On this edition of the Futurum Tech Podcast, we take a look at Apple versus Qualcomm. It’s round 15 of the battle royale. Will it end any time soon? Plus, Facebook and Google’s latest data breaches, IMAX and the future of VR, Apple goes to Austin, and a really cool move to help people with disabilities work remotely. All this and more on this edition of the Futurum Tech Podcast.
Our Main Dive
Apple and Qualcomm are close to setting the record for ongoing litigation in the technology sector, but Qualcomm may have found a way to gain an edge after it convinced the courts in China to enforce Qualcomm’s patent claims through a ban on Apple’s iPhone.
Our Fast Five
We dig into this week’s interesting and noteworthy news:
- Facebook’s latest data breach
- Google’s latest data breach
- Apple moves to Austin
- Imax shutters its VR business
- A really cool technology to help people with disabilities work remotely
The US Congress, for its comical attempt to hold Google’s Sundar Pichai to account during a recent congressional hearing on data privacy.
Crystal Ball: Future-um Predictions and Guesses
How does the Apple vs Qualcomm litigation finally get resolved, and when?
Olivier Blanchard: Welcome to this week’s edition of FTP, the Futurum Tech Podcast. I’m Olivier Blanchard, Senior Analyst with Futurum Research, and joining me today are Dan Newman and Fred McClimans.
We’re all here today. How’re you guys doing?
Daniel Newman: Hey, I’m always excited to be here, and I’m always excited to have a full staff. One extra person, one extra comment. Last week’s show, which I don’t know if you listened to, it was a terrific show, I know it because I hosted it, but it was just Fred and I, and Olivier, we missed your very presence.
Olivier Blanchard: I know.
Daniel Newman: But pretty sure you were in Hawaii, so to some extent I think we were just resentful of your existence period and wished you had to be stuck on a podcast with us.
Olivier Blanchard: I had a good reason, I’m not complaining, but it’s the first time that I’ve missed a podcast since we started.
Fred McClimans: Well, it gave me the opportunity to say, “Aloha, Olivier.”
Olivier Blanchard: Nice. I’ll have to listen to it. Yeah, Hawaii was nice. It was my first time. I’m glad to be back, but I’m a little sad, too. It’s hard-
Daniel Newman: Did you have any island fever, Olivier? Because I tell you, when I left I did get a little of that island fever.
Olivier Blanchard: Yeah. Well, I was supposed to leave on Friday and ended up staying an extra almost two days, which was out of my control, so that was kind of like… I got a little bit more of the islands than I meant to. So, a lot of that fever was mitigated, but I have to admit that I miss… I came back to winter and snow and rain even though I’m in South Carolina, so it’s not as bad as it is up north, but going in 24 hours from island paradise to the winter on the mainland, and not have the constant Hawaiian music playing on the intercoms everywhere, it’s a little depressing.
Fred McClimans: You’re going through Don Ho withdrawal?
Olivier Blanchard: Yes, I am. I am. Okay, let’s get started. So, we are here to actually talk about business and technology today. We’re going to start today’s show with a discussion about the iPhone ban in China. There’s a lot of misinformation, a lot of confusion about what it is and what it isn’t, so we’re going to try to shed some light on that today.
We’re also going to share our favorite tech news of the week in our Fast Five Segments, followed by Tech Bites, in which we highlight one of the biggest tech-related fails of the week, and there are always many to choose from, and we will end the show as usual with our Crystal Ball.
But, as always, before we begin, 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.
Okay. So, now that this is out of the way, let’s talk about this iPhone ban in China. Typically, when I host the show, I kind of introduce the topic, and I immediately hand it off to my co-hosts, so that I don’t monologue for five hours, but because I’ve done the most research on this, this one time I will make an exception. So, let me give you the fundamentals of what’s going on, and then I’ll put it to you guys, if you have any questions or comments or speculation that you want to share with the class, we’ll just go with that.
So, what happened this week is a court in China, and I have it highlighted here, the Fuzhou Intermediate People’s Court, which is actually a high court even though it doesn’t sound like it, ruled in favor of Qualcomm in really two of several dozen instances of patent infringement complaints that Qualcomm has filed across China against Apple.
