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Apple vs Microsoft: Valuation Battle Royale–Futurum Tech Podcast Episode 022
by Daniel Newman | December 7, 2018

On this episode of Futurum Tech Podcast, we’re talking about apples and oranges, or more appropriately, Apple and Microsoft, as both of these companies vie to be the most valuable company in the world. We’ll tell you why we think it might be one over the other. Plus, we’re diving into Qualcomm’s Snapdragon Summit and 5G. Plus, we’re going to talk about an iOS update for Outlook from Microsoft. We’re going to look at an industrial IoT risk from Trend Micro. We’re also going to talk about Australia’s new anti-encryption law, the challenges of Huawei, Facebook, and we’re going to take a look at when Apple might actually deliver on 5G. All this and more on this edition of the Futurum Tech Podcast.

Our Main Dive

Apple and Microsoft are atop the leader board when it comes to both product success and market capitalization, or valuation. We take a look at the pro’s and con’s of each, and layout our predictions on which we think has the right stuff long-term (and why LinkedIn is more important that you might think).

Our Fast Five

We dig into this week’s interesting and noteworthy news:

  • Trend Micro identifies some major security gaps in Industrial IoT (IIoT) protocols
  • Qualcomm’s new Snapdragon “platform” and 5G
  • Australia’s new “show us the data” anti-encryption legislation
  • Microsoft’s iOS update for Outlook
  • US taps Canada as a “trade” partner, seeking the extradition of the CFO of Chinese firm Huawei

Tech Bites

Facebook, with its “let’s bypass user consent to gather information” approach to trust and transparency.

Crystal Ball: Future-um Predictions and Guesses

When we we see Apple deliver a true 5G iPhone?

Transcript: 

Daniel Newman: Welcome to this week’s edition of Futurum Tech Podcast, FTP. I’m your host this week, Daniel Newman and I’m joined by Fred McClimans and our other normal Olivier Blanchard, maybe not so normal, but normal analyst on the show is away in wonderful Maui, Hawaii, enjoying the sun, the beach, the water, and the Snapdragon Summit where big news is being discussed around the future of 5G, but we’ll come back to that later. On this week’s show we are excited to talk a little bit about Apple and Microsoft along with a whole bunch of other topics and we’ll get there soon. But before we jump into the start of the show, Fred, how are you doing today?

Fred McClimans: I’m doing great, Dan. It’s a magnificent day in the world. I’m happy. Lot of good topics to talk about. There is so much news that’s going on this week. It’s almost difficult to kind of narrow it down to a main topic and our fast five.

Daniel Newman: We do have a lot to cover today and it’s interesting because over the past several weeks it seems like there’s just an endless, boundless amount of news. Some of it’s shocking, some of it’s exciting, some of it’s stunning.

We’re in a bit of the middle of a crazy stock market volatility swing even more so than it has been and maybe this is the appropriate time to say, although we will be talking about equities and stocks and companies that are publicly traded throughout this show, The Futurum Tech Podcast is by no means a financial advice show and we are not soliciting, recommending, or suggesting the purchase or sale of any equities whatsoever.

All right. Now that I got that out of the way, the main dive today is something that’s been a really big topic and I want to sort of do an apples oranges comparison in the sense of we, a lot of times, talk about two companies that are doing similar technologies and we’ll compare them, but over the last month there’s been this change of the guard as Apple went to $1 trillion in value and in the last couple of weeks they’ve fallen by nearly 20%. Meanwhile, in the past, I think about 10 days, Microsoft has surpassed Apple as the world’s most valuable company and then simultaneously for just a bleep in time, and I don’t think a lot of people even noticed that this happened, Amazon became the world’s most valuable company. And in order to get to where we are, a couple of different things had to happen.

First of all, neither Microsoft or Amazon came even close to that trillion-dollar valuation that Apple had once hit.

Fred McClimans: Right.

Daniel Newman: What really happened was both Microsoft and Amazon were able to maintain a closer valuation during this great volatility while Apple has seen a massive fall from grace. And this has had to do with a combination of the market itself correcting. And it’s also had to do with Apple having some challenging news. Less than ideal demand, uncertain suppliers. They’re facing the new products not being quite as popular as I think they had hoped and potentially something I at least believe, They maybe have found the edge of elasticity for the pricing on these new devices, these new premium devices. So all of this together has sort of led to a little bit of a spiral for Apple.

