Why Apple Is Abandoning Its Ad Business

Last week, Bloomberg broke the news that Google paid Apple $1 billion to keep its search bar available on iOS. At first glance, the story seems to be innocuous. After all, what’s $1 billion between two of the most profitable companies in the world? But it’s something that Google tried to hide for a reason.

As Google said during the (largely unrelated) court case that revealed the news, “Both Apple and Google have always treated this information as extremely confidential.”

But why? For one, it confirms the hidden collusion that many have suspected from the Big Tech Companies (Google, Apple, Facebook, Amazon). More importantly, it demonstrates the weak position Google finds itself in—and the powerful one Apple maintains.

Google’s business is largely based on digital advertising—search ads and a vast ad network make up the majority of its revenue—all of which is driven by data collected by its platforms of Chrome, Gmail, Android, YouTube, and, of course, Google Search.

Apple, on the other hand, is a hardware business. iPhone, iPad, and Mac sales make up the majority of its revenue. It’s why Apple can strong-arm Google into paying $1 billion in exchange for keeping the search bar on its hardware.

As a result of this advantage, Apple is starting to move away from what many consider a fundamental part of the Internet: advertising.

An Apple luxury

Google has an ad problem. As you read this, the company has over 1,000 employees dedicated to fighting bad ads. That’s a massive amount of manpower for a tech company, but it makes sense given that Google relies on a healthy advertising ecosystem.

Apple, meanwhile, just abandoned its failed ad business, iAds, which began back in 2010. Now, with no ad business holding Apple back, the company has the potential to do something radical: phase out advertising on its platforms altogether.

It would be a big bet, one reliant on the premise that the demand for a great user experience will outweigh potential profits from advertising and tracking. But given Apple’s devoted target customers, the move would make a lot of sense.

This radical philosophy is what differentiates Netflix in the streaming space, and it appears Apple is moving in a similar direction. Phasing out ads is a luxury afforded by Apple’s hardware business model, as well as a direct attack on Google’s data-dependent ad business.

Apple’s CEO Tim Cook hasn’t hidden his contempt for advertising and tracking technology.

“I’m speaking to you from Silicon Valley, where some of the most prominent and successful companies have built their businesses by lulling their customers into complacency about their personal information. They’re gobbling up everything they can learn about you and trying to monetize it. We think that’s wrong. And it’s not the kind of company that Apple wants to be.”

As Ad Age points out, Apple is not always the knight in shining armor when it comes to anti-data collection—many iPhone features, such as location tracking, have been monetized by the company.

But Apple is certainly the most conscientious of the Big Tech Companies when it comes to privacy. The hardware features safeguards that let users keep MAC addresses[note]Similar to IP addresses.[/note] private, turn off cookies as a default setting, and, most recently, block ads on Safari.

Due to the rapid rise of adblocking, digital advertisers are increasingly finding themselves at odds with the very users they hope to reach. And now, the largest company in the world may be making a push for an Internet experience completely free of ads.