Apple says it's cracking down on leaks — but all the reports about the iPhone 8 show just how hard that will be (AAPL)
Two top Apple execs were treated like rock stars in front of a sold-out crowd in a theatre in San Jose last month.
The crowd couldn't have been friendlier. Phil Schiller and Craig Federighi, Apple's heads of marketing and software engineering, respectively, were being interviewed by blogger and podcaster John Gruber, whose Daring Fireball blog has been a must-read for Apple enthusiasts for over a decade.
The two talked about the announcements that had been made the day before at WWDC, Apple's annual developer conference. They were revealing new details about Apple's products, and the crowd was loving it.
But at the very end of the interview, Gruber asked a question that wasn't about Apple's products — it was about Apple's corporate culture and its penchant for secrecy.
Gruber noted that leaks to the press seem to anger Apple. Schiller nodded, and said they did, adding that the company was putting in place a "double-down on secrecy."
The mood in the auditorium shifted.
"There's a lot of work that's gone on," Schiller said. "There are people on teams that work really hard at it, across every organization, how we manage secrecy, and with suppliers and partners.
"It's a really hard challenge, it's no question," Schiller continued, "and we may never be perfect at it, but the teams work hard at it."
Federighi and Schiller explained that one of the reasons that Apple places such a premium on secrecy is out of respect for its engineers who are developing new products.
Apple's engineers "get really angry when one of these [leaks] happens," Federighi said. "It’s just a huge disservice to the amount of work they put into it when it does."
"There were many topics covered yesterday that weren’t leaked, weren’t written up, weren’t with screenshots," Schiller added. "And to me, the first thing I think about is I’m so happy for those teams that they got that moments, that they can go home to their kids and say ‘this is what I worked on’ and you can see, and it’s fun."
That line got a huge round of applause from the audience in the nearly-sold out California Theatre.
The secrecy team
Secrecy is in Apple's DNA. Late CEO Steve Jobs famously insisted on it, and even current exec Jimmy Iovine calls the Apple "the most secretive company in the history of the planet."
The organization inside Apple that Schiller was referring to that's charged with preventing leaks is the New Product Introduction team in its Global Security group. That team is tasked with ferreting out leaks, whether they come from within Apple and from its manufacturing or other partners.
Apple has been bulking up its Global Security group. It recently posted a job listing for a "hardware secrecy specialist" to "track and distribute our most confidential prototypes."
It also posted a job opening for an investigator on the team. That job listing revealed some of what the Global Security group handles:
"The successful candidate will conduct investigations related to Apple's personnel, property, products and reputation. Such matters will include, but will not be limited to, cyber crimes; complex frauds against the Apple Online Store, iTunes, and Apple Retail stores; cargo thefts; thefts of intellectual property; leaks; threats; and internal investigations."
The job listing says that "experience as a prosecutor or law enforcement officer is a plus."
Indeed, Apple seems to be particularly focused on hiring people for its Global Security team that have law enforcement, military or security backgrounds.
The best look at Apple's Global Security team comes from a recording that was ironically leaked to William Turton of the Outline. According to the report that was based on the leaked recording, David Rice, Apple's Director of Global Security, is a former staffer for the National Security Agency and a Navy veteran. Other members of the team have worked at the FBI, for the Secret Service, and for the Department of State.
Apple's effort to quell leaks, particular those coming from factories in China, has been "trench warfare non-stop," Rice reportedly said on the leaked recording.
Although, Schiller said Apple's motivations for stopping leaks are related to boosting morale among its engineers, the company has other reasons to keep lips shut. Among them: Leaks can depress sales.
"We're seeing what we believe to be a pause in purchases on iPhone, which we believe are due to the earlier and much more frequent reports about future iPhones," CEO Tim Cook said in May on an earnings call.
Even The Wall Street Journal suggests that iPhone users shopping for a new phone in the summer should wait to upgrade, because Apple usually launches a new one in the fall. This year, with rumors suggesting Apple is preparing an all-new premium iPhone model, there may be even more reason to put off a purchase.
But even as leaks can hurt Apple's sales, they can also help its competitors. There is always the chance that leakers could sell information to Apple's rivals. By getting information on the features that will be in the latest iPhones, rival manufacturers could try to build them into their own devices — and then preempt Apple by releasing their phones first.
But Apple's competitors may not need to get information directly from the leakers themselves. Instead they may be getting it indirectly.
Ming-Chi Kuo, a mysterious sell-side analyst at KGI Securities, has become a go-to source for information on Apple's unreleased products. He's also been accused of paying for leaks.
Kuo's reports are often touted by Apple rumor sites. But they're also likely purchased by Apple's rivals that are looking for competitive information, said independent analyst Neil Cybart in a newsletter earlier this month.
"Kuo is getting the bulk of his information from third-party entities that traffic in intel coming predominately out of Foxconn," Apple's main manufacturing partner, Cybart said. "KGI Securities, among other companies, is likely paying these third-party entities for the information."
Have there been more leaks?
So how's Apple's anti-leak campaign going? Have there been fewer leaks this year, as Schiller and Rice assert?
It doesn't really look like it.
Take the case of the HomePod, the new smart speaker Apple unveiled last month at WWDC.
Long before Apple announced the HomePod, The Information broke the news that Apple was developing it. Then last September, Bloomberg's Mark Gurman reported a slew of new details about the then still-unreleased device.
And in April, Kuo released a research note that was spot-on in some of its details. Kuo correctly forecast the number of tweeters — speakers used to produce high frequency sounds — that would be in the HomePod. He also accurately predicted the chip Apple would include in the device.
Rice took a shot at Bloomberg's reporting in the meeting described by the Outline. And Bloomberg's report didn't include the product's name or price. But the outlet got nearly every other detail about the HomePod right, including the fact that the device would not include a touchscreen.
But it's not just with new products where the leaks continue. It's also with Apple's established ones, most notably the iPhone.
In July last year, Business Insider, after closely examining leaked pictures and drawings purportedly of the rear housing of the upcoming iPhone 7, noted that they were all almost identical. What's more, as it turned out, those photos and drawings ended up closely matching the actually iPhone 7 Apple launched in September.
This year, there have been several photos of "dummies," or non-working phones based on a supposedly leaked design file of the next iPhone that was sent to factories. But there have been fewer leaked photos purporting to be of the actual device.
And photos showing the rear housing of the new phone are especially hard to come by. That's important — Photos of that area are particularly valuable, because they can tell someone with a trained eye the precise design of the new phone, an Apple security specialist said in the leaked recording.
But even if there have been fewer photos, there have still been plenty of other leaks purportedly about the new gadget. Bloomberg, the Wall Street Journal, and other outlets have reported key details about the next iPhone, and other rumors have been floating around. The new phone will reportedly have an OLED screen, a glass case and a more advanced camera with 3D sensing capabilities. It will also reportedly support wireless charging.
And those details aren't just coming from journalists and bloggers. Some Wall Street analysts who cover Apple have offered similar details in their own reports.
The iPhone is the most profitable consumer product, perhaps ever, and tens of millions of people around the world are wondering what the next one will be like. So blogs, and even top-tier business publications will continue to "post stuff out of a misplaced love of" Apple, as Schiller put it to the crowd of Apple fans last month. And the vast majority of Apple's fans will continue to consume Apple rumors based on leaks and reporting.
If Apple is really successful at quashing leaks, you may still see those posts. They'll just be wrong.
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