Meanwhile, Microsoft, and to a lesser extent, Amazon have been able to hold a little more steady. So for the main dive today though, Fred, what I kind of wanted to talk about was not so much just this swing in the stock, but from the standpoint of long term valuation, Apple is an iconic brand, potentially maybe the most iconic brand and a brand that has been extraordinarily well received by the market forever. Lot of their value has been created on ephemeral value, emotional ties that people have to the company.

Fred McClimans: The cult of Mac.

Daniel Newman: The cult of Mac. And it was founded in the era of Steve Jobs when their products were kind of arguably the best on the planet, at least the most innovative and also known for working better than anything else. Microsoft has sort of been the polar opposite, Fred. I mean Microsoft has been a company that, in the Steve Ballmer era, provided significant returns to shareholders, but realistically the company missed trend after trend. You talk about cloud, ERP, you talk about SAS and mobility, big data and analytics and BI, even hardware. They just kept missing.

But because of their billion users and their challenging licensing agreements, not to mention the fact that they are sort of the Kleenex of office productivity software, they were able to maintain strong profits, pay dividends to their shareholders, and kept people happy. But when Satya Nadella took over the company several years ago, the company was not in great shape. The markets were not fond of its direction. They did not feel that the company had the long term potential to certainly double in value over the period of just about four years after Satya took the helm. So the big question, and Fred I’m going to turn it over to you now, is do you think that this moment in time where Microsoft is now more valuable than Apple is just that? Is it a moment in time or are we onto a potential long term transition where companies like Microsoft, maybe Amazon and maybe others, have a real possibility of passing up Apple as the world’s most valuable company and staying there and maybe even building some separation?

Fred McClimans: It’s a big question to answer and I’m going to try and break that down into a couple of a smaller components here. First off, if we look at the fall of Apple recently. As you mentioned, some of that is the result of some earnings disappointments and in particular some forward looking projections for iPhone sales. And it’s important to note that the iPhone is still, you know, the overwhelming majority revenue driver for Apple. And it’s a bit of a problem for them. You know, in a way, you know, you can look at the market for mobile devices and we’re hitting saturation in that market. It’s increasingly difficult to find new buyers out there and it’s increasingly difficult as the price points increase. To your point about, you know, price elasticity, you know, people who are willing to spend, you know, an increasing, sometimes a substantially increasing amount of money on that two, three year upgrade cycle. We had been, you know, for the past decade or so.

Contrast that to Microsoft’s situation. You know, Microsoft right now is a company that, you know, coming out of the Ballmer era where Ballmer literally kept doubling down on the old model of technology, the old, you know, focus on the enterprise, you know, sell the software kind of approach. They have a completely up ended that and they have gone to a very aggressive subscription model for their products. They’re investing into areas that Apple, you know, simply cannot. And in fact, you know, it’s sort of an interesting comparison.

You talk about, you know, apples and oranges or Apples and Microsofts. You know, Microsoft in the Ballmer era looked a lot like, I hate to say this necessarily, but Oracle today with their challenges. They have… At that point they had a very difficult time transitioning and today Apple looks a lot like that model. You know, when you look at 30% or so of their revenue coming from iPhones, you know, that’s a one off purchase.

Apple is trying to aggressively move into the services space and, you know, get more revenue from the app store, more revenue from services, which is, you know, increasing. But you know, it’s still less than 25% of their total revenues. So, you know, I look at that, I look at the gross margins and this is a problem for Apple as well. Relying so heavily on devices, on hardware, in a very competitive market. Apple’s gross margins, they’re in the upper 30s. You know, compare that to Microsoft. That’s in the 60s range, I believe. That’s a big difference, a huge difference there.

And for that and a number of other reasons, I just look at the Microsoft business model and I say it’s much more complex than, Apple but I think the fundamental business model itself has longer legs than Apple does right now. And I don’t think Apple can continue to command the valuation, you know, that they have in the past.