Essentially, Qualcomm asserts that Apple is infringing on a lot of their patents with iPhones. And the injunctive relief that Qualcomm was seeking in this particular case, actually two cases that were joined together, was an import ban of the iPhone 6S through the iPhone 10, or the iPhone X, and also a sales ban of those same models throughout China. The two patents that Qualcomm alleges are being infringed on by Apple, and which the court seems to have ample evidence or enough evidence to issue this ruling, involve number one, the editing and resizing of photos on your phone, and two, the navigation and interface with a touchscreen of a user with apps on their phone. So, these are pretty fundamental, they’re not minor features, they’re pretty fundamental features that every iPhone and smartphone user uses.
In this particular case, what happened is there’s already been a trial, and now we’re just… Essentially, everybody is waiting for the final verdict. And so, there’s a time period between the end of the trial and the issuing of the verdicts, and what’s happened is the court had felt that the evidence was so compelling against Apple that it issued a preliminary injunction, or PI, that essentially kind of pre-empts the verdict and sides with Qualcomm, it says Apple cannot import or sell any of these iPhones, so from the 6S to the X, until the verdict.
So, it’s looking pretty bad right now for Apple, because if there was enough evidence against Apple to warrant this injunction, the verdict will probably reflect the same evidence when it does come. Right now there is no set date for that verdict to come, so this ban is indefinite. It’s temporary in quotations only, and Apple cannot appeal it because it’s not a verdict. There is no appeal process for preliminary injunction. They will be able to appeal it, however, if and when the final verdict actually comes, but for right now there’s no recourse for Apple, the ban is in effect, period.
With that, let me hand it off to… let’s say, Fred. If you have a question or a comment or something that you’ve seen in the press that you want to have some clarification on, now would be a good time to bring it up.
Fred McClimans: Yes, I’ll rely upon your deep expertise in this area. This is… fundamentally, it’s part of this larger antagonistic relationship that Apple and Qualcomm have had for some time here. I think what’s a little bit interesting here is that when you think of Apple-Qualcomm litigation, I think just because of who Qualcomm is, you automatically think hardware. In this particular instance here, it seems like it’s much more software-oriented. In fact, Apple has volunteered up that they have a software fix, that iOS 12 kind of fixes whatever issues they have here, but my understanding and from what I’m hearing from you as well, is that that’s not really the case, that this actually could be significantly detrimental to Apple, given the size of the Chinese market and how reliant Apple is on that revenue and that expansion, especially considering that they have not done well in some of the other global markets, in India for example there. But if this is a software fix, I’d love to see Apple proceed quickly with that, but given that this is an injunction that is still awaiting the final ruling here, I think that might be a little bit of a challenge for them.
Olivier Blanchard: Yeah. I’ve seen a lot of that, and I guess the PR line today since… Given all the headlines that I’ve seen about this iOS 12 fix that’s supposed to be coming, I just want to point out that the preliminary injunction, the PI, makes no mention of iOS 11 or iOS 12. The ban only mentions the models regardless, irrespective of the iOS. The notion that somehow the ban only affects iOS 11 phones is false. It’s a false assertion. There’s no basis in reality for that. Two, if somehow iOS 12 does provide a fix or some kind of remedy to get around these patents, it’s still incumbent on Apple to go the court and prove to the court that they’ve actually provided a way around the patent infringement through iOS 12, before the court will agree to essentially exempt these new phones from the PI. It won’t remove the preliminary injunction, but there’s a chance that the phones might be exempt, but Apple has to be able to prove this.
Evidently, as I understand it, Qualcomm was fairly quick to purchase some iPhones in China, which evidently Apple is in violation of the court order, they’re still selling these iPhones in China today. Lo and behold, they unboxed a few of them that they purchased, and they were iOS 12 phones. Those phones, even though they were iOS 12.0.1 to be precise, still had the same features that are supposed to be at the heart of this ban. So, if Apple does in fact have an iOS 12 fix in the future, not currently, it’s going to be up to them to prove to the court that it fixes this before they can start selling them again. I don’t see this happening next week, or the week after that, or anytime soon.
Fred McClimans: It’s certainly possible, though, that Apple addresses the underlying issue but still has the same features, function, and so forth that they have. So, actually verifying this, I mean, it’s going to be difficult enough for Qualcomm to verify, I’m not sure how Apple would actually approach.
Olivier Blanchard: It’s actually not. It’s incumbent on Qualcomm to prove to the court that Apple is violating the preliminary order or preliminary injunction, in order to get the court to actually enforce it. Right now, they just issued a ruling, and then they just kind of walk away from it. So, now Qualcomm has to tell the court, “Hey, look. This is the evidence that Apple is actually breaking your court order, do something about it.” That’s Qualcomm’s responsibility. But the responsibility to prove whether or not iOS 12, some version of iOS 12, solves this issue, is 100% on Apple’s shoulders. Until Apple manages to do this, this PI will not be lifted, and no iPhone 6S through 8, regardless of whatever fix, imaginary or real, they may bring to the equation, will still be banned in China.
