This Week in Startups - Emergency Pod! Tim Cook vs. Mark Zuckerberg: Apple and Facebook go to war over privacy updates | E1204

Episode Date: April 27, 2021

Jason dives deep on Apple vs. Facebook: the numbers, the philosophical differences, the potential outcomes & more! (5:05) Check out the full pod notes here: http://bit.ly/e1204podnotes

Hey, everybody, crazy news. It's an emergency podcast. Tim Cook is sticking it to Mark Zuckerberg, the worst executive in tech. The best executive is going after the worst executive by releasing the new iOS 14.5 update to your iPhone and your iPad that's going to protect you from Facebook tracking you on the internet. And it could be a disaster and it could collapse Facebook stock. It could make advertising on Facebook, you know, half as effective. but I have a solution for Facebook to be great human beings and to save their horrible reputation.

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It's amazing, I have to say, now that I'm vaccinated, I'm back on the road. I'm checking out Austin. I'm checking out Miami. Wonder why? Wonder what's so appealing about those two places? I don't know. You could put that in the comments on. YouTube, maybe. But I'm having a wonderful time. It's great to see what post-pandemic life would look like.

I was wondering, are people going to go back? In California, we've had the most severe lockdown, I think, of any state. And it's really like a culture of fear and shame and, you know, zero COVIDism, if you will, where until we hit zero cases of COVID, I think we're kind of a lockdown. To come to Austin and walk down the street and see nobody wearing a mask, everybody is vaccinated, Every restaurant is 100% capacity. And really, there's no fear here and the world has bounced back. I think that's awesome. I do think you need to get your vaccine.

If you haven't done it yet, please do that. I spoke to. I got my hair cut while I was here. Tide is right. And they did a great job at this barbershop with the 35-year-old woman who cut my hair said she hadn't had the time to get a vaccine yet. And I told her, you know, there's no lines. And she's like, yeah, I don't even know how to do it.

So that was a little disturbing to see that apathy, maybe in the younger generation. And please, if you're a young person, just get the vaccine and be a blocker so it doesn't spread and we can get back to normal life. But normal life, we will get back to. It is clear. So one other quick plug here. We're doing or offer for you. It's not really a plug. We do something called Founder University.

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This is for people who have a product that they're just getting to market. Maybe it's in beta testing. And we really use this as a funnel, to be totally honest, for our accelerator and for our investing. So it's a great way to get to know my team. We have 16 people on the team at the investment company. Amazing. And you get to meet my team and you get a bunch of free legal advice.

and we have a bunch of investors coming. So you're going to get some really candid feedback. And I take pitches from the founders and I give my trademark candid, brutal feedback on how to make their pitch better and really refine their business model. And I'm pretty excited. My friend Charles Hudson of Precursive VC will be joining me on day one to give that trademark candid feedback if you can handle it. So go ahead and apply founder. Dot University. Yes, there's a dot university domain name.

Founder. Dot university. This is our 18th overall and our fifth remote one. Founder. University slash apply. And thank you to our partners, Wilson, Sincini, Goodrich, and Rosati, 97th floor, pilot, and Vanta, who let us put this whole course together and make it free for our founders. We couldn't do it without you. So there is a big battle brewing between Apple and Facebook.

What is it over? It's over Apple's new 14.5 iOS release. This includes a new feature that you'll be seeing on your iPhone, if you're using one of those, that is app tracking transparency. This is going to allow users to select which apps they want to share out-of-app data with. Out-of-app data means things like searches and websites that have cookies on them. And this is what Zuckerberg and Facebook rely on to target ads. Why is this important?

And why is Google not complaining about this? Well, Google, when you type a search into Google, you say I want, and I'm looking for Volvo, where I say Volvo Austin, or I say, I'm looking for barbecue in Austin. Google knows what edge you want. Something to do with barbecue in Austin, something to do with the Volvo in Austin. And people bid those up.

So they have the intent. Facebook does not have intent. They have psychographics. They have demographics. Fancy ways of saying they know a bit about you. What apps you use, what websites you visit, your age, your friend circle, maybe what stage you're in life?

Because you told them, right? You tell them you're a location when you use Instagram or WhatsApp. You're using the Facebook. app, they're tracking you, they know I'm in Austin, uh, because we have one of those three apps on our phones. Well, now, um, because so much of our usage of the web and apps is on mobile, probably 60, 70% of what you do is on your mobile phone now, as opposed to the desktop days. Apple is trying to neuter Facebook's ability to track you. Why are they doing that? Well, they're doing it because, well, Steve Jobs always hated advertising. And Apple philosophically, philosophically,

Apple sees us as the customer. They want to sell me this beautiful new MacBook M1 Pro that I'm using. And by the way, it's an incredible computer. They want to sell us the new iPhone 12 or my AirPods or a watch, which I don't like their watch, nothing personal, or those gorgeous new IMAX in the crazy colors. And they have a huge margin. You know, they keep raising the price of the phones and computers. It's ridiculous.