So yeah, I do see Microsoft stepping up the game and you know, potentially taking that slot and I’m not sure that Amazon can catch them. And just so we’re all on the same level here. Apple that did pass a trillion, they’re back down into that 800 and you know, along with Microsoft and Amazon, $820 to $840 billion market cap. I don’t think any of these companies are going to hit a trillion dollars again anytime soon with sort of the global downturn, the prospect of a recession, and some of the indicators, you know, the bond inversions that we talked about in the past taking place. I just don’t see that. Especially with the trade situation with China.

Daniel Newman: I think you’ve made a lot of great points, Fred. I’m in the process of outlining an article for marketwatch.com and I’m actually sharing my thoughts with the investor community and the industry itself about why I think Microsoft might be a better long term buy. And I always think it’s important to point out stocks don’t move entirely based upon fundamentals and the valuation of these companies don’t move entirely based on their business performance. It’s a big part of it. And a tough earnings call can certainly drive your stock down just like a good earnings call can drive it up. But there’s a lot of nontechnical, in terms of financial, reasons why stocks move and Apple is always a little bit ahead of the market in terms of perceptions. But I do think that that sort of extra leniency that they’ve gotten for so long has dissipated a little bit in the past few quarters.

So really quickly, I just want to outline, I basically point out three reasons that I think Apple is vulnerable and then I’ll point out a couple of the reasons why I think Microsoft maybe has a chance to pull ahead. I think the vulnerabilities come down to one, they have an innovation problem. People have been waiting for Apple to come out with something that’s truly disruptive and the Apple Watch was the last thing they really came out with that was game changing I would say. And to some extent that hasn’t even been a great success. So that’s first. The second is the ongoing feud that Apple has with Qualcomm. This week at Snapdragon Summit, Apple released… I’m sorry. Qualcomm released their 855 basically the first 5G platform and modem. And Samsung is going to be putting that in a phone this year. And at this rate with Apple, depending on either Intel or building that capability in house, we’re looking at least one year behind Samsung, behind likely the Xiaomis, Googles.

So Apple’s falling further behind and I think people have been patient with that in the past. But I think again, you know, the leniency is starting to run out. And then the third thing is that their suppliers are nervous and you’re starting to read more about this. Their demand is down. So you basically have this perfect storm. You have an innovation problem, you have a technology problem, and now you have a demand problem. And that’s something Apple hasn’t historically had. They could put out a new product and people would buy it in cycles. They could put a new phone out every year and people would buy, but now they’re wanting $1,400 and $1,500 for a single device where they can get a comparable, if not equal or technologically superior product, for $500 to $1,000 less from others. And people are starting to say, “You know what? Maybe it’s not worth it.”

On the other hand, Microsoft has their own challenges, but they have some real opportunities. First of all, they don’t have the pressure that Apple has on them. They just don’t. You know, the market has not expected the grand innovation from Microsoft. Microsoft’s an enterprise company. Microsoft serves a billion plus monthly users with their technologies and their cloud and the recurring revenue businesses exploding. There are over 100 million users now of Office 365. you have a growing cloud business. When Satya Nadella took over, the cloud business was laughable. Azure now is the number two player and they’re the only player in the world that is gaining market share on Amazon’s AWS.

And the final thing with Microsoft that I really think is a strong argument for why they are going to continue to grow and potentially surpass Apple is that their hardware platforms are actually being well received in the market. I mean, Xbox has long been successful and gaming isn’t going anywhere, but the Surface line is quite popular. People like the Surface devices.

Fred McClimans: Yup.

Daniel Newman: People are trading in their Apple iPads for Surface Pros because they are more like having a MacBook Pro with the profile of an iPad, which is what people really wanted. And just one little forth caveat is I do think, and I’ve mentioned this in past articles in MarketWatch, Dynamics 365 which is Microsoft’s Salesforce competitor, is finally truly cloud enabled. And that is starting to be taken notice of by many companies and also by Salesforce and Marc Benioff who hasn’t had a competitor in a long time. So you see Apple’s got its challenges, Microsoft has its advantages. I obviously focused on Apple’s challenges and Microsoft’s advantages for the sake of this argument, but I think Microsoft is poised to potentially pull away.