Daniel Newman: So, two points, one is, Olivier, I understand that you said it’s 6 through 8, but isn’t the 10 also involved?
Olivier Blanchard: I’m sorry, I’m sorry. Yeah, 6 through 10.
Daniel Newman: Okay. I just wanted to make sure and clarify that.
Olivier Blanchard: My bad.
Daniel Newman: No, I know you’ve been literally living inside of the briefings on this and getting totally up to speed and reading up on this, but the other question I have is, you said the technical capabilities that have been ruled in this case are particularly specific but regularly used. Right?
Olivier Blanchard: Yep.
Daniel Newman: Modifying the size and appearance of photos on a user device, that’s something that pretty much people do every day in a number of applications. Now again, I’m not looking at the patent and I’m not a patent attorney. The other one is managing and how you navigate through applications on your touchscreen. I don’t understand, if these are patents that they’re in violation of, how a software upgrade is going to give them a workaround of these patents. This isn’t like there’s a button that was a quarter inch by an eighth inch that’s used to up the volume, and we’re going to change it to a half by an eighth in order to not be-
Olivier Blanchard: It’s not like that.
Daniel Newman: These are very specific usability patents that don’t have a lot of flexibility. So, like you said, even if they do unbox every phone, upgrade them to 12s or take the iOS 11 off, put 12s on the shelf with a software upgrade, how in the world are you going to redesign the operating system to circumvent these patents? Is that just fodder? I just don’t understand it.
Fred McClimans: At the same time Olivier, with that, why are other smartphone manufacturers not subject to this as well?
Daniel Newman: Because they’re paying for it.
Olivier Blanchard: That’s right. Yeah, that’s exactly right. So, the other smartphone manufacturers are paying royalties, they’re paying for the right to use these patents. Here’s the issue, Qualcomm has always allowed Apple to use its patents, because for some time… And actually technically it’s not really Apple, it’s Apple’s contract manufacturers. So, Apple uses its contract manufacturers in China as proxies for these royalty payments and to be licensees.
But the problem is that Apple has essentially ordered its licensees to no longer pay licensing fees and royalties to Qualcomm. And so, Apple in conjunction with these contractor manufacturers is essentially in breach of contract, and they’re no longer licensees in good faith. If Apple and the contract manufacturers would pay what they owe to Qualcomm for the right to use these technologies, there would be no problem. The problem is that they’re using them without paying for them.
Fred McClimans: And do we know what that payment is?
Olivier Blanchard: Specifically, it’s a patent portfolio issue, so the way that Qualcomm licenses its technology is in its IP, is through, basically, access different portfolios. You have standard essential patents and non-essential patents. These are non-essential patents, and so, you have to pay for those.
As to actual cost per phone, I don’t know.
Daniel Newman: I think we’ve talked about that, though, right? There was an exact number that went out there, but it’s somewhere around what, 14, 18… I know the numbers vary depending on the exact model, and then-
Olivier Blanchard: Well, actually, that’s for the standard essential patents
Daniel Newman: Plus, right. But what I was saying is there’s actually a formula for the SAPs plus the additional IP that they’re using, per device, that they were paying for. It’s in the billions now. I believe that Apple-
Olivier Blanchard: Yeah, they stopped payments over a year ago so it’s accumulated to the billions, but per phone it’s a few cents, it’s not a big deal. It’s something that Apple can afford, in other words.
Daniel Newman: Olivier, on October 28, so this is a little while ago now, but this is the last update, they said that Qualcomm claims 7 billion is what the unpaid is.
Olivier Blanchard: Yeah. That’s about right.
Daniel Newman: It’s a large number.
Fred McClimans: Look at that number, though. Since Apple’s peak, they have dropped from a 1.1 trillion market cap to, believe they’re down now under 800 billion, to 791 billion today. They’ve had about a 15% drop in their valuation.
At some point, you just have to look at the numbers here and say, “Pay the money. Just take care of this. Put it aside. It’s not worth the headache,” especially with some of the financial analysts out there now cutting again projections on the 10R or the XR phones. This is looking pretty ugly from a market perspective.
