On this episode of FTP, Futurum Tech Podcast, we answer the question if modems are a commodity, why did Apple just pay $1 billion for one? Plus, we’ll take a look at how the U.S. is dealing with tariffs and tariff free leaf for Apple parts coming out of China. The latest on the Johannesburg ransomware attack that left the city in the dark. Plus, T-Mobile and Sprint finally find their holy grail as the merger is approved. We’ll take a look at how Apple, Microsoft, and Foxconn are investing in AI, this time through SoftBank. And the Australian government looks a bit more like China as they start to pull back the veneer over search giants Google and Facebook to peer at their algorithms. This plus the latest on when we think 5G modems will actually arrive in the iPhone. All this and more on this edition of FTP, the Futurum Tech Podcast.
Our Main Dive
If modems area a commodity why did Apple just pay $1B to acquire one? Apple’s acquisition of Intel’s modem business is not only a bargain cost-wise but a great deal for Apple AND Intel from a focus and control perspective. Apple gains 2,200 high-end engineers ready to take modems to the next level, control over a key component in its iPhone products, and over 17,000 wireless patents, while Intel sheds a product and development line that was an increasingly unprofitable distraction.
A predictable fallout of the Apple-Qualcomm litigation settlement, we’re surprised it too them this long to pull it off. Apple has a long history of bringing technology in-house, particularly when the availability (or lack of) becomes a risk to its operational delivery, if cost control can improve margins, or if the technology needs to be embedded into other components, rather than just remain a discrete component. Modems fit all three criteria.
The question now becomes how, or when, might Apple leverage this new skillset into its broader product lines, from wearables to healthcare and perhaps the automotive/infotainment market?
Our Fast Five
We dig into this week’s interesting and noteworthy news:
- US to deny tariff relief for Apple Mac Pro parts from China
- Johannesburg Ransomeware Attack
- T-Mobile and Sprint finally find their holy grail as their merger is approved by the DOJ
- How Apple, Microsoft and Foxconn are investing in technology, this time through SoftBank’s Vision Fund 2 focusing on AI
- Australia’s new Algorithm Policing Office seeks to pull back the veil of secrecy on the algorithms Google and Facebook use in their products
Are digital delivery apps stealing their employee’s tips? In the latest twist on the app-based service economy it appears that some app companies are using customer’s tips to offset their own labor costs.
Crystal Ball: Future-um Predictions and Guesses
When will Apple release its own 5G modem in a flagship iPhone? Hint: Pick a year and add one more to be safe.
Olivier Blanchard: Welcome to this week’s edition of FTP, the Futurum Tech Podcast. I am Olivier Blanchard, Senior Analyst with Futurum Research, and joining me today are Futurum’s very own Fred McClimans, and Shelly Kramer. And I will dispense with the hellos and how are you doings because we’ll get to that later. We’re going to start today’s show with a discussion about Apple’s 5G ambitions. Then we’ll share some of our favorite tech stories of the week in our fast five segment followed by tech bites, in which we highlight one of the biggest tech-related fails of the week.
And we will end the show as always with our crystal ball. But before we begin as always, it goes without saying that this show is intended for informational purposes only, and no advice or insights provided here today should be taken as investment advice, no matter how good it sounds.
All right, so our main topic today is Apple acquiring apparently, Intel’s modem business. This is topic dear to my heart because I’ve spent so much time in the wireless and 5G space in recent years, and especially focusing on the battle between Qualcomm and Apple over modems and technology licensing. And ultimately, a huge legal fight that set the stage for the future of 5G. And as part of that fight, Intel was at one point supposed to be providing Apple with 5G modems instead of Qualcomm. And Intel was essentially Apple’s ace in the hole. And the only thing that allowed them to really be able to divest themselves from their relationship with modem maker Qualcomm. And that failed pretty spectacularly on a number of levels. And it all came to a head earlier this year when for a variety of reasons, Apple decided to end its modem relationship with Apple, not its relationship…I mean, Apple decided to end his relationship with Intel, I’m sorry. Not completely. It has nothing to do with Apple’s relationship with Intel with regard to computers. It’s strictly about the phones.
So Apple and Qualcomm buried the hatchet. Apple agreed to a multi-year licensing and a modem chip supplier agreements, which is the first time that it’s done that. It’s actually Apple became for the first time an actual direct licensee of Qualcomm. And Intel I think pretty much the same day or within 24 hours and announced that it was getting out of the phone modem businesses, particularly 5G.