And they make their own chips. They make them cheaper. But we are the customer. We decide, do we want to buy this Apple product? or another product. Facebook's customer is not you or I. Instagram's customer is not you or I. Advertisers are Facebook's customers. Facebook's allegiance is to advertisers. Facebook doesn't care about us. They don't care about you. They don't care about me. They don't care about your privacy. They don't care about my privacy. Apple is obsessed with that. So you have two philosophies running into

each other. And where they run into each other is that Facebook has always behaved horribly. They've gotten tons of fines from the FTC, the largest fines in the world by government agencies to a company I've been for Facebook over the past couple of decades. And the Cambridge Analytica, Bruhaha, where stolen data was used to possibly impact the election, all of this became a breaking point because the entire industry is getting hauled to Washington, D.C., to be scrutinized by senators, congressmen, and everybody in between. So Apple said, Enough. We're done with this nonsense. Facebook keeps pissing in the well. Facebook keeps upsetting Washington, D.C. We are going to take the other side. We're going to take the political side of protecting users. This is the savviest move by Tim Cook for two reasons. One, it gets Apple out of hot water. They're the good guys and gals. They are protecting users. So the next time they get pulled in front of, you know, a hearing for antitrust, They can save the high ground.

Well, look what we did to Zuckerberg. We protect our users from that guy who does all this bad stuff, where he takes your data and it's super creepy and nobody wants it and nobody would ever opt into it. And we'll prove it. We're going to prove it. We're going to let users opt into it. And then we'll disclose that data. And guess what?

When you get that pop up and it says, do you want to share your location with this app? You think about it, don't you? If you're on an iPhone, where it says, hey, this app wants to use your microprone. phone where this app is trying to use your location 20 times in the background. And you're like, huh, do I want ways to use my background data? I don't think I do. I'll only let them use it when I open the app. And we start to make those decisions. Control going to the customer. And Apple is going to avoid a ton of scrutiny from Washington, D.C. and antitrust. And they're going to exacerbate the problem for Facebook. So this is Checkmate and 3D chess on a level that Zuckerberg can.

cannot compete. Facebook is going to get demolished by these changes over time. This is going to be, I won't say existential, but I do think it's going to be a headwind that will crash Facebook stock price over time if it does have the impact that people seem to think it has. And Facebook right now does $84 billion in ad revenue. They're worth $86 billion, 10 times revenue. But 98% of their revenue is from advertisers. And advertisers right now are looking for other options. And this is great. because maybe they'll buy more podcasts or maybe they'll buy more ads in newspapers, right? By neutering and ankeling and putting headwinds against Facebook, that will help other businesses. And when you look at it, Facebook has 190 million users in the United States and there's 113 million iPhone users in the United States.

They obviously overlap. And this is going to be a brutal, brutal battle. And I predict Facebook loses brutally. there is nothing Facebook can do to win this battle. Zero. What are they going to do? Launch a new iPhone? No, they can't do that. They're going to do petty stuff. Like, say, this is about small businesses and, oh, small businesses need this data because they need to creep on us. They need to know our locations to target ads. You know, screw it. I don't want them creeping on. It's my data. And this is going to start the deconstruction of Facebook's horrible business model. There is only one secret that Facebook could do. And I'll tell you that in just a minute, because I have the serious, like, how to get out of checkmate, right? Or how to get out of check and then maybe not checkmate Apple, but really flip this. There was a New York Times story pretty interesting by Mike Isaac and Jack Nickas. I don't know him about this relationship and how. And, you know, when the New York Times covers this, obviously they're getting second and third hand information. Some of it might have been planted by Apple's PR group. So who knows what the truth is here. But essentially at the Allen & Company conference, Zuckerberg tried to sit down.

