg mashup

Tensions are running high between Apple and Facebook.
The revelation that Facebook skirted around Apple's rules to distribute an app that spied on users only added to the animosity.
Despite the strains between the two, they're likely to find a way to continue to get along, at least so far as it comes to having Facebook's consumer apps in Apple's App Store.

Facebook appears to have blatantly violated Apple's rules by convincing some users to install a special iPhone app that collects personal data.

The revelation, reported by TechCrunch on Tuesday, has caused an outrage among privacy advocates. And it's spurred speculation that Apple could retaliate with the nuclear option: Banishing the Facebook app from Apple's app store.

The move would be virtually unprecedented in the modern tech business, and although there's a case to be made that Apple would be within its rights, the reality is much more complex.

Both companies simply need each other too much to break their commercial ties.

"Apple has a has lot of leverage here. If they want to ban Facebook's app, they can," said Matt Stoller, a fellow at the Open Markets Institute, a research and advocacy group that has been helping lead the charge against the market dominance of tech firms, particularly Facebook.

But, he continued, Apple surely recognizes the risk that "people won't want to buy the iPhone, because they want access to Facebook's suite of products."

Facebook skirted around Apple's rules

Animosity between Facebook and Apple has been growing for years now. Apple CEO Tim Cook has repeatedly criticized Facebook publicly over its privacy practices. In response to those comments, Facebook CEO Mark Zuckerberg ordered his company's management team to ditch their iPhones for rival devices running Google's Android operating system.

mark zuckerberg

But tensions reached new heights this week after the TechCrunch report that Facebook has been paying consumers as young as 13 to install an app called Facebook Research. Facebook Research is a virtual private network (VPN) app that can be used to monitor everything users do on their smartphones.

Instead of offering Facebook Research through the App Store, Facebook distributed it through a special
"sideloading" process that Apple set up to allow companies to distribute iPhone apps internally to their employees. An Apple representative told TechCrunch that Facebook's use of this channel for the Faceook Research app clearly violated the iPhone maker's rules.

In response, Apple revoked the security certificates for all the apps that Facebook distributes through this channel. That means not just the Facebook Research app, but pretty much all the internal apps Facebook employees rely on to do their jobs and to communicate everyday. Apple's move caused chaos inside Facebook, because it basically disabled all of those apps.

Read this: Chaos has reportedly erupted inside Facebook as employees find themselves unable to open the company's apps on their iPhones

"Sometimes a bully needs to be punched in the face"

But some outside observers believe Apple needs to go further.

John Gruber, the Apple blogger, wrote that Apple would be justified if it pulled Facebook's consumer-facing apps from the App store.

"Sometimes a bully needs to be punched in the face, not just told to knock it off," he wrote on Wednesday.

Anil Dash, the CEO of app development startup Glitch, tweeted that it "would be a good time for Apple users to show that they want Facebook held accountable in the same way that other devs are."

"Any other publisher carrying out this level of deliberate circumvention of Apple’s platform rules would have all their apps kicked out of the store," Dash continued.

Apple banned a Facebook-owned VPN app called Onavo Protect from its app store in August, after concluding that the app was monitoring user activities on their iPhones and being used by Facebook to collect info on rival apps, as TechCrunch noted in its report. And Tim Cook's predecessor Steve Jobs famously blocked Adobe from working with Apple products, for a variety of supposed transgressions.

But banning Facebook, which has more than 2 billion users, would be a move on an entirely different level. It would amount to a direct attack on one of the most powerful companies in the world. And it would likely cause deep pain to both sides. It may not be mutually assured destruction, but it will cause a lot of damage.

Apple may not like Facebook, but its users love the latter's apps. The top free app in Apple's App Store is Facebook-owned Instagram. Facebook Messenger ranks no. 6. Facebook's eponymous app and WhatsApp, which the company owns, are also in the top 20. And those apps aren't just sitting idle on customers' iPhones. Numerous studies have indicated that customers spend gobs of time each day on Facebook's apps.

If Apple were to boot Facebook from its App Store, it could give users a real incentive to trade in their iPhones for Android devices.

But Facebook needs Apple, and vice versa

In fact, some industry observers have suggested that Facebook is the one with the leverage, and that it should threaten to pull its app from Apple's App Store to bring the iPhone maker to heel.

However, it's not like Facebook can really do without Apple either. Mobile ads now account for 93% of Facebook's total advertising revenue, which provides nearly all of Facebook's overall sales, as the company detailed in its fourth-quarter earnings report Wednesday. Nearly half of Facebook's total revenue comes from the US and Canada, and in the US, depending on what figure you believe, somewhere around 40% to 50% of all mobile devices in use are iPhones.

Tim Cook

Although the iPhone's market share is less in other areas of the world, it's still a sizeable player in many important markets, including Japan.

In other words, if Facebook were to pull its apps from Apple's App Store, it would be putting at risk a huge portion of its revenue, somewhere around a fifth of its total sales just from US iPhone users alone.

In the end, those facts are likely to prove too much to overcome. As much as Facebook and Apple are at odds, the amount of money at stake will almost certainly encourage both sides to continue to deal with the other.

To paraphrase "The Godfather," their dispute may be personal, but this is still business.

Join the conversation about this story »

NOW WATCH: How Apple went from a $1 trillion company to losing over 20% of its share price