And so fast forward a few months, and we are here at a juncture where Apple has announced that it is acquiring Intel’s modem business for $1 billion. And so before I spend more time talking about this and picking at that decision, I’m going to turn to you guys and get first impression. So Shelly, you first. What were your first impressions or your first thoughts when you heard that Apple was buying Intel’s modem business?
Shelly Kramer: Well, I thought about how happy Intel’s investors would be. Then when I saw that their shares rallied more than 5% yesterday after this announcement, I knew they were happy. So I think this makes perfect sense, really.
Olivier Blanchard: Yup. How about you Fred?
Fred McClimans: Well, the first thing I thought when I heard this was, didn’t this already happen? Because it’s such a logical extension of everything that we have seen with Apple and Intel and the Qualcomm litigation, and the settling of that litigation, and the issues that Intel was having. But I think this makes perfect sense for a company like Apple.
Apple is long been one of those companies that really likes to control its IP. It likes to control its supply chain. We’ve talked to several times about how Cook is really an operations guy at heart. And there’s a lot that you can do when you own that technology.
Now you could say well look, modems, commodity, and so forth. They may be commodity in terms of low cost in the marketplace. But the market is really moving quite fast, especially when you inject 5G into the mix. And when you look at what Apple does with modems, they don’t just drop a modem in. Their approach to technology is being really innovative inside the box. And the way they combine different hardware components into various chip sets and the way they lay things out, that’s something that they just absolutely need to control.
But I’ll tell you the one thing that I was really pleased to see in this actually came from Bob Swan at Intel. When this was announced as part of that he gave the typical, “Hey Apple, great friend, great to see that go there.” But the thing that struck me was his statement that from his perspective, Apple was the right place. In fact, let me pull up this direct quote here. “We have long respected Apple,” said Bob Swan, “And we’re confident they provide the right environment for this talented team and these assets moving forward.” For Bob, it’s as much about the employees and the company as it is the shareholders at the end of the day. And I love that about Bob and Intel, and what they’re doing in this area. He’s the people person. I like that.
Shelly Kramer: And there’s 2100 Intel employees that are going as part of this deal. So that’s a big.
Fred McClimans: Yeah, it’s not a small group. And Apple, they get all these 2,200 primarily engineers in this space. So it’s a ready-made operation. I think the thing to watch is what do they turn these engineers loose on? Because it’s going to be more than just what they’ve been working on in the past.
Olivier Blanchard: Right. So let’s look at the numbers here. This is a $1 billion deal, so it’s actually a pretty good deal for 2,200 very talented employees who would have otherwise ended up going to work for other chip makers I’m assuming, from Qualcomm to Samsung, etc. But it’s also what Apple gets for its money here assuming this gets approved and goes through is also 17,000 wireless technology patents that they can use themselves so they can license. And I don’t have a breakdown of how many of those are standard essential patents as opposed to other types of patents.
But let me throw a wrench into this whole happy family story. Intel’s modem business was not the most successful in the industry. In fact, it was by my estimation about two years behind where Qualcomm is. And let’s just assume that Qualcomm is the leader. I think it’s pretty clear, but it’s still more of an opinion than I guess empirical fact. But in my opinion, Qualcomm is definitely at the very top of this market. And then you have other modem makers that are in low first tier and the second and third tiers.
Intel with regard to 5G was about two years behind, and was not entirely successful at creating this product. And there’s really no reason to believe that Apple going into the modem development space, even with these employees and their patents and their combined expertise, will be able to close that gap anytime soon. So was kind of surprised by a headline that I saw from The Verge that said Intel’s new 5G mode and my power, Apple’s first 5G iPhones, which is complete nonsense. Apple has already signed a multiyear agreement with Qualcomm for its 5G modems, which exists now in are already going into phones this year. So Apple’s first 5G iPhone will be powered by Snapdragon modems, by basically by Qualcomm solution, not by Intel’s. It will be at least two to three years in my opinion, before Apple’s new intel adjacent modems are ready to go into iPhones.
So we’re looking already at 2022, 2023 minimum before Apple is able to make its own 5G modems. In the meantime, what I’m wondering is if this is … in the long term, it’s a 5G play. But if in the short term it isn’t more of an IoT play, an automotive play, and basically just a way to spruce up its iPhone adjacent offerings by having in house modem capabilities that will allow the Apple Watch, for instance, whatever Apple is doing with automotive connected vehicles, and possibly with even XR products to be more in house. Does that make any sense or am I just rambling?