with Tim Cook. Tim Cook was, you know, very cold to him and said, listen, it's your problem. Delete all the data you have that's, you know, and Zuckerberg's like, I'm not deleting data according to this. Makes total sense that Tim Cook looks at Zuckerberg as the enemy, as do most of us in the industry. None of us like Zuckerberg. He's universally hated in the industry. Nobody trusts him. He's an island. And I think this could be the start of the deprecation of Facebook. Now, obviously, Instagram's doing well. I'm not sure about what's at, but I do think Zuckerberg's not going to be allowed to buy assets anymore. I don't think people really want to work for him anymore. There's a big morale problem because all they do is copy other people's

software. And it takes a while for bad behavior to manifest itself in losing. And I think this is like the big, this will be the big wave, I think, in the start of the unraveling of Facebook. There are some moves he can make. So this is not guaranteed. But, you know, these privacy updates happened Monday, April 26th, which is the time I'm taping this. And the new privacy tool is called app tracking transparency. And you can choose which apps you want to share our data with. And I hardly encourage you to share zero data with Facebook. Why does it all matter? Well, Facebook gets to follow all these habits. And when you click on other stuff, on smartphones, they've got their claws into everything and their data into everything. And they're not

going to be able to finally tune ads. So you're probably going to see more ads that are not customized to you. So in a way, you're like, um, is that cool, for me to not have ads that are not customized to me? Well, I don't know how you feel about it, but I don't care. I'm not having a hard time finding what I'm looking for online. Google does a fine job. Amazon does a great job. I don't need creepy ads. In fact, I want no ads. I want to pay to remove ads. NBA, League Pass. Thank you, Adam Silver lets me buy. I'm paying extra a bit of money to turn off ads. HBO. Max and, you know, Netflix don't have ads, obviously. I don't want to see ads in my life. I want to pay to get rid of them. And now Apple is

doing podcasting without ads. And so for the one or two percent of you that want that, okay, I think you love the way I read ads. But if you don't, you're going to be able. We'll support that when Apple and Spotify have ad-free version. Sure, we'll put those ad-free versions up for you if you want to pay us to get rid of the ads. I think historically, it's been low single digits that want to do that. Oh, and by the way, there were some other Facebook retaliation that I think is notable.

Wall Street Journal reported in February that Zuckerberg told his lieutenants that Facebook needed to inflict pain on Apple, which is, that's pretty on brand for Zuckerberg. I mean, he does like to kill other people's companies. He really tried to do that to Snapchat. He really is a pretty lonesome executive, I think, and his worldview is pretty dark. Facebook hired a DC opposition research firm, according to some of this reporting, Definer Public Affairs, also funded by Qualcomm, originally for media monitoring, but the firm dug up some info on Apple's China compromise. and distributed to reporters and create a timpah for president to make Trump not like him according to sources. But Facebook is no longer associated with this definer.

But at the end of the day, I don't put anything past Zuckerberg. I think his behavior is horrible. You all know all the examples of it. I brought it up here many times. And I think he really needs to get a coach who sits him down and says, you know, here's how to do things that would make people like you. And let me be the first. If you are friends with Zuckerberg, there must be some of you out there who maintain a friendship with him. And I don't hate him as a person.

I just hate him as an executive and his behavior. I'm just basing him behavior. I don't really know him personally, although we've met a half dozen times. Mark, here's a way to stop being a horrible human being. Oh, wait, I just said he's not a horrible human being. Hey, Zucker, here's a way to not be a horrible executive and be hated by everybody. All you have to do, it's very simple. And I've told you this many times.

And you're going to wind up doing it, so you might as well do it. actively. Do what Hulu does. Do what NBA League Pass does. Do what any normal person would do. Stop being creepy. Stop creeping on us. Stop collecting our data and let us pay you. If you said for 10 bucks a month, you can have Facebook, Instagram, and WhatsApp with no ad tracking and you don't keep any of our data, I would give you 100 bucks a year. I'd give you the 10 bucks a month. And I'd start using your products again. Right now, I barely use Instagram. I got some family members. I got to go on there. I'd never turn on Facebook. I have a hate all of your companies. I don't trust you or any of them. But if you wanted to rebuild trust,

why not just see if one or two or three percent of people would opt out and pay for it? And then you have the high ground with Washington and with Apple. You could say Apple, people are voting with their dollars. Ninety-four percent of people elected to have us track them and give them targeted ads. Six percent were paid. What's your problem, Apple? And maybe what's wrong with you, Apple? Why don't you make, why don't you use USBC on iPhones? Why do you use a proprietary charger? Why don't you let other app stores on the iPhone. You know, they could literally take that position. And if really Facebook wanted to go after them,

they would figure out a way to build an operating system or a phone, which Zuckerberg did look at. But then that would align them with the Google ecosystem. So it would be kind of hard. There's no real phone operating system for them to buy. This is really hard to compete with Apple. They're just too good at what they do. This week in startups is brought to you by

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