Fred McClimans: Yeah, no, I think you’re right on that. The one caveat, I mean, the market is a fickle place and when you say pull away, we can look at that from a leadership perspective. Do people now start to look at Microsoft as sort of that benchmark for products, technology, innovation, and value in the equities market? That certainly, you know, it could be taking place, but you know, it’s worth pointing out. I mean you look at companies like Apple and Microsoft just on the comparison, they’re both sitting, you know, today around $814 billion in market cap. You know, Apple has a relatively low PE ratio. The price to earnings ratio, 1442 I believe. Microsoft on the other hand, they’re still up there in that 43 almost 44 PE ratio. And that does tend to scare a lot of investors off.

The other thing is, if we do start to trend more into a recession, Microsoft is just as much at risk, I believe, as Apple. You know, I mean putting aside sort of the discretionary spend requirement here, Microsoft, they’re still focused on the enterprise. And they’ve got some great gaming technologies and other things there, but they could certainly be impacted as well. But you know, just looking at the two, Apple right now does not have momentum. They’re starting to look a bit like they’re suffering from Facebook syndrome. And Microsoft does have momentum and I think that’s an important thing, both in the market and in their products and in the management and the leadership of the company.

Daniel Newman: Yeah. I think if Apple and Facebook took a step back, I think both of them could benefit from bringing Satya in. It’s just at this point, why would he leave? Yeah. I think there’s a leadership component that’s challenging both companies. You know, in short, Apple’s never been the same in the absence of Jobs and you mentioned Facebook, but obviously until they get their leadership situation sorted out that’s going to be a mess.

Fred McClimans: Yeah. Well you know, and hey-

Daniel Newman: For a long time.

Fred McClimans: Dan, let’s not forget as well, one of the big, you know, sort of the ace in the back pocket or ace up the sleeve that Microsoft has is LinkedIn. They spent a lot of money for LinkedIn, but I believe they got a tremendous amount of value in terms of explicit customer data, information on people in the enterprise that they’re selling to.

And you know, that resource there. I mean that’s a huge, huge thing for Microsoft that we see them starting to leverage in some areas. Apple has nothing that’s even close to comparable to that.

Daniel Newman: Yeah and I didn’t even really mention that and that’s another area. It’s almost off the radar because they do run them so well in separation. You don’t get a feel when you’re on LinkedIn at all that you’re dealing with a Microsoft company, so it’s easy to forget that, but it is a great data mine that they bought. It’s also was a high performing company before the acquisition and in the social media space, although many people don’t enjoy the social interactions on LinkedIn as much as perhaps other platforms. It was by far the most fundamentally sound business of all the social media platforms and their performances quarter after quarter proved it.

So Microsoft has that up their sleeve. Like you said, it’s like an ace in their pocket and it’ll be interesting to see. All right, we’ve got to transition on to our fast five, Fred. And you and I got to share the workload today. We don’t have the benefit of Olivier’s on a beach somewhere drinking a Mai Tai. Actually, I’m pretty sure it’s like 2:00 in the morning there. So he might be on a beach drinking a Mai Tai. You can do that at this time in Hawaii, but we’re going to cover the fast five and Fred, you’ve got a couple interesting topics starting off with something about Trend Micro.

You want to kick us off?

Fred McClimans: Yeah, so Trend Micro, a big cybersecurity company out there. They have a research organization that periodically dives pretty deep into specific topics. They have just published a report on industrial IoT and there were some findings in this particular report that I think should give enterprises a bit of pause right now. There are two protocols that are used commonly to communicate between IoT devices and computer systems, a machine to machine, MTM type of communication. The first is the MQTT. That’s the message queuing telemetry transport protocol, which is a standard messaging protocol, allows two devices or two end points to exchange data. And the other is the constrained application protocol or the coAP protocol. That’s a client server protocol.

It turns out that both of these protocols that are widely used are just inherently unsecure. There’s nothing that is actually baked into those protocols that are incredibly widely used that allows those systems themselves to encrypt their data. More importantly, a lot of these devices use open IP addresses to communicate between different systems, so they’re actually sending unsecured IP data that is discoverable out in the network. And for a lot of organizations, Trend Micro in their research is pointing out that significant volumes of discoverable unsecured data are being transported out there. And I think this kind of… It should give enterprises… They should take this as an opportunity to think, “what are we doing here?” And I think it’s also a good opportunity to kind of look into the value of edge computing systems and the ability to gather that unsecured data at the edge, secure it, do some initial processing, and then share it as needed through the system. An interesting note from Trend Micro here about the lack of security in industrial IoT.