Fred McClimans: Intel has been pretty clear that this deal does not include their IoT modem development, some of their industrial applications. To be honest, they use a very different modem standard for that, type of product. Very different application, very different form factor, and different environmental requirements as well. So that’s not included there.
Could Apple take these 2,200 high-skilled Intel engineers and divert them into that kind of an area and say, “Look, we know you’ve been working on this. Here’s something that we’d like to do in that particular space.” I think that’s certainly possible. And in fact, it’s probably one of those things that would be really interesting to watch. Does this move in there? But I’ve got to think at this point that it’s … well, let me put it this way. I wouldn’t be surprised to see them move into more of a 5G space, into an IoT enabled space in the commercial space where let Intel have the products that are industrial. That’s where Intel shines in so many ways. Let Apple focus on the more consumer oriented applications.
And that could go all the way up into a project titan, autonomous vehicle or into an Apple in car entertainment system. Sure, I wouldn’t see that as being in conflict there at all.
Shelly Kramer: Yeah, I think really the key is Apple focusing on innovation and product development. And I know we’ve talked about Apple and innovation – haha – before, but I think that the goal here is not for Apple to be a kick ass modem company. And it will be interesting to see where they take this.
Olivier Blanchard: Yeah, I think it makes sense from Apple likes to control, like you guys said earlier, its supply chain. It wants as much of what it can create in house as it can. And especially with critical components like chipsets and obviously in this case the modem. So it made sense that $1 billion for this was a hell of a deal. What they bought was basically a box of parts, and now what they do with it is going to be really up to them. I think that we’re going to see two divergent paths here. I think that the capability is that this acquisition will bring into the Apple ecosystem will on the one hand fuel its ambitions in 5G and its hopes to create its own modem for its iPhones. But I think it’s also going to diverge towards other wireless uses, other wireless products. Like the vaporware, or so far vaporware of version of its long awaited augmented reality glasses that we may get see before the end of the decade.
But I really do think that it’s going to be a very long time before Apple is capable of creating a modem whose quality and performance characteristics will match top tier modems already in the market now. And so I don’t think that we’ll be seeing an intel modem in a high end iPhone. Maybe on the lower ends of the price range. But as far as its flagship iPhones, I don’t think that we’ll be seeing an Apple modem in them any time before 2024, 2025.
Fred McClimans: No, no. But if you want to talk about competition between these guys. For several years now, we’ve been watching Apple notch the bar up. Yeah, I guess notch the bar up is the right way to say it. Not to the bar up every time they release a new chipset for the leading iPhones. And the point right now where the processor capability inside an iPhone, it rivals a lot of laptop products very clearly. And if you think about the long term trend, I know last week on the podcast we talked about our predictions for the future of the desktop laptop market now that those numbers are starting to come back up again, and you’re seeing companies invest. They’re literally taking a breather from the iPhone or from the mobile phone, mobile tablet market, and they’re going back and looking at their laptops. We’re seeing some investment there. But those platforms, they’re still continuing to converge. Look at the latest trend here from Apple where they’re taking applications that can now be written dually for the mobile and for the laptop.
So, when you get to that point there, you start to question is there a longer term threat to Intel in that Intel inside chip technology there? Because like I said, Apple’s processors are amazing.
Olivier Blanchard: Yeah, no they are. They’ve done a really good job with that. This is a whole different animal though, but it’ll be interesting to see for the next year or two, we start seeing the MacBook with LTE or 5G connectivity, like what we’re starting to see with some of the Microsoft machines, 5G PCs that are always connected.
Fred McClimans: Yeah. I wouldn’t see any reason why not? It kind of goes back to, look at the tablet market for Apple with their iPads. How many people really wanted just the WIFI iPad? No, no, no. You wanted the cellular iPad because then you could literally be always on. And with 5G coming out natural extension and for laptops, come on. Yeah, of course it’s in the cards.
Olivier Blanchard: Okay. Well that’s it for a main topic. We’ll probably be revisiting this at some point because the confluence of Apple 5G and Intel is always interesting. And it’s always going to be a disruptive force in an otherwise very established and a predictable market. Okay. So we are now moving on to our fast five. And Shelly, I think you can start us off with your first story. What did you come up with this week?