Olivier Blanchard: What’s sad about this is that everybody suffers from this. Qualcomm isn’t getting paid, so that sucks. Apple, because it’s now not using Qualcomm technologies, especially Qualcomm modems, which are pretty fast, they’re the fastest in the market right now, because of this dispute, I think it’s hurting the quality of iPhones, and it’s in turn hurting the sales of iPhones. So, Apple is kind of shooting itself in the foot with this, and creating a lot more friction against itself than is required, and then users suffer, because when they buy iPhones, they’re not necessarily getting the high performance that you find in premium flagship Androids now, that Qualcomm supplies.
So, there’s no winner in this, and I don’t really understand at this point why Apple continues to behave this way when it doesn’t have to. Everything that I read about this, and every conversation I’ve had, I think Qualcomm would be happy to come to the negotiating table and just work this out and put an end to all of this.
Daniel Newman: I think the winner is Samsung right now. They’ve had their own share of faux pas, those exploding phones and whatnot. You were in Hawaii for the Snapdragon Summit, so you were actually with Qualcomm getting debriefed, not on this, but on the 5G modem that they’re releasing, and Samsung’s going to be first to market in the U.S. with a 5G phone. Now, this is no stranger to Apple’s story about coming as a late implementer of new technologies, but I do think falling behind in 5G as opposed to iterative 4G and LTE is going to have a bigger impact on the brand’s perception, especially because the devices themselves are no longer seen innovative as they once were.
You can read my ongoing commentary on MarketWatch about why I think Microsoft will surpass Apple long term, and although they’re not directly competitive and they’re not in any sort of lawsuits with each other, I basically said it’s not so much… they’re not even comparative in most ways, except maybe the Surface and the iPads and stuff, and the MacBook, but in most ways, I’m just saying because Apple’s business models have just fundamentally gone off-course to what the market wants and expects, so now you’re really isolated to just those sort of fans. It no longer has that identity, though, as something everyone wants, as it once did. It’s still a strong brand, it’s still going to be successful, they’re still going to make profits and make money, and I think their demise is greatly exaggerated at times. They’re just not what they were, and I think that’s the thing that the market needs to start to accept, and that’s why I think they’re going to get passed.
Olivier Blanchard: All right, so we have to move on because we could talk about this all day, and it’s a very complicated issue, so we literally could be talking about this all day and only cut to the surface, but I just want to point out that this is… These two cases, which are kind of merged into one, are only kind of like the tip of the iceberg.
There’s dozens of these cases still ongoing in China. There are going to be more of these on the way in the next few months. There’s also plenty of patent litigation between Qualcomm and Apple that looks a lot like this in Germany.
Actually, there’s supposed to be one decision coming up on January 20th in one of the German courts, so we might be going through this again, and it’s possible that some iPhones may be banned in Germany, which is also a huge market for Apple.
There are also cases before the ITC, the International Trade Commission, so these are in the US. So, this is part of a much broader litigation battle that spans several continents. And just to give you an idea, China, a lot of people may not realize this, but China is Apple’s either second or third, depending on which numbers you look at, biggest market for iPhones in the world after North America. Basically, it’s North America, and then China and Western Europe are kind of neck and neck for iPhone sales.
So, this is a big deal. A lot of the people don’t realize how many iPhones are actually sold in China, but it’s about… This ban could potentially impact almost 20% of global iPhone sales. So, it’s a very big deal, and I understand why Apple is trying to pretend that it’s not happening, and that even if it is happening, it’s not a big deal. I would probably be doing the same thing too.
Okay. So, that’s it for this issue. Let’s move to our Fast Five. So, Dan, what is your first Fast Five for us this week?
Daniel Newman: One story on the maybe less than satisfied VR space in the market. One of my predictions, when I did top digital transformation trends, is that continued proliferation of AR but VR continuing to stagnate. Well, one big player, as in IMAX, made the decision to close its remaining three VR centers in Q1 of 2019. Obviously, IMAX being a serious player in the future of the way entertainment is consumed, they revolutionized it over the last couple of decades, and them getting out of it is either A, a determinant that the market doesn’t want it as bad as they thought, they don’t see opportunity to monetize it. But it was something that they’d gotten into in a big way, but in their SEC filing they basically said they’re closing them down and they’re going to write off a significant number of “certain VR content investments,” so content and experiences in environments, IMAX getting out of it. To me, it’s just one more sort of black eye for VR, which I do think will still have its day, but just not yet.
Fred McClimans: Tomorrow.
