Apple is taking on Facebook and Google by doubling down on privacy, but the plan could backfire in an epic way (AAPL)

Tim Cook

Apple announced a slew of new privacy promoting features at its annual developer conference on Monday.
Consumers are likely to cheer many of the features, which are designed to help them protect their sensitive personal information.
But the new features could hurt Apple by alienating developers.
And some of them could add fuel to charges that the company is thwarting competition.
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If you've been paying attention to Apple over the past year, you probably weren't surprised to see it tout its privacy bona fides at its annual developers conference on Monday, or to see it gleefully disparage the failings of other tech companies.

Privacy has been a smart strategy for Apple lately, dovetailing nicely with the hardware maker's own push into internet services and the public outcry over Google and Facebook's shoddy privacy track records.

"We believe privacy is a fundamental human right," Craig Federighi, Apple's senior vice president of software engineering, proclaimed on stage. He was showing off a new app login feature designed specifically to limit Facebook and Google from tracking iPhone users' movements across their various apps.

At the very moment that Apple was preaching to its audience, a Reuters report crossed the wires with the latest developments in the federal government's effort to stiffen regulation of powerful "Big Tech" companies such as Facebook, Amazon, Google...and Apple.

The timing was purely coincidental, but it highlighted a development that's likely to blunt Apple's weapon of choice against its rivals, and, if Apple isn't careful, could backfire on Apple itself. By limiting access to user data, Apple risks irritating not only Google and Facebook, but many of the thousands of smaller developers who build apps for its devices. The move could also unintentionally create the perception that Apple is thwarting competition and needs to be reined in.

Apple is broadening its privacy crusade

Apple has been promoting itself as a protector of privacy for years now, using its pro-privacy image as a way to differentiate itself from other big tech companies, particularly Facebook and Google.

To Apple's credit, this is all just public relations. The company has repeatedly added features to its devices and services that are designed to make them more secure and to help users protect their personal information. It has built features into its products that encrypt the data stored on them and the messages sent through them. It has designed some of its artificial-intelligence features to analyze information on users' devices rather than on servers in the cloud to help protect their sensitive data. And it has taken steps to anonymize data that is sent to its servers to make it more difficult to identify individual users.

At Apple's developers conference, company officials made clear that they've been thinking even more expansively about privacy. Among the things they announced were:

A new app for Apple Watch called Cycle Tracking that's designed to allow women to keep tabs on their menstrual cycles. As with Apple's other health-related apps, users decide if or when they want to share data from it. The announcement of the new app follows a report that a similar third-party app — Flo Health's Flo Period & Ovulation Tracker — was sharing information about users' cycles with Facebook.
A new feature in HomeKit, Apple's smart home technology, that will require security cameras to analyze video on users' own devices. Today, many services send such data, which can include video inside consumers' homes, up to cloud services to be processed.
Another new feature in HomeKit that's designed for home routers. The feature will cordon off smart home devices attached to those routers, preventing them from being used to access other part of the network. There have been growing concerns about the security of smarthome devices and there have been several notable incidents where hackers have gotten control of groups of such gadgets.
A new privacy setting in iOS, the operating system underlying the iPhone, that allows users to allow apps to access their location "only once." That move would force apps to seek users' approval each and every time the apps want to know users' location. Previously, users had more limited options for controlling access to their location.
A new feature that will block apps from trying to route around such privacy limitations by using phones' Wi-Fi and Bluetooth radios to scan for nearby transmitters. A report last year laid out how Facebook was using such data to determine users' locations even when they had chosen in their settings to block its app from knowing their locations.
A new "log in with Apple" option for apps. The feature is designed to be an alternative to the commonly used alternatives from Facebook and Google. Unlike those systems, Apple's wouldn't be used to track users across apps. And Apple would allow users to set up one-time-use email addresses to go with the log in to further protect their privacy.

The new features may get a mixed reaction

Many consumers are likely to cheer such features. There's been growing concern not only about the amount of data that Facebook, Google, and other big tech companies collect, but also about how that data is being used. Facebook, for example, faces a multi-billion dollar fine for the leaking of user data to Trump-linked data firm Cambridge Analytica last year. And both companies have come under repeated fire for using the data they have on consumers and their online activities and using that information to manipulate them into spending greater amounts of their time with the companies' services.

But as much as consumers may appreciate such features, developers may hate them. Tech companies typically collect information on users' whereabouts and their online habits in order to more precisely target them with advertisements. Facebook and Google are the biggest players in digital advertising, but they are far from the only ones. And in many cases, app developers team up with Facebook and Google and share in both the data collection and the advertising dollars.

Allowing consumers to limit location tracking or tracking across apps may in turn curtail the advertising revenue such ads generate. That could lead some developers to abandon iOS or to charge for their apps and services rather than offering them as ad-supported ones. And fewer apps overall or fewer ad-supported ones could make the iPhone less attractive to end users.

But Apple's announcements run other risks for the company. The Cycle Tracking app takes aim at a whole class of applications that have cropped up to allow users to track their menstrual cycles. The move represents only the latest time that the company has launched a service that offers a function that many users previously got from a third-party app. As in past cases, Apple's app will get preferential treatment in iOS; unlike rival period trackers, Apple's will be built right into its Health app on the iPhone.

Apple is coming under increased scrutiny

The announcement comes as Apple is already drawing flack for such practices. Spotify has complained to European Union competition authorities that Apple has given its Apple Music service unfair advantages over Spotify's service. Meanwhile, Senator Elizabeth Warren, highlighting such complaints, has argued that Apple ought not be able to operate an app store for third-party developers and offer apps that compete with those in its store.

Read this: Spotify just painted a big target on Apple's back, and the iPhone maker should worry if antitrust regulators start aiming at it

But Apple could face the biggest problem with its new sign-on service. It reportedly will require any app that offers a third-party login feature to offer Apple's sign-on service as well.

That requirement seems like a prime example of what's called tying, which is where a company in a dominant position requires partners who want to use one service or feature to use another one as well. The tying of its Internet Explorer browser to Windows is what got Microsoft in trouble with antitrust authorities 20 years ago. The tying of the Google search and other apps to Google Play and Android is what got Google in trouble with the European Union more recently and led to a $5 billion fine.

News of that requirement came on the same day as reports that US antitrust authorities are starting to look at Apple. The company may well regret that timing.

The problem for Apple is that even as people have become more concerned about privacy, they've been increasingly worried about the power of the Big Tech companies. Even when it's doing something that's ostensibly in the interests of consumers, it's going to be scrutinized. And maybe penalized too.

That's why Apple's pro-privacy stance could soon prove painful.

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