Shelly Kramer: Well, staying somewhat on the topic of Apple, I thought it was interesting that the U.S. decided to deny tariff relief to Apple for the Mac Pro parts that they wanted to manufacture in China. And the president tweeted this morning that there will be no tariff waiver or relief, “Make them in USA, in the USA, no tariffs.” I feel like it’s so interesting to watch what’s happening in the world today not just in the United States, and how we’re just moving away from any global consumerism and being so nationally focused. And I realize that making everything in the USA is probably a campaign strategy as much as it is anything. So I don’t know that this is necessarily surprising. There have been plenty of other people that the Trump administration has denied tariff exclusion requests from including General Motors, Tesla, Uber for electric bikes, and all those things. So this doesn’t really surprise me. Again, I feel like it’s as much of a campaign strategy as anything. But what do you think?
We’ll see what happens, right. To quote the President, I think that there’s a lot of bluster that happens on Twitter, a lot of political posturing with regards to the China tariffs and what the administration plans to do with tech companies. And I’m awaiting to see when a policy actually comes out, or when an executive order, or a list of exclusions comes out. Until then, I just relegate this to the general eye-roll of the Twitter sphere when it comes to that.
Shelly Kramer: Yeah. More rhetoric.
Olivier Blanchard: And Tim Apple has an open invitation at the White House. So I’m sure that he and the president can work this out in their spare time. But that was really good. That actually caught my eye this morning as well. So Fred, what’s your first fast five this week?
Fred McClimans: Let’s talk a little bit about cyber security. It’s been in the news a lot recently. Very often, we forget just how vulnerable we are. And in fact, I think a really good example is just yesterday they, after the Robert Mueller testimony on Capitol Hill, the senate released their report on hacking in the 2016 elections. And it turns out that far from there being no hacking or just a couple of states, it looks like the Russians actually targeted all 50 states in their election technology.
So it’s out there, but we don’t always hear the really interesting stories. There’s a really interesting one this week out of South Africa, Johannesburg, that really caught my attention here because it goes back to the issue that we’ve spoken in the past about the cost of ransomware attacks. And Baltimore city being a great example, having a ransomware attack literally shut down the city and cost them $18 million just like that.
So in Johannesburg, what has happened here is they’ve had some issues with the power grid reliability recently. That’s not bad enough. They were hit by a ransomware attack that literally went in, encrypted their network controls, their databases, and their applications. Literally shut everything off.
So in this situation here, a crippling situation for the city of Johannesburg. It’s forcing them to actually rebuild a lot of their applications. And I think this highlights an interesting aspect of some of the government infrastructure, the public sector infrastructure that’s out there. They’re not necessarily using the commercial off the shelf, latest and greatest tools. They’re using systems that have a large component of legacy technology embedded into them. So not only are they more at risk, but when those systems fail and have to be regenerated, if you can’t just simply go to a backup on something, you find yourself in a situation where the technology, the legacy technology forces you into a more complex recovery of the system. So I think it’s a warning sign for governments and for businesses, and for citizens around the world that these attacks, it’s not just somebody locking up your database, your laptop at home and saying, “Hey, I saw what you did on your webcams, send me some bitcoins.” These attacks are reaching the level of being really serious. And with potential physical harm, not just monetary value harm, but physical harm to individuals when things like power do go out.
Shelly Kramer: The reality of this is that it’s not new. This may be one new instance, but we’ve had vulnerabilities like this. We’ve had utilities compromised before. This has happened over the course of the last number of years, not just recently. We have several clients in the security space. We have a client in the security awareness training space. So this is something that I’m really immersed in, in terms of what’s happening, whether it’s on the scale of a utility, of the government, or an enterprise, or even a small business. And I think this is one of those things that I feel like I say this all the time, but you don’t know what you don’t know until you know. And what I mean by that is that we’re just not paying attention. We’re not paying attention to security controls that we have in place in our own lives. We use dumb passwords. People who work for companies large and small use dumb passwords. There are just so many checks and balances that really aren’t happening. Some of it’s tied to legacy systems. Some of it’s tied to training or lack of training.
So along the same lines of this Johannesburg thing, did you happen to notice that in Bulgaria a couple of weeks ago, the personal information of every adult in Bulgaria was hacked? The National Tax Agency was hacked. So these things happen all the time, and it really is frightening how vulnerable we are on so many fronts.