Olivier Blanchard: All right, Fred-
Daniel Newman: A few years.
Olivier Blanchard: What’s up in your world?
Fred McClimans: So, Facebook. We were talking about apps, earlier, a bit, with Qualcomm. Facebook, if they had a theme song it would be Britney Spears, Oops I Did It Again. They have disclosed that, due to what they say is an API issue, there was a period of about 12 days where app developers, and we’re not talking about a couple of developers here, we’re talking over 800 developers, that have over 1,500 apps through Facebook, may have inadvertently been given access to private photos that users may have uploaded up to Facebook but not yet posted publicly. Yeah. So, it looks like this impacts about 6.8 million users, with the potential… So, anything that you thought, “Hey, I’ll just load it to Facebook and not make it public, and just share it with my close friends and family.” Nope, sorry. Those may have all been exposed here.
This is an interesting one, because it highlights again the challenges of such a complex software ecosystem, and managing the APIs, from a technical perspective here. It also kind of builds on Facebook’s ongoing issues with just managing the whole ecosystem, going back to Cambridge Analytica, and “Well, we didn’t think this but maybe that.”
It just kind of piles onto Facebook, and it’s not a good thing at all. Even people that had photos marked private… Yeah. So, here’s the remedy, this is the best part, Facebook has gone out to those developers, the 867 of them… I’m sorry, 876, and said, “Hey, would you mind checking to see if you actually had access to personal photographs, and if you did, please delete them.”
Olivier Blanchard: Well good, I’m glad they’re on it. That sounds like a good fix.
My story this week, since I only have one, as the host, is a story of hope, and a really cool use of technology for once. It’s something that I’m pretty sure is going to be at least mentioned in our upcoming book about the future of human-machine partnerships. So, we talk about how automation is going to take away all of our jobs, and we make the argument in the book that human augmentation is actually a much bigger and better opportunity than human replacements by machines.
I found a story this week that’s pretty remarkable. This Japanese café is using robots to… well, remote-controlled robots, let’s qualify that, to allow people with handicaps to work as waiters in this café. So, essentially, if you have ALS or some kind of disability that doesn’t enable you to physically work as a waiter, you can work from home, and from your bed even, and control the robot remotely, and essentially be a waiter by proxy.
I think it’s pretty amazing. There’s a startup called Ory that develops robotics for disabled people that’s partly behind this. And so, this notion that people with disabilities can use remote control, and robots, and AI to be productive in society and actually earn a living, and create cool, interesting experiences for customers of a café or a restaurant, or any kind of retail outlet, I think is a really cool use case, and something that I hope we’ll see a lot more of.
Olivier Blanchard: All right, Dan, what’s yours?
Daniel Newman: So, Apple, got to come back to them, not a negative, possible positive. So, planning a billion-dollar new Austin, Texas campus. Austin, awesome city, great place, home of Dell, place we regularly visit, a place I will be visiting next week. Little did most people know that Apple has been in Austin for quite a long time, I believe since 1992. Started with a hundred people, now they have 6,200 people there, but they are expanding in a big, big way which will add thousands more jobs. Now, beyond this, they are also looking at setting up shop, it says, in potentially Seattle, San Diego, and Culver City. Interestingly, in the article it points out Seattle, home to Microsoft and Amazon, San Diego, home to chipmaker Qualcomm. So, kind of interesting market selections.
There’s also rumor that Apple is planning on expanding its operations in Pittsburgh, New York, Boston, Portland, Boulder. I’m fascinated by this. I don’t really understand it. I don’t know why they would need this many locations. I can understand a second HQ type of concept. I admire that they didn’t make a spectacle of it like Amazon, because that drove me bonkers. But overall, there’s a lot of market people saying that Apple, maybe we’ve had peak Apple, maybe Apple is stalled, our long monologue and conversation to start this talks about all of the challenges and woes, but this is pretty bullish. When you’re sitting on a multi-hundred billion-dollar war chest you can take some risks and maybe that’s what they are doing now. Maybe they’ve got something up their sleeve that nobody is expecting. So, I’ll give them a thumb just turned north of neutral on this one. We’ll wait and see what happens from it.
Olivier Blanchard: Give them the benefit of the doubt, yeah. See if it’s actually going to happen.
Yeah, I’ve been kind of curious about this, because since, essentially, at least all their device sales are either down or flat, and the only thing that appears to be growing and doing well are services, I’m not really sure what all of these new people will be doing. Unless they’re manufacturing facilities, which would be great, but I don’t think that’s what we’re talking about, so, yeah, wait and see.