Daniel Newman: Yeah. And I think that’s something to watch as more and more items and, you know, sensors are putting off data. How we’re going to secure that is a huge question. We’ve done a lot of research, Fred, ourselves. We actually just released that paper with HP and Intel on edge to cloud to edge, which really does cover the security issue and there’s some interesting data and that was in our last podcast. We teased that and hopefully you’ve had a chance to come download and check it out. But besides my little momentary commercial there… Because there is a ton of value in that paper. I’m not just advertising it for y’all to read. Please check it out. Let’s get onto the second one, which I’m going to cover here today and that’s the Snapdragon Summit.

So you heard me in the opening segment on the main dive talk about Samsung announcing the first 5G phones in 2019. Well Qualcomm announced their 855 Snapdragon series platform, which is essentially, it’s not just the chip, it’s not just a modem, it is a platform. It is going to enhance AI machine learning. It is going to improve sensors, 3D, GPS, uplink, downlink, download speeds. The platform itself is going to be made available to all the implementers that are leveraging and licensing and partnering through Qualcomm and their global manufacturing partners. And basically this means, and what it really is important that everyone takes note is, this means that very, very soon we are going to see 5G enabled devices in the marketplace. So while we’re hearing more from Verizons and AT&Ts about rollouts of the first generation of 5G networks, we’re going to start to have the devices that can truly support this.

And these devices not only are going to be better in 5G markets, and this is the really interesting part that a lot of people don’t understand and this is Apple’s dilemma, the devices that have this Snapdragon 855 and the 5G capabilities are also going to perform better in legacy 4G and 4G LTE markets. So this is really big news. This is sort of the, we have begun. So we’ve heard a lot, there’s been some fixed [inaudible 00:00:20:47], there’s been some specialized 5G inside of closed environments, but now it’s gone real. It’s gone live. And it’s something that people need to pay attention to. 2019 will be the year of 5G. So Fred, let me get back to you on the next one. Talk to me about what’s going on with Australia and some anti encryption laws.

Fred McClimans: Pretty much on a global scale, law enforcement for the last decade has been fighting this PR battle of sorts with technology companies, technology companies like Apple and others becoming increasingly secure in their device. Not just accessing the device but accessing the data that comes out of the device. And we’ve seen a number of messaging app, Telegram, Signal, WhatsApp, and others that have implemented incredibly tight encryption that is essentially blocking law enforcement from actually monitoring or, you know, digitally wiretapping communications. And in some instances we’ve seen some high profile cases. You know here in the US, a recent terrorist case about a year and a half ago where in San Bernardino they had the cell phone, an iPhone from person involved in an activity and they went to Apple and said, “Crack this for us. Open it.” And Apple said, “No, we’re not going to do it.” The FBI ultimately went to a third party and found a way to crack into it.

So in Australia… And Australia, by the way, is one of the Five Eyes intelligence sharing group. And Five Eyes, that’s E-Y-E-S. That’s Australia, the US, UK, Canada, and New Zealand where they have a fairly open intelligence gathering and sharing process set in place. Australia has recently just passed something called the Assistance and Access bill that allows the police to tell people like Apple or messaging, communications providers, “You must build a backdoor into your product.”

Now, the one caveat to that is they say you have to do that, but only if it doesn’t constitute what they call a systemic weakness in the service’s security or the device’s security. But nobody has defined what that is. And it’s really interesting here when you look at this kind of pressure, I think we’re going to see more of this on a global scale. But it starts to look a little bit like what people are afraid of China doing, getting backdoor access into technology in China. This is an interesting one to watch. It looks like it’s likely to become a law at the end of this year and it’s causing a lot of concern for a lot of people.

Daniel Newman: As it should. So really quick, and this fast five is actually really quick. Microsoft is announcing… So Microsoft’s been a star on this show, but they’ve announced a new Outlook update for iOS and for a lot of people using the iPhones, Outlook hasn’t really been a great option and for companies that require it just hasn’t been a very complete tool on the iOS platform or as much as people would like. So with their updates, the goal here really is that the new offering makes using Outlook on the iOS platform much friendlier, a much more complete product and so that people are used to using Outlook on computers, on their laptops, on their Surfaces, on their other PCs and Windows based machines are able to get a similar experience moving between the two platforms.