Olivier Blanchard: Yeah. That was an interesting one, Shelly. In Bulgaria, 7 million citizens potentially at risk compromised here. Now that’s small compared to some of the hacks that we have in the U.S. But again, put it in the perspective of this is an entire nation, a sovereign nation.
Shelly Kramer: Well, yeah. And the information is critically important. Names, addresses, incomes, and social security information. That’s a lot. What do you do? You just go get a new social security number? No. But then when you take it to the infrastructure, to the utilities, to the governments, to the services within a country or a city, those are a very big deal. And I saw your article about people, them asking people to come in with their invoices or logging calls on their cell phones, because they couldn’t access the company’s or the utility’s website.
Olivier Blanchard: “Bring us your bill. Oh, you have a complaint? Jot it down yourself. Log it on your mobile phone. And if you have to pay, come down and you can pay in person.” And the question is with what? We’re a digital economy. So I know we’re drifting here a bit, but that’s the beauty of the FTP podcast is we do that occasionally in really interesting areas.
So try just one thought on the Bulgaria issue. Here you have I think it was out of the total 7 million, was 5 million citizens out of 7 million that had their records stolen. So here’s this mass of information that comes out. We talk about the fact that somebody lost their data, their data was stolen, it was compromised. Very different from the ransomware attacks here where somebody actually has data. Where does that data go? And we just saw one company unnamed here that just paid a massive fine for their, I’ll say it, Equifax, for their data breach. What happens to that data after it’s stolen? Well, the way the stealers or the hackers are going to monetize that is they’ll typically throw it up on the dark web somewhere, and somebody will say, “I want that data.” And they buy that data. So what happens when that data gets bought? How is it used? Whose crawling through that data to find the irregularities in your tax returns here? Who’s looking to blackmail you in some particular way or get a favor, or some extortion in return for something like this? That’s where the real risk is going to hit. And I don’t think we’ve seen that risk yet, on the scale that we will over the next two to three years. And that’s an equally scary thought.
Fred McClimans: Well personally, I think that those types of plays are more about information and insights about voters, who they are, where they are, how much do they make, do they own their own home, that type of information to be able to influence elections. So I think it’s less about the actual granular blackmail scheme of trying to identify people in a batch of 5 million individuals, which ones are vulnerable to blackmail or to extortion. I think that it’s more of a state actor play.
Put it this way. If Trump were a Bulgarian, the democratically controlled house right now would be hiring hackers left and right saying, “Find me those tax returns.” So put yourself in Bulgaria now, you have a lot of influential people in that country. The ministers on down to the celebrities, politicians, businessmen, businesswomen, the works. That data’s out there, and somebody’s going to find a creative way to use that data beyond just, “Hey, how can I gain a little bit better 360 insight into my customer here?”
Olivier Blanchard: Oh, sure. Absolutely.
Fred McClimans: I’m intrigued by the thought of Trump going to Bulgaria.
Olivier Blanchard: Yeah. So my cliché for the week is this. It’s going to get a lot worse before it gets any better. So anyways, so that was really good. I didn’t realize we were going to have like two main topics today. So here’s our third main topic. No, I totally get it.
It’s our third main topic because this is actually a really big story. The Department of Justice approved this week the T-Mobile/Sprint merger, which has been under discussion for the better part of a year, if not more than just a year.
So I think it’s a good thing. So what’s happening here is you have Verizon and AT&T being the dominant forces as far as wireless providers in the U.S. And T-Mobile and Sprint were like a second tier. They do things really well, but they don’t necessarily have the same kind of coverage and capabilities as the big two. What happens when Sprint and T-Mobile merge is they really become a huge national carrier at the same level as Verizon and AT&T. So instead of having two big companies that might’ve eventually bought parts of sprints and T-Mobile and become even bigger, a bigger pair of carriers, we now have three major carriers.
I think the most interesting part of this, so everybody wins. I think it’s going to be good for consumers. It’s going to be good for the industry. And this is one of those rare times when a huge merger like this actually creates more choices as opposed to fewer. But what was really interesting about this is one of the conditions for the DOJ, and I think the FCC as well to put their stamp of approval on this. They came up with a scheme to create to artificially creates a fourth major U.S carrier, to replace the theoretical fourth that Sprint and/or T-Mobile used to be.
