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Apple Inc. and Facebook Clash; Neither Is Wrong

By Daniel Sparks - Dec 8, 2014 at 4:00PM

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Facebook CEO Mark Zuckerberg thinks Apple CEO Tim Cook's recent comments on companies that make money from advertising are "ridiculous."

In the past, Facebook (META 1.70%) CEO Mark Zuckerberg has praised both former Apple (AAPL 2.14%) CEO Steve Jobs and Apple as a company, even acknowledging that both companies shared a respect for the user experience. But last week, Zuckerberg wasn't quite so positive about the tech giant, taking umbrage with comments from Apple CEO Tim Cook and taking his own shot at Apple's high-priced products.

The two companies are butting heads on their thoughts about advertising and privacy. Their different opinions on these matters outline a crucial debate about user privacy that's increasingly taking the spotlight.

Facebook CEO Mark Zuckerberg (right) in his conference room. Image source: Facebook.

Two approaches to profits
In September, Apple launched a new privacy site that outlined the company's privacy features for its products and services, tips for users in managing their privacy, and information about government information requests. Along with the launch of the site, Apple CEO Tim Cook released an open letter that included a stab at business models like Google's and Facebook's that primarily make money from user data.

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. 

Our business model is very straightforward: We sell great products. We don't build a profile based on your email content or web browsing habits to sell to advertisers. We don't "monetize" the information you store on your iPhone or in iCloud. And we don't read your email or your messages to get information to market to you. Our software and services are designed to make our devices better. Plain and simple.

While the letter was probably aimed at Google, Facebook took offense. Addressing Cook's thoughts on businesses like Facebook that make most of their money from advertising, Zuckerberg shot back -- and he wasn't afraid to call out names.

"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," Zuckerberg said in a recent interview in TIME magazine. The interviewer said this was the only time in the interview that Zuckerberg displayed irritation.

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!

One analyst estimates Apple's new Apple Watch will boast a 33% profit margin in the device's first year of sales. Image source: Apple.

Which approach is the right approach?
Is it possible that Zuckerberg and Cook are both taking their companies in the right direction? Or will time prove that one approach is better than the other?

I think it's possible that there is room for both approaches. Consider the two extremes.

If every technology company that had user data opted to operate their software, services, and products at break-even or razor-thin profit margins, and instead make their money from advertising, users could become overwhelmed with too much advertising.

On the other hand, if every tech company that could make money from advertising instead charged for their services, some businesses that have goldmines of user data and could be selling it lucratively to marketers, could suffer or cease to exist if people did not pay enough for their services.

In the end, I'll wager that both Facebook's ad-focused business model and Apple's premium-price model will continue to coexist.

Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple, Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Facebook, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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