So onto the last of the fast five and this is the biggest one, almost main dive worthy topic. What the heck, Fred, is going on at Huawei?

Fred McClimans: Yeah, so it’s not so much Huawei, necessarily, as it is the United States and its ally Canada. So we know that Huawei has, along with ZTE, two Chinese firms have been sort of the focal point of a lot of attention in the US and Australia and the UK regarding the potential use of technology to monitor users or to steal corporate or state secrets through their devices. We also know that ZTE and Huawei have both been accused of bypassing or breaking the US imposed sanctions on technology trade with Iran. But we also have this larger piece of context out there that you know, Huawei, while it is, you know, the largest and sort of the premier flagship technology company in China, China and the US are caught up in this ongoing trade battle, which is much more than just, you know, deficits and trade.

It touches on a lot of things such as corporate secrets, IP theft, you know, the list goes on and on. The US just this week asked Canada to detain and arrest the CFO of Huawei. The CFO, she’s also the deputy chairwoman and the daughter of its founder, Wanzhou Meng. She has been taken into custody. There has been a gag order imposed at her request over details of this, but the US apparently intends to extradite her to the United States where some type of charges will be filed. This is sort of ratcheted up the battle against Huawei and the battle against China in the larger sense. Is it possible that this is just an issue of Iran and the trade sanctions there? Yeah, it’s certainly possible, but it also looks like it’s a bargaining chip in this US China battled back and forth over intellectual property and the trade situation.

It’s getting really ugly very quickly. It looks like it could derail… In fact, we’re seeing some impact, I believe in the markets today where it looks like it might derail or potentially disrupt the, you know, trade negotiations going on with China. Now the interesting thing in all of this is this could end up being nothing more than a transactional, you know, situation. Much like we had with ZTE where ZTE was, you know, frowned upon by the US intelligence community. You know, essentially saying, we do not want that technology in the United States. ZTE was accused of bypassing or breaking the sanctions, the US sanctions against technology transfer to Iran and they were busted on it and the United States shut down their access to US components for their products. But then after ZTE pays a nice little hefty fine, all of a sudden we kind of lift those again and we’re going to watch and see here. Is that something similar to to this situation? You know Huawei and ZTE, but the US has definitely just stepped up the level of conflict and order of magnitude with this.

Daniel Newman: Yeah, that’s a great assessment, Fred. And one other thing, by the way, Huawei had a not so good, very terrible bad day. They also face MI6, UK imposing that a, certain components from their 3G, 4G network continued to be removed that were Huawei related. And then also following the trends that took place here in the US and in Australia recently, they also removed Huawei as a potential vendor for their upcoming 5G infrastructure upgrades. So Huawei’s not only paying the price with some diplomacy, which again could become an issue ongoing in this whole trade battle, but they’re also facing being left out in the cold when they’re one of only a few infrastructure players that could really be part of any 5G infrastructure upgrades and they’re going to lose out on all this business because of this trust issue.

So we’ll have to dive into this more in a future episode, Fred. But I want to shift.

Fred McClimans: One quick thought on that, Dan.

Daniel Newman: Nope. Yeah. Okay.

Fred McClimans: Just this week Huawei passed Apple is the number two mobile phone provider globally, right behind Samsung.

Daniel Newman: And just imagine if they had the trust of the US, Australia, UK markets. These are some big economies that they’re not even playing in. Then if-

Fred McClimans: They would be crushing it.

Daniel Newman: They would be crushing it because Samsung, unlike Huawei, has access to all these markets and that’s what’s put them into that top spot. All right. Now let’s move on to tech bites. This is kind of a continuation of an ongoing topic we’ve talked about on the show and it’s Facebook and again they just can’t get out of their own way. It’s like every single time Facebook can make half a step of progress by diffusing some situation, it turns out either a new situation arises or you find out they’re completely full of crap.

In this case, it’s kind of the latter. So there’s been some ongoing probes going on with Facebook and if you don’t recall several months ago there was a big outcry from the market as people were finding out that in their permissions, if you were an Android user, you are basically allowing Facebook to collect your call data and SMS data.