And they did this by propping up Dish of all companies. And what they did is Dish is basically buying Sprint’s, prepaid business for something like 1.4 billion I think. It’s spending something like three and a half billion for spectrum. It’s getting a bunch of bits and pieces of other companies to be able to create its own carrier business and its own national network. So it’s going to have access to 60,000, I can’t remember, 20,000 or 60,000, I think it’s 20,000 cell towers. A bunch of retail space. It’s going to have access to other company’s spectrum for a while as it develops its own capabilities.
So hopefully, allegedly by 2023, but I think more towards 2026, 2027, I think that we will have four major U.S. independent U.S. carriers capable of providing 5G to at least 70 to 80% of the U.S. market.
That’s really good news. It’s really interesting. The Dish aspect of this became public I think just a couple of hours ago. Up until now, it wasn’t really made public. It was very, very quiet. So I think it’s a great development for 5G. Increases competition, increases the number of choices that consumers will have, and vastly increases the rate at which 5G will spread across the country. All right. So yeah, so I think that was number three, right? So Shelly, what’s our number four today?
Shelly Kramer: Number four is SoftBank. And SoftBank has announced a second vision fund fueled by about $108 billion. And some of the investors in this round are Microsoft, and Apple, and a SoftBank itself is investing about 38 billion in the fund. Foxconn is an investor. So this is really targeting AI investment, and obviously we know how important AI is and how that’s fueling everything today.
I thought the thing that for me, the thing that was most interesting about this is that the funds investor base shows diversification beyond the Middle East, which provided most of the first funds capital. So I think that’s interesting. The other thing that I think is interesting, it was just a little mention in an article that SoftBank has assured Microsoft that they’re going to ask the 70 some companies who are investing in this new fund if they’re using AWS and their cloud to Amazon’s cloud technology, to move over to Microsoft. I think that’s kind of interesting.
Olivier Blanchard: That actually is, yep.
Shelly Kramer: Yeah, so that was it for me.
Olivier Blanchard: Cool. To be continued. Fred, wrap us up. What’s the fifth fast five of the week for us today?
Fred McClimans: Right, so our fifth fast five, certainly very short topic, not one that we would ever discuss in-depth here. Involves the issue of governments forcing technology companies to disclose their secrets. Now when we talk about this, if I just said to you, “Shelly, Olivier, just read an article about a foreign nation that is looking into the technology that the companies are using in their country.” Who would you think of? I think of China. We see it all the time. We’ve talked about if you want to do business in China, you’ve got to give the government some access to that technology. Well, here we have sort of an interesting, not China, but yet China situation.
Australia’s antitrust group, it’s the Australian Competition and Consumer Commission. They have announced that they have an intent to set up what they’re calling an algorithm policing office within the commission, expressly for the purposes of looking at and forcing companies to reveal the algorithms that they use in digital technology, in certain areas, search and social being two of those core areas. So, of course, this hits Facebook and it hits Google.
So this is a really interesting one. This is not the first time we’ve seen somebody attempt to do this. Germany’s Merkel talked about this back in 2016 or 2017 I believe. There’s a lot of interest in companies or in countries understanding just how data is being manipulated, how it’s being used, and how people are profiting off of it. In fact, there’s a move afoot right now in a one country to actually see if they can’t tax Google. Every time there’s a search, put a tax on that and deliver that revenue back to the local citizens.
But in this case here, I understand their motives may be pure, but I think some of their motives may not be totally pure as well because there’s some strong competitive threats going on in these countries for Google and Facebook and others. As these countries try and pull back the control that the U.S. dominated companies have placed over their citizens.
So it’s an interesting one to watch. It’s in the proposal stage right now. It will be publicly vetted, but it looks at this point as if it’s something that will likely happen. And then we’ll really get to see what takes place here. Because I’m not a fan of any government forcing any technology company to open up their hardware, open their software so that they can take a peek inside. Once you do that, I guarantee you whatever somebody sees is not going to stay on their eyes only. It will spread.
Olivier Blanchard: Right. But I think because it’s code, right? It’s basically, it’s like let’s compare an algorithm or code to a sheet of music which has a song on, it just happens to be a very complicated song. It seems to me that on the one hand, you can make all of this software, all these algorithms top secret and try to hide them from you. I think ultimately though, at some point that hits a wall and you can no longer keep it secret. So if it’s going to be out there, it seems to me that companies like Google, companies like Facebook, Amazon might be forced into a corner where they have to essentially license out their code. So that by … just regular technology license, they just apply to this so that it can be traced. If a company wants to use their code and their algorithms because whatever, it’s out in the public domain and they just grab some code and use it. This would protect these tech companies and allow them to sue either to stop someone from using their licensed code, or force them to pay a licensing fee in order to be able to use it. That seems like maybe the direction that this ends up going in. I don’t know.
