Apple's Privacy Rules to Blame for Facebook's Lower Than Expected Quarterly Growth, Says Zuckerberg

Apple's privacy rules are "negatively affecting" Facebook, and its business, Facebook CEO Mark Zuckerberg claimed during its most recent earnings call.

As a quick refresher, starting with iOS 14.5 and all newer versions of iOS and iPadOS, Apple requires that apps ask for users' permission to track them across other apps and websites. Under the App Tracking Transparency (ATT) framework, the latest change gives users a choice on whether they wish to be tracked for ads or other purposes.

In the weeks leading up to ATT's launch, Facebook was vocal about its displeasure with the change, explicitly framing it as unfavorable for small businesses who use its platform to target customers. When users opt-out of tracking, Facebook and other ad providers have less data for targeted advertisement, possibly, in one example provided by Facebook, making it harder for local businesses to target ads to potential customers nearby.

Continuing on its anti-Apple's privacy rules campaign, Facebook CEO Mark Zuckerberg was quick to blame Apple for his company's lower than expected growth in the third quarter of the year. Kicking off the earnings call, Zuckerberg said Apple is "negatively affecting" Facebook but that he believes the company will be able to "navigate" the challenges Apple is presenting thanks to its long-term investments.

As expected, we did experience revenue headwinds this quarter, including from Apple's changes that are not only negatively affecting our business, but millions of small businesses in what is already a difficult time for them in the economy. Sheryl and Dave will talk about this more later, but the bottom line is we expect we'll be able to navigate these headwinds over time with investments that we're already making today.

While Zuckerberg and the Facebook executive team hold Apple's changes accountable for this quarter's performance, it may also be an asset. Zuckerberg has in the past stated that ATT could ultimately help Facebook, and it's a sentiment he again repeated during the earning's call.

Apple's changes, according to Zuckerberg, are making "e-commerce and customer acquisition less effective on the web." Still, Facebook could benefit from the lessened effectiveness as "solutions that allow businesses to set up shop right inside our apps will become increasingly attractive," Zuckerberg added.

Facebook's chief operating officer, Sheryl Sandberg, also criticized Apple and its privacy rules, going as far as to claim that the new rules are negatively impacting Facebook while benefiting Apple's own advertising business.

We've been open about the fact that there were headwinds coming – and we've experienced that in Q3. The biggest is the impact of Apple's iOS14 changes, which have created headwinds for others in the industry as well, major challenges for small businesses, and advantaged Apple's own advertising business.

Despite Facebook facing an avalanche of pressure amid leaked internal documents and scrutiny, Sandberg pointed the finger at Apple for Facebook's lackluster performance this quarter. "Overall, if it wasn't for Apple's iOS 14 changes, we would have seen positive quarter-over-quarter revenue growth," Sandberg said.

One document as part of a trove of internal documentation leaked to the press this week indicates that Facebook is increasingly concerned about the youth demographic on its platform. Specifically, Facebook wants to take additional steps to make its platform more attractive to younger users, a portion of the online audience that is increasingly shying away from Facebook, according to leaked company documents.

One area in which Facebook hopes to achieve a more appealing look to younger users is by steering them away from Apple's iMessage platform. Zuckerberg said during the earnings call that iMessage is "growing in popularity," potentially posing a risk to some of Facebook's messaging platforms, such as Messenger.

Apple has time and time again defended App Tracking Transparency, claiming it simply wants to give users a choice on whether to be tracked or not. In a video posted to its YouTube channel following ATT's launch, Apple said that "some apps have trackers embedded in them that are taking more data than they need. Sharing it with third parties, like advertisers and data brokers... This has been happening without your knowledge or permission. Your information is for sale. You have become the product."

Apple's CEO, Tim Cook, has also been vocal about Facebook in the past. At a speech at a privacy conference earlier in the year, Cook implied that platforms such as Facebook lead to polarization and violence. "If a business is built on misleading users, on data exploitation, on choices that are no choices at all, then it does not deserve our praise. It deserves reform," Cook said.