So what you don’t realize, even when you weren’t in the app, if you were making calls or you were sending text messages, Facebook was able to collect that information. Well, it turns out that Facebook was very aware that there was going to be significant repercussions with this and not only that, but that the users would have to opt in through an upgrade in order for them to be able to do this.

Now in the early iterations of this upgrade path, Facebook believed that people were going to have to be made aware and manually opt in to allow for this Android call data to be shared. But their engineers actually discovered sort of a work around that wouldn’t require anything more than a typical upgrade to your Facebook account and all of a sudden that data would be made available to them. So all these internal memos have come out as part of a probe going on in the UK and people are able to read this disclosure that’s going on between employees at Facebook and how they basically knew what they were doing. They knew they were abusing people’s privacy. They knew that people would probably not be as happy to have to opt in to give all this data always, so they worked their way around it. And this is just one more just absolute black eye for Facebook.

They just can’t seem to get it right and I’m going to get back on my bandwagon. Sandberg, Zuckerberg out. If you’re a soccer fan, I’m a long term Arsenal fan for the last five years before they finally got rid of the coach, they had a hashtag called Wenger out. That was the coach. I’m saying Zuckerberg, Sandberg out. Those two are… My belief is they’re full of shit and they continue to be full of it. And you know there’s a public responsibility at this point, being a company of their size that manages the amount of data they manage, to be more respectful and have a culture that is less abusive to the way they treat data. And you know, like I said, they’ve gotten away with a lot. I think it’s time for them to go. What do you think, Fred?

Fred McClimans: You know, we talked about this a few weeks back. I guess probably about a month back. Zuckerberg and even just his role as the chairman of the company. I’ve long advocated for him being pulled from that spot and as somebody else being dropped in. This information here, it just kind of, you know, it’s salt on a wound and it’s unfortunate to see a company like Facebook go through this level of, you know, implosion perhaps. But you know, you look at these, the email trails here, you know? It’s pretty clear. It’s, “Hey guys, we have to do this. Oh wait, here’s a way we can bypass that and not tell anybody. Great, let’s do it.” And that kind of gets to the bigger issue here, which is just because we can do something with technology doesn’t mean we should do something with it. And I kind of view it as the difference between the laws of business, is it legal or not, versus the ethics of business. Should we be doing this?

And you know for a company like Facebook, they have over the past year and a half, two years, they have eroded whatever trust they had with their user base and it was always a bit perilous. People have never really trusted Facebook that much, but Facebook was able to leverage the shared trust that users had with other users in the system. But even now I think that’s… Unfortunately it’s fading fast and this is such a a black eye on the company upon another black eye upon another. That something has definitely has to change here.

Daniel Newman: And they do it all, Fred, in the name of better user experience. Listen to this comment from Facebook. It said, “We of course discussed the options of keeping, removing, or changing features we offer,” a representative said. “This specific feature allows people to opt into giving Facebook access to their call and text messaging logs in Facebook Life and Messenger on Android devices. We use this information to do things like make better suggestions for people to call in Messenger and ranking contact lists in Messenger and Facebook Lite.”

Fred McClimans: Translate that into business speak, “make more money because we know more about you.”

Daniel Newman: Yeah, it’s complete crap. And you know, it’s just disappointing because they have the opportunity to do the right thing moving forward. And this maybe is the most alarming thing of all is I’m not seeing any behavior change, right? So for Uber, for instance, they had to get rid of the cancer, you know? And the founder of Uber Kalanick, was that his name? Travis. I’m trying to make sure I get that name pronounced correctly. But the point was is there was a cancer in the culture of that company. He founded a great thing, built it to a certain point, but it was time for him to go. We’ll see if they make it through. As you said, Zuckerberg has had complete control as chairman and CEO for a long time. And it is possible and much like even Musk, you know, these leaders are not infallible.

And it doesn’t mean that they’re not great successes or can’t continue to be great successes. It’s just you take a company to a certain point and you’re no longer the right person. Even Jobs, who people remember him as the icon that did everything right, you know, he had a number of pretty massive failings during his time at Apple and needed… I to some extent credit a lot of his success to the transitional period, to the time that he was pushed out, to having to go and look from another perspective. I think it’s been a linear run and these runs cannot be linear. So it’s a leadership problem. It’s a cultural problem and we need the leadership of Facebook to change or I really do think that they are going to become vulnerable to change. Their user growth is already stagnating. People are frustrated with the product and I could see if something comes along, people moving away, especially given that these younger generations aren’t that into it to begin with.