Fred McClimans: It could be. But if you think about it, if you open the code. Australia or whomever is going to have to have somebody that’s capable of understanding the code to see what it actually does. That’s not just one person. It takes hundreds, thousands of people to develop code for Facebook and Google. So you have this group of people who are now inspecting code all of the purpose and the intent of trying to figure out what does it do. And that’s the secret sauce for Google. Nobody really cares about how their autonomous vehicle program is working. What they really care about is how does it determine to put this ad in front of me now?
And once you actually even just put that out there, once you actually make that publicly available or even privately available, but that’s still publicly available. Once you do that and you say these are the steps that the algorithm takes, remember that Google changes their algorithm all the time to be leading edge. As soon as you tell others what they’re doing there, people will go, “That’s the process. That’s the step process that we have to go through. Now we can try and replicate that to some extent.”
And I think that’s a fundamentally different issue from licensing, which she brought up that I totally support. I think that’s a great idea and that’s inevitable. It’s going to happen out there, but this, it just smacks of big brother looking where big brother shouldn’t look.
Shelly Kramer: Yeah, I think it’s tricky.
Olivier Blanchard: Yeah. To be continued. I don’t think that’s going to be a fast moving one. So we’ll probably be revisiting this sooner rather than later. Okay. So that does it for our not so fast five portion of today’s podcast. Let’s switch now to tech bites. And usually we have no trouble finding tech bites topics for the week. And I think something like 83% of the time, it has something to do with Facebook doing something about privacy, or data leaks or whatever. This week was actually a slow week on the tech bite front, and I outsourced our topic to Shelly and Fred.
And Fred actually is going to introduce us to this week’s tech bite, but really briefly though, because I don’t want the show to last a whole hour. So what’s our tech bites this week, Fred?
Fred McClimans: So what this week for tech bites. That’s right, tech bites, we are diving into a really interesting issue that most people never think about tipping. Tipping is different in different countries. You tip for different services in some countries. It’s just something you don’t do very often. But in the digital economy, there is a whole move afoot to pay a lot of these delivery people, services people, in tips. So when you have, in this case there was an interesting article in the verge that talked about DoorDash, but there are many other companies that are doing this as well.
When you tip a delivery person at your door, you would expect that that tip goes to the person. But it doesn’t. It’s one of the ways that the company, in this case DoorDash is compensating the employee. So think of it this way. Yes, we’ll pay you x number of dollars per hour, but that includes whatever tips you earn. So you’re not really getting this person the tip on top of what they’re making. I know there’s a semantic split in there over what’s happening.
But in essence, here’s the big issue that we see arising with this. You have a lot of companies that are aggressively trying to grow their users, their consumers in particular markets. Delivery services are a great example for that. The Uber Eats and so forth. But those business models are based on the assumption that the companies can generate X dollar of revenue per employee at Y cost. So when they pitch their company to investors, they have a, “Here’s our equation.” Well, now it turns out that that equation includes something that people may not have thought about. And something that a lot of municipalities I’m anticipating will start to legislate saying, “No, no, no, you can’t do that. You can’t pay an employee out of their tips. That’s their tip. They report that on their taxes. You don’t report it on yours.”
So there’s this potential bursting of these little tiny startup collaborative economy bubbles out there that I think could actually mirror in some ways what we’re likely to see with the Googles and Facebooks, and Twitters of the world. As they have their ability to monetize data pulled back, their financial outlook looks a little bit less rosy. But for the startup companies and smaller companies, this could be a significant issue.
Olivier Blanchard: Yes, indeed. Well, thanks for pointing us to that because I didn’t realize that was happening. So I guess yeah, maybe I’ll start tipping in cash again.
Fred McClimans: I always tip in cash.
Olivier Blanchard: Yeah. I was using the convenient pay when I place the order, but now I might reconsider that.
Fred McClimans: There’s a great parody commercial in there. I don’t always tip it, but when I do, I tip in cash.
Olivier Blanchard: Excellent. Yeah. So the digital economy is starting to backslide a little bit as we find out that paper ballots, paper payments, and more analog means of doing stuff actually is maybe better in some cases. All right, well cool.
Shelly Kramer: Voting.
