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Tech's deepening split over ads and privacy

A new fight between Facebook and Apple over the mechanics of ad tech is surfacing an industry divide over user privacy and spotlighting longstanding dilemmas about the tracking and use of personal information online.

Why it matters: Privacy advocates have been sounding alarms for years about tech firms' expansive, sometimes inescapable data harvesting without making much headway in the U.S. But the game could change if major industry players start taking opposite sides.

What's happening: Facebook warned advertisers Wednesday that a coming change to Apple's iOS could devastate revenue for ads that sends users straight to the App Store to install an app — an approach that's used widely by developers including mobile game makers.

  • Apple has pitched the change, aimed at giving users clearer choices over who is allowed to track them across different apps, as a bid to better protect iPhone users' privacy.

Meanwhile, Palantir CEO Alex Karp pilloried Big Tech in a letter to investors included in his company's Tuesday filing to go public.

  • Writing that Palantir shares "fewer and fewer of the technology sector's values and commitments," Karp suggested that collecting data to target advertising is morally and ethically inferior to Palantir’s use of data to support U.S. military and government functions.

Reality check: Self-interest is at work here on all sides.

  • Apple has for some time made privacy a key part of its pitch to consumers (even though it does know plenty about its users). With every major tech company now under greater regulatory scrutiny over alleged monopolistic practices, Apple wants to play to its strength. And Apple gets only a tiny fraction of its revenue from ads, while key rivals get most of their revenue that way.
  • Facebook, for its part, is looking to make itself the friend of smaller developers, just as it's doing with small businesses in another fight with Apple over App Store commissions.
  • Palantir competes with firms its CEO implicitly criticized, like Google and Amazon, for the government contracts that are the core of its business.

Our thought bubble: Silicon Valley's businesses are all so intertwined and interdependent that it's hard to know what's really at stake in this kind of conflict and how serious the parties are.

  • Case in point: Palantir's chairman, Peter Thiel, is a longstanding member of Facebook's board.
  • Yes, but: Companies' motivations don't matter if the battles bring the issue to center stage.

The big picture: Both these conflicts — Facebook vs. Apple and Palantir vs. the rest of the industry —point to the dilemma underlying Silicon Valley's free, ad-supported business model.

  • People love not paying for services they depend on, like search and social networking.
  • But they're often uncomfortable when they realize how much data about them is being tracked and stored.
  • Rarely do they act on that discomfort, however.

The catch: While users and policymakers can make changes at the edges, it's not clear user actions or government remedies can fundamentally change the business model at the root of the problem.

  • Policymakers looking to put tighter controls on privacy practices have come up with answers like Europe's GDPR or California's CCPA. Those largely amount to requiring tech companies to be more transparent about data collection and to highlight tools they mostly already offered that let users download and delete their data.
  • Former presidential candidate Andrew Yang proposed a "data dividend" that would place a dollar value on people's data and return it to them through a tax on tech companies. Such ideas reach farther than existing regulations but remain speculative and fraught with practical questions.
  • More narrowly targeted legislation in various forms remains stalled in Congress.

What to watch: Twitter is mulling a paid subscription option, but it's unclear how it will fare in testing and unlikely to ever replace ads.

  • Facebook and Google have both done so fantastically well with their existing models that it's hard to imagine them taking this road.

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