Apple Inc. Is Aping One of Facebook's Newest Businesses

By Markets Fool.com

Continue Reading Below

An early look at News. Source: Apple.

Among the announcements at Apple's WWDC 2015 keynote address on Monday was a new app for reading the news, aptly named News. Apple's previous effort with a newsreader, Newsstand, failed to attract a significant audience. Unlike its predecessor, News offers a dynamic feed of content instead of a static storage unit for digital periodicals.

But Apple will have to compete with a slew of third-party news apps, including Flipboard, which boasts 65 million active users and a similar design to News. But Apple's top competition for news consumers is likely Facebook's recently introduced Instant Articles, which also have a similar feel to News.

Similar look, similar terms, different businesses
Facebook's terms for Instant Articles are quite publisher friendly. Publishers keep 100% of any ads they sell themselves. If they can't fill their inventory, Facebook will help fill it and keep a 30% commission. Apple will offer the same exact terms.

But Facebook has no qualms about sharing its user data with publishers, unlike Apple. Facebook is allowing publishers to use comScore and other analytics tools for tracking readership, while Apple has come out against collecting and sharing user data. Those data are of great value to publishers, which use them to sell and target advertising.

Continue Reading Below

On the other hand, Apple has a shared interest with publishers to sell digital subscriptions to newspapers and magazines, which offer higher margins. Apple receives a 30% cut of any digital subscriptions purchased through its App Store. Facebook isn't supporting publishers' ability to promote paid subscriptions in Instant Articles, given that paid subscriptions would steal attention away from the social media platform.

A dedicated newsreader is a better place to sell subscriptions anyway. Subscriptions appeal to a core audience that reads a publication on a regular basis. Those are the same people that are likely to use a dedicated newsreader.

But Facebook is extremely popular as a passive news source. A recent Pew Research Centersurvey found that 61% of millennials get their news from Facebook. That's an audience publishers can't ignore.

Gaining traction
Since Instant Articles launched last month, Facebook and its publishing partners have posted just one additional article. Publishers don't seem particularly interested in formatting most of their articles to take advantage of Instant Articles features, and most Facebook users haven't seen an impact from the new feature.

Apple could have an easier time getting content onto News. It doesn't require publishers to format content for the app, but it certainly helps make the material more appealing if they do. Apple's task is to get consumers to try the app, where its track record is rather mediocre. With a growing number of applications coming pre-installed on iOS, many users are making junk folders for the native Apple apps they simply don't use but can't uninstall. Being a new app for iOS 9, however, will ensure that people at least notice News when they update their devices.

The revenue opportunity
The revenue opportunity for News compared to Apple's current revenue rate is somewhere between nothing and minuscule. But News isn't about growing a business based on 30% cuts of advertising and digital subscriptions for other people's content. It's about delivering an experience unique to Apple devices with another exclusive app.

It's a small investment with a potential long-term payoff for Apple in additional customer loyalty. The risk is that News will become another Newsstand, in which case Apple loses a few million dollars in research and development. But Apple is taking another shot at this offering with a much more attractive service for publishers and readers alike, which could produce a long-term impact on device sales.

The article Apple Inc. Is Aping One of Facebook's Newest Businesses originally appeared on Fool.com.

Adam Levy owns shares of Apple. The Motley Fool recommends Apple and Facebook. The Motley Fool owns shares of Apple and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.