Olivier Blanchard: All right. Yeah, definitely, definitely voting. I’m sure we’ll have more discussions about voting in the next year and a half, especially with regard to the technology that surrounds voting, obviously. Not to make it a political topic, but to make it a purely technological topic.
Okay, well that does it also for our tech bites. And we can now move to our crystal ball. And as usual, we’re going to circle back to our main topic. So I’m going to ask you guys to put on your special alchemists hats and dust off your crystal balls here. So let me set this up.
We talked about Apple presumably trying to build its own 5G modems for iPhones. And that would be one of the main reasons why it decided to acquire Intel’s modem business. Now currently, Intel’s modem business does not have competitive or even a functioning as far as I can tell 5G modem. The iPhone release in the next few weeks this fall, I don’t think we’ll have a 5G iPhone. I think they made their agreement with Qualcomm too late in the product development cycle to be able to effectively test and build an iPhone around a 5G modem. So I think Apple consumers will have to wait, our customers will have to wait until 2020 to see a 5G compatible iPhone, and that will have a Qualcomm modem in it.
So having laid this out, my question to you is what year will see the first flagship iPhone, so a top end iPhone come out with an Apple modem? What year would that happen?
Shelly Kramer: 2022
Olivier Blanchard: 2022, okay. All right. That’s bold. All right.
Shelly Kramer: At best. I would say late 2022, early … just at best it’s 2022.
Olivier Blanchard: The release, the announcement is usually in the fall. So it’s late in the year. Okay. So 2022 for
Shelly. Fred, what do you think?
Fred McClimans: This is an interesting one because yes, they could move a 5G modem in in 2022, maybe ’21 if they’re really, really aggressive, probably 2022, 2023. But that presumes that in 2022, 2023, the iPhone is still the big buzz thing where the 5G modem needs to go and I’m not sure that’s going to be the case.
Olivier Blanchard: Wait, hold on. What do you not think is the case, that there’ll be 5G iPhones?
Fred McClimans: Yes, there will be 5G iPhones probably ’22. I doubt ’21, but it’s possible. Could also roll into 2023. It depends on the iPhone development cycle and where the technology all goes. What I’m saying is when it actually occurs, when a 5G modem drops into an iPhone, I don’t think it’s going to be the big thing that we think it is. It would be a little swap out replacement here. I’m more interested in where else Apple deploys its 5G technology. Does it move aggressively into the watch? Do they move it into Siri in a home device? Do they move it into some other piece of consumer technology, or even into their automotive areas that could potentially make a lot more bang into the marketplace? So that’s all I’m saying. It’s keeping things in context.
Olivier Blanchard: Okay. Well I think, and I might be completely wrong about this. I think we start seeing dual sourcing of modems and iPhones in either 2022 or 2023. I don’t think that the flagship, the main new top end iPhone will have an Apple modem in 2022. I think that some of the lower ends, low to middle range iPhones price-wise, we’ll start seeing more dual sourcing at first. I think that we see the first high end iPhone with an Apple built modem in it, in 2024. And I don’t think that it’ll be a sole product. I think it’ll still be dual source with some models using the Apple modem and some models using the Qualcomm modem.
Fred McClimans: That’s an interesting one because for Apple, it’s going to be all about scale. In order to keep the costs down, you’d think they would want to go as broadly as possible. But you could be right. They could be looking at some risk mitigation here and maybe some supply chain cut over. And who knows what kind of a deal they have struck with Qualcomm in the background.
Olivier Blanchard: Exactly. All right guys, well I would love to keep talking about this, but we’re at almost 48 minutes. So let’s let our listeners get back to what they were doing. So that does it for this week’s edition of FTP.
Thank you to you both, and thanks to our listeners for listening and staying with us all this time. And don’t forget to hit that subscribe button and recommend us to your peers, friends, coworkers, and bosses, and catch us next week for another round of news and analysis around tech. Have a great week everybody.
And with that, I’m going to call this episode of the Futurum Tech podcast, FTP as we like to call it, a wrap. Shelly, Olivier, thank you very much. On behalf of Shelly, Olivier and Dan, I’d like to thank everybody that’s listening to today’s podcast. Please, if you have comments or feedback, let us know. Hit the subscribe button, share with your friends. Let us know what you’d like to hear about and we will be back next week with a new edition of FTP, The Futurum Tech Podcast.
Disclaimer: The Futurum Tech Podcast is for information and entertainment purposes only. Over the course of this podcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.
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