Apple and Facebook: The end of an affair?

20 Jan 2012
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There are reports that Steve Jobs and Mark Zuckerberg had become close buddies prior to Jobs’ death last year – a neat overlap for those who see the Facebook founder as some sort of spiritual successor to the doyen of Apple.

But what did they talk about aside from their billions in the bank? Their respective firms co-existed for several years with very little need to deal with each other; but that all changed when Apple kick-started the mobile apps revolution with the launch of the App Store in 2008. Apple needed a mass-market title to showcase its apps vision and Facebook was perfectly suited.

The Facebook app has since become (probably) the most downloaded app on any platform – and it topped the App Store download charts again in 2011.   

Facebook announced last year that mobile is now the preferred point of entry for about 40 percent of its 800 million registered users. These users are also the super-heavy Facebook addicts who access the service several times a day from wherever they are via the mobile app – and the likely early adopters for Facebook’s new products and services.  

But while Jobs and Zuckerberg were getting cosy with each other, their respective companies were on a collision course. At some point, their symbiotic relationship reached a tipping point where they switched from being partners to competitors – and how this relationship now plays out over the next year or so could have huge implications for the future of the mobile Internet.   

So what happened? Apple’s App Store demands a 30 percent revenue share of all titles sold via its platform – a business model that has been faithfully replicated by most of its competitors. While many apps publishers bemoaned this levy it wasn’t of any initial concern to the likes of Facebook, which provided its app free-of-charge and simply saw the platform as a way of generating traffic and creating ‘stickiness’ with its users.

But Facebook is now more than just a destination on the web – it is attempting to become its own Internet portal by using Facebook IDs as an online passport to a range of products and services that it can host on its own developer platform. In areas such as social gaming, it is already nurturing a fertile ecosystem; one of its most prominent games developers, Zynga – the firm behind titles such as FarmVille and Mafia Wars – recently raised US$1 billion via an IPO that valued it at around US$7 billion.

Facebook, of course, is thought to be planning its own IPO sometime soon, and apart from adding to Zuckerberg’s billions, this will mean Facebook will need to get serious about monetising its platform. With more of its users accessing the service via mobile, Facebook is finding the App Store model increasingly restrictive. As well as requiring its partners to develop for multiple platforms, Apple’s determination to maintain control of the iOS payments process means Facebook also risks missing out on a slice of the so-called ‘in-apps payments’ revenue generated by its hosted titles – an increasingly lucrative source of income as the apps industry moves from a premium to freemium model.

Payments is therefore a key area of tension between the two firms. The success of the App Store was partly due to Apple being able to leverage the millions of billing relationships it had acquired via its iTunes music service. Apple may allow its developers to offer alternatives, but they cannot be as integrated into the platform (or as trusted) as iTunes, so most don’t bother.  

Meanwhile, Facebook launched its online virtual currency – Facebook Credits – a year ago, allowing its developers to offer in-app purchases under an App Store-style model (Eg: Facebook taking a 30 percent revenue slice). Zynga is thought to have generated US$500 million from Credits in 2010 when the scheme was still in beta, leading some to suggest that Credits could eventually pose a threat to PayPal’s online dominance.

But that would require Credits being switched on across Facebook’s mobile properties – and Apple appears to have vetoed it on iOS. On its developer website, Facebook notes that Credits works “in the mobile environment in the same way as it can.. on [the] desktop,” but then coyly notes that “Facebook Credits are not supported within iOS native apps.” It then mischievously proceeds to demonstrate the process working on an iPhone. Go figure.

Further evidence of the breakdown in relations between Apple and Facebook can be detected in the launch of iOS5 in October last year, which saw Apple deeply integrate Twitter services into the platform and leave Facebook out in the cold. Around the same time, Facebook belatedly launched a version of its app for the iPad – a staggering 18 months following the tablet’s release, prompting speculation that Facebook was attempting to wean its users off iOS altogether.

While Facebook’s f8 developer conference last Autumn passed with (suspiciously) little mention of its mobile strategy, could 2012 be the year when Facebook breaks out of the native mobile apps environment and embraces browser-based HTML5?

This would mean Facebook would be free to develop and monetise (via Credits) its own range of apps without being tied to the T&C’s and revenue share demands currently required to run on iOS (and others such as Android). And regardless of what you may have heard, Facebook doesn’t need to acquire its own hardware (the mythical ‘Facebook phone’) or someone else’s failed mobile OS (HP’s webOS) to make this happen: it just needs a phone with a HTML5-enabled web browser – of which 1 billion are forecast to be shipped next year (up from 336 million in 2011).

Furthermore, HTML5 apps are now moving from the drawing board into the wild. One of the most prominent proponents has been the Financial Times, which managed to migrate 1 million of its mobile users from its native app to the browser-based version within just a few months.

Facebook has had a team (codenamed Project Spartan) looking at HTML5 for some months, but the firm has been careful to date to refer to HTML5 as a technology rather than a platform. And it is unlikely it will be abandoning its native apps while they continue to offer the best way of integrating tightly with a device’s core features.

But if/when Facebook does make the leap to the mobile browser, it will not only mark a seminal moment in the (short) history of mobile apps, but will also serve the divorce papers on Facebook and Apple’s marriage of convenience. And if things get ugly between the world’s largest technology company and the all-powerful social networking giant it could get very bloody indeed.

Matt Ablott

The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members

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Justin Springham

Justin manages the editorial content for the Mobile World Live portal and Mobile World Live TV. In the last few years Justin has launched and grown a portfolio of premier media products, which include the Mobile...More

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