Fred McClimans: Yeah. Well, you know, I gave my family the gift of a month of Facebook free Fred a while back. It’s been actually coming up on three months now that I have not been active on Facebook. Now I will return, but it’s with a different perspective on the company. And don’t forget this is a company that, you know, years back went out of their way to see if they could change user behavior and, in this particular instance, towards the aggressive side of things by changing the content in their feed. It was a bit of a social experiment that they did, you know, without telling anybody.

And you know, that just kinda set the tone for a number of things. And I think there’s a big lesson in here with Facebook for other companies and it doesn’t necessarily mean in the social space, but you know, any company today that’s gathering data, you’ve got to be transparent about it. Open from the very beginning. This constant, you know, one step deeper, you know, every week, every month with Facebook is killing them. And I think it’s only because of the sheer size of the company that they have been able to, you know, sustain their position where they are. For a lot of other companies, these types of disclosures would be devastating. And you know, maybe Zuckerberg stays as chairman and we bring in a new management team. You know, something has to change here though.

Daniel Newman: Well, I’m crossing my fingers. I think there’s a lot of value in the platform. It’s obviously changed a lot of our lives, our connections, our ability to stay in touch with people. I would like to see it work. I’m never one to seek failure for anybody, but at this point when you abuse people and treat them like an experiment, we’re not puppets. We may seem like it and we may act like it at times and we may be easily manipulated. And that in its core is sort of what media has always been all about is sort of getting people to act a certain way, but abusing elections, abusing people’s personal data for gain to the extreme in which Facebook has done it while not being clear in their intent or giving people the opportunity to understand what’s being done is abusive and something does need to change. And I’m interested in seeing what changed that may be.

So let’s come full circle here, Fred, and end with our crystal ball. It’s a little bit of an easier one, but we talked about Snapdragon Summit and we talked about the launch of 5G. We talked about the Apple Microsoft debacle or dilemma or challenge or whatever you want to call it in terms of who’s going to stay on top. But now we’re talking Apple and 5G. So Apple has got a supplier problem. They don’t have the capability. They’re falling behind on the technology, but the pressure mounting on them may push them to want to move faster, but maybe it won’t because they’ve never felt that pressure before. So very simple question, what year, what quarter do you foresee Apple coming to market with a 5G iPhone?

Fred McClimans: Well let me qualify that by saying I do not expect them to do that with a Qualcomm chip. It will be an Intel chip and Intel is having some heat issues in their 5G modem technology. That right there along with just the, you know, sort of laggard approach that Apple has taken to 5G so far, I’m going to say it’s Q4 of 2020 at the earliest. Possibly Q1 of 2021.

Daniel Newman: Yeah, I think you’re close. I was going to say Q3 of 2020 but that’s being somewhat optimistic. If they do not patch things up with Qualcomm and at this point based on the amount of heat and litigation that’s going on, I see almost no chance. But I will say, and not many people are saying this, but I don’t think if there’s enough financial gain at stake that any relationship is so fractured beyond repair. Meaning that if at some point, whether it’s through a leadership change, through a secret closed door meeting and a meeting of the minds, a fundamental management or strategy change, that those two companies couldn’t get back together and reopen a relationship.

I’m just saying like if I had to bet out of 100, I’d say it’s less than 1% right now, but any day that could change. But on the path they’re on, depending on Intel or depending on any sort of in house development, I think, Fred, Q3 of 2020 is the earliest. And you may very well be right that we are looking into 2021. so I want to wrap that up for this week’s edition of Futurum Tech Podcast. Great Show, great conversation, Fred. We missed Olivier. We always do, but-

Fred McClimans: We did indeed.

Daniel Newman: Bury the torch this week. Join us next week for another edition of Futurum Tech Podcast. We will be covering all that’s hot and some that’s not in the space of technology. We appreciate you listening. Click below, subscribe, stay with us. Join the community. We can’t wait to hear from you very soon. For Daniel Newman and Fred McClimans, Futurum Tech Podcast, we’re out. We’ll see you really soon.

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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About the Author

Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio