Mark Zuckerberg's Newest Frenemy: Tim Cook

Apple has become a prominent advocate for privacy, which inevitably creates tension with advertising businesses that it has partnered with, including Facebook.

Evan Niu
Evan Niu, CFA
Dec 6, 2014 at 9:52AM
Technology and Telecom

Throughout 2014, Apple (NASDAQ:AAPL) has taken a hard stance on privacy. On numerous occasions, Apple's top brass has emphasized that its business does not rely on aggregating customer data. This all culminated in an open letter penned by Tim Cook in September on the topic.

Apple's fundamental position on privacy can be captured by this section of the letter:

A few years ago, users of Internet services began to realize that when an online service is free, you're not the customer. You're the product. But at Apple, we believe a great customer experience shouldn't come at the expense of your privacy.

Just days later, Cook would echo this sentiment in an interview with Charlie Rose. His words were a clear shot at Google (NASDAQ:GOOG)(NASDAQ:GOOGL) and its advertising business, which he acknowledged as Apple's primary competitor. But at the same time, essentially all ad-supported business models were bound to get caught in the crossfire. The other preeminent advertising business, which also happens to be an important partner to Apple, isn't taking the words too kindly.

Facebook's (NASDAQ:FB) Mark Zuckerberg thinks Tim Cook is wrong.

TIME opens fresh wounds
In a recent interview with TIME magazine, Zuckerberg discusses and the social network's broader ambitions to get users in emerging markets connected to the Internet. The conversation briefly turned to privacy, as well as Ello, the "anti-Facebook."

Ello's manifesto is remarkably similar to Cook's letter, and the start-up is adopting a freemium model to social networking. But Zuckerberg doesn't believe that a social network can viably gain mainstream adoption if it's a paid service. Zuckerberg also took the opportunity to downplay Apple's assertion that advertising businesses turn users into products:

A frustration I have is that a lot of people increasingly seem to equate an advertising business model with somehow being out of alignment with your customers. I think it's the most ridiculous concept. What, you think because you're paying Apple that you're somehow in alignment with them? If you were in alignment with them, then they'd make their products a lot cheaper!

Facebook is easily one of Apple's most important partners when it comes to integrating social functions into its platforms, with the other one naturally being Twitter. The remarks from both Zuckerberg and Cook potentially imply that tension is building between the two companies.

With frenemies like these
Here's the thing: Apple still needs both Google and Facebook. Apple is well aware of its limitations and it knows that it's not good at certain things. As much as Apple loves vertical integration, it's perfectly content to leave some areas to other companies. Search and social are precisely two of these things. Apple will never build a search engine or a social network (remember Ping?).

Sure, Apple could potentially turn to an alternative search provider like Microsoft or Yahoo! as the default search engine in iOS, which it is reportedly considering, but the social networking scene is quite different. Facebook is one of a kind in terms of scale and adoption, and its service offers a very different value proposition to users.

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It's a fine balance that Apple must walk, since integrating services that feed into ad-supported businesses indirectly supports them, but Apple has no choice. Would you buy a smartphone that couldn't search the Internet or share links to your friends?

The same is true for Facebook. The social network has navigated the transition to mobile like a champ, and its cross-platform strategy has been critical in that regard. Facebook Home did the company no favors. Apple has an estimated 15% of the global smartphone install base locked down, according to recent estimates from JP Morgan analyst Rod Hall, and Facebook wants to sit on the home screens of all those iPhones while simultaneously enjoying OS-level integration.

Despite Cook's disdain of advertising businesses or Zuckerberg's view that Apple products are overpriced, Apple and Facebook still need each other.