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Apple Inc. News App Is Doomed To Failure: Tim Cook Explains Why (NASDAQ:AAPL)

Tim_Cook Apple Inc music

Apple Inc. (NASDAQ:AAPL) is getting into the news game. One of the most interesting products at WWDC 2015 was the firm’s News App, which will be able to pick out interesting stories and bring them right to the user. The problem is that the app simply won’t work and there’s just one reason why.

Tim_Cook Apple Inc News

Apple has no real incentive to create a vibrant market-leading news app. Becoming a successful content aggregator is against the firm’s principles, and that will hold it back, letting the firms already deep in the space, namely Google Inc (NASDAQ:GOOGL), (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB), surge ahead and take the real market.

Apple is Chipotle, and it can’t do news

Apple is building a reputation for itself based on its respect for privacy. That was a big theme at WWDC. The firm highlighted products that might normally improve in the background without much fanfare in order to show off its privacy chops.

This is ground already covered. Apple is getting ahead of the world’s desire for privacy. The firm is taking personal rights to heart, and guarding them closely. Tim Cook recently attacked Google and Facebook as “companies have built their businesses by lulling their customers into complacency about their personal information.”

 

The problem for Apple is that that’s the only good way to monetize news. Apple can’t create ads without taking user info, and the firm is not likely to start buying that data from iPhone 6 users any time soon. If Apple wants ads on the new News app, it will have to either collect data or offer only generic campaigns.

Apple is gearing up for News though. A job posting for the company says they’re seeking “News Editors” for the News app team.  It’s a 40 hour per week position.

According to the ad, “These editors will help News users find the best and most timely coverage of major news events, while also managing select categories based on their areas of professional expertise”.

As the job description says, editors will “surface great content from a range of high-quality publishers.” Now that sounds like it could be a 40-hour-a-week job.The job descriptions says that editors will “surface great content from a range of high-quality publishers.”

As the job description says, editors will “surface great content from a range of high-quality publishers.” Now that sounds like it could be a 40-hour-a-week job. Pay isn’t mentioned in the ad.

Deleting ads from the iPhone

Even that might not be possible. Tim Cook’s iOS team is moving away from and against ads completely if rumors about iOS 9 are believed. Apple is working on a way to block all ads in the Safari browser, an it’s going to let users have an option about whether it wants to see them.

Jefferies’ Brian Pitz, in a report on ad-tech firm Criteo SA (NASDAQ:CRTO) said that “In a worst case scenario, this is Apple against the entire mobile publisher and advertiser ecosystem; not Criteo itself.” Shares in the firm fell massively after rumors of the Apple ad-block software hit the market.

Mr. Cook, in an open letter on privacy, said that “when an online service is free, you’re not the customer. You’re the product. But at Apple, we believe a great customer experience shouldn’t come at the expense of your privacy.” He may be making a move against that right now.

Apple heads into the ad world

With the News app on the way and an ad block being built into Safari on the iPhone, you may be forgiven for assuming that this is all a big play by Apple to take the ad world for itself. The firm could simultaneously allow users to block ads from Google while leaving them exposed to ads from Apple.

There’s reasons to believe that regulators would put a stop to that, however. European regulators are already looking at Apple as an anti-trust target because of its music industry links. If the firm were to use the iPhone to displace the ad-tech world it’s almost certain that the European Commission and the Federal Trade Commission in the US would try to kill the project.

Tim Cook may put a stop to it before those agencies get a chance, however. He has been a very strong and vocal supporter of data privacy, and it’s unlikely that he’d be able to do a 180 turn on that without serious problems.

When Apple does “ask to use your data, it’s to provide you with a better user experience,” he wrote in the same open letter. That idea seems to preclude bringing third-party ads onto the iPhone in a big way.

Apple needs to sell the iPhone

The Apple News app has one simple goal, and it’s not about advertising. As with Apple Maps, Apple Music and dozens of other services, the firm is looking to improve the experience on the iPhone 6 and other Apple devices. Each new service adds to the appeal of the iPhone in a marginal way, and improves its value to each user.

As Mr. Cook says, “Our business model is very straightforward: We sell great products.” The problem is that that doesn’t give the firm much incentive to build products that really compete with those from Google or Facebook.

Jeffries analysts weighed in on how Apple is falling behind on services in a report released after Google’s I/O event on May 28 and 29. They said that improvements in Google’s services were a “longer term threat to Apple’s hardware-centric business model.”

Apple uses its services, like the new News app, in order to sell the iPhone and it needs to improve them in order to do so. The News app is a small part of the appeal of the iPhone, however, and it just doesn’t offer the incentive to catch up to Google.

Google, Facebook need the news

Google and Facebook both live off of ads, and they both use news to collect data and sell space to advertisers. Apple won’t be able to break into the News world in a big way because it won’t be willing to outspend Google and Facebook to get there. If the goal is simply to make the iPhone a better device, News is not worth the investment for the firm.

Facebook has already shown it’s willing to spend large amounts of money and break new ground in order to get into the news market. Instant Articles will be a big deal for the firm in the months and years ahead, and traders will be watching to see if Mr. Zuckerberg’s team, in partnership with the New York Times, Buzzfeed, and others, will be able to displace market-leader Google.

That kind of investment is not worth it for Apple, and even if the firm pumps a lot of cash into News to start, it won’t keep up the spending without being able to earn back its money. It has much more important areas to concentrate on.

Apple can’t do the news

The bottom line, outlined by the firm’s CEO, is that Apple wants to sell the iPhone, it doesn’t want to break into ads. The cash return to Apple from a big spend in News is relatively small, because it might only be worth a 0.0003% increase in iPhone sales.

Apple Music and Apple Maps are much better targets for big investment, as are the firm’s Spotlight and Siri learning search algorithms, iMessage, and its coming TV service. On the hardware side, headlines about a new camera or innovative features like Force Touch are much more likely to spur iPhone sales.

Without ads there’s no real reason for Apple to get into the News game in the same way as Google and Facebook. The firm’s News will be functional, it will work, and it might be the favorite of some users, but overall it’s not likely to stack up against entries from the big ad concerns.

Apple can’t get into ads, because Tim Cook can’t let it. “We don’t build a profile based on your email content or web browsing habits to sell to advertisers,” he wrote, “We don’t “monetize” the information you store on your iPhone or in iCloud. And we don’t read your email or your messages to get information to market to you. Our software and services are designed to make our devices better. Plain and simple.”

Apple can’t compete in the news without an ad business, plain and simple.

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