All right, Fred, close us out.
Fred McClimans: Yes, yes.
Olivier Blanchard: The last Fast Five.
Fred McClimans: Yes. A quick Fast Five here before we dig into our Tech Bites segment. Should be interesting. I’m going to kind of lead into that with Google and Google Plus. Now, as we’ve spoken about in the past, in October of this year, Google announced or disclosed that they had a security breach of the Google Plus platform, that disclosed personal financial information and whatnot on about 500,000 Google Plus users. At that time, they indicated, “Look, we’re going to wind Google Plus down,” which is kind of like taking the population zero sign off of a ghost town. But their plan was to wind Google Plus down in August of 2019.
Well, this week they have disclosed that they had another breach. They can’t tell exactly how much information may have been taken as a result of this, but they do say that about 52.5 million users had their personal private profile information made available to third party apps. With that they have announced that they will be shuttering Google Plus a bit sooner, we’re expecting that early in Q1, and on the heels of that, the state of Rhode Island, actually the Employees’ Retirement System of Rhode Island, ERSRI? I’ll take a stab at that. It’s one of the Rhode Island investment funds, they have actually sued Google in a California court, accusing them of misleading shareholders and regulators about these ongoing breaches with Google Plus. So, if there was any more reason to just kind of finally put a nail in Google Plus, I think this is it.
Daniel Newman: That’s the one, Fred, that’s what it took, not that nobody has used it like a decade?
Fred McClimans: Like I said, this is like taking down that population zero sign off of a ghost town.
Olivier Blanchard: Yeah, it’s like spiking a zombie in the head.
Daniel Newman: I think I used MySpace more recently than Google Plus.
Olivier Blanchard: Hey, I heard it’s good again.
All right, anyway, so, let’s switch to our Tech Bites of the week. Again, it’s always a challenge to pick the worst tech story, because there are always so many, and we really try very hard to not make Facebook the feature of our Tech Bites every week. This week, actually, no tech company is at the top of our list. Instead, even though the story involves Google, our Tech Bites this week goes to our U.S. lawmakers.
So, in case you missed it, Google’s CEO, Sundar Pichai, was called to testify on Capitol Hill earlier this week. Sorry, I can’t stop laughing at this. Because congressional… yeah, so, some of our lawmakers were concerned that Google’s search algorithm was biased against conservative news outlets and conservative figures. And so, they had questions for Google regarding possible bias or political bias in search results. God bless them. Sundar was up there to explain what Google does and what Google doesn’t do, and how the algorithms work, and how Google searches work, and how all of the different elements that go into it kind of create this mostly automated index of what is relevant to a particular user when that user does a search and what is less relevant, and how that’s graded.
But the questions being asked by some of these lawmakers were both hilarious and terrifying, because it showed the extent to which they don’t understand how the internet works, how smartphones work, how search works, how technology works in general. My only commentary here, and I invite anyone who’s listening to this and who hasn’t really had the chance to kind of look at this, there are videos of these hearings on the internet and on C-SPAN. If you can catch them, I recommend you spend five minutes watching them, because they’re definitely enlightening and also kind of funny.
But what I want to highlight here is the fact that it’s a little bit frustrating and dangerous for our own lawmakers, so people who will decide laws regarding the use of technology, the limitations of technology, even mergers and acquisitions within the technology sector, that they don’t really understand how basic technologies work. They don’t understand that the iPhone is made by Apple and not Google, which is a point that had to be re-explained during the hearings. They don’t understand how search algorithms work. And I think it’s time, when we consider political candidates or candidates for political office, that we consider tech, or technology literacy, as part of the requirements, that we look beyond just the political platforms and ideology, and taxation, and issues of international trade and whatnot, and that we also demand or at least ensure that the people that we put in charge of making these decisions and writing these laws have a basic understanding of the technologies.
Fred McClimans: Yeah-
Daniel Newman: Yeah, so…I get this one, Fred.
Fred McClimans: Go ahead.
Daniel Newman: I think it’s massively scary to me that there are no staffers on these politicians, because I could understand that someone that leads a company, it’s like, I can’t know everything. I have to depend on the team to keep you briefed, I mean, the… Which was the Senator that was asking, or the congressman that was asking the Google guy about his iPhones? Which one was it?
Fred McClimans: King.
Daniel Newman: So, I mean, clearly, not knowing that Google doesn’t make the iPhone shows a little disconnect