Apple (NASDAQ:AAPL) CEO Tim Cook recently criticized Facebook (NASDAQ:FB) CEO Mark Zuckerberg's role in the Cambridge Analytica scandal during a Re/code interview, stating that he "wouldn't be" in Zuckerberg's situation because Apple didn't monetize customers' personal information. "We can make a ton of money if customers were our product," stated Cook. "We have elected not to do that."
This isn't the first time Cook criticized Facebook's business model. Back in 2014, Cook declared that with free internet services, "You're not the customer. You're the product." During the MIT commencement speech last year, Cook noted: "The threats to security, threats to privacy, fake news, and social media that becomes antisocial. Sometimes the very technology that is meant to connect us divides us."
Zuckerberg called Cook's latest comments "glib" in the "Ezra Klein Show" podcast on Vox. He then took a jab at Apple, stating: "I think it's important that we don't all get Stockholm Syndrome, and let the companies that work hard to charge you more convince you that they actually care more about you." However, Zuckerberg's argument ignores some big differences between Facebook and Apple's businesses.
How Facebook and Apple make money
Facebook makes most of its money by selling ads, while Apple makes most of its money by selling hardware. Facebook crafts its targeted ads from users' social profiles, likes, followed pages, and connections. It also has an ad network that reaches third-party websites and apps.
Apple's iPhone, Mac, and iPad sales generate the lion's share of its revenues. A much smaller percentage comes from the Apple Watch, Beats headphones, and software services like the App Store, Apple Pay, Apple Music, and iTunes.
Facebook's entire business is based on monetizing user data. But this doesn't mean that it sells personally identifiable data. It merely funnels all of its user data into categories which can be accessed by advertisers through an automated ad buying platform.
Does Facebook really "sell" a user's personal data?
Therefore, Cook's argument that Facebook's users are its "product" is valid, but the idea that Facebook "sells" its user data to marketers is widely misunderstood. Facebook's advertisers choose to display their ads to users based on their age, race, sex, likes, and other personal information -- but they can't directly buy or access user profiles.
However, Facebook previously gave app developers too much access to individual profiles via its Facebook Platform. Back in 2013, Cambridge University researcher Aleksandr Kogan made a "viral" personality quiz which was shared with about 50 million people. This quiz allowed the app developer, not Facebook or other marketers, to gain access to users' individual profiles. Kogan then violated Facebook's developer policies and sold the data of 50 million users to Cambridge Analytica.
This doesn't mean that Facebook sold 50 million personal profiles to companies. Facebook throttled developer's access to users' profiles in 2014, and recently introduced additional measures to counter abusive apps. But a lot of damage was already done, and Facebook now needs to audit every developer that accessed the Facebook Platform prior to 2014.
Why Zuckerberg's retaliation was a lost opportunity
Apple doesn't need to sell its user data, since advertising isn't a core pillar of its business. That's why Cook constantly champions data privacy, and arguably uses it as a convenient promotional tool against companies like Facebook and Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google, its biggest rival in the mobile OS space.
However, Cook doesn't have much to gain by antagonizing Zuckerberg, since Facebook Messenger and Facebook are still the two most popular social networking apps on iPhones in the US, according to App Annie. Therefore, Cook's arguments about privacy may be sincere, but they gloss over the fact that Apple doesn't need personal data. It needs customers who view its hardware as luxury products while retaining a cult-level adoration of its brand.
There might be some truth to Zuckerberg's "Stockholm Syndrome" claim, but Zuckerberg should have addressed the erroneous claim that the company sells users' personal profiles to the highest bidder. As a result, the critics will likely claim that Apple customers knowingly pay a premium for their products, while Facebook makes its money in the dark.
The tip of the iceberg
Zuckerberg should repeatedly explain that Facebook's targeted advertising business model doesn't directly sell user data to companies, instead of snapping at Cook and antagonizing loyal Apple users. Zuckerberg's response is symptomatic of the "sorry not sorry" attitude which he and COO Sheryl Sandberg have demonstrated since the breach.
At this point, Facebook needs an independent investigator to verify that its leaks are plugged and that it isn't selling any personal data to companies. Until it does so, it remains an easy target for influential critics like Tim Cook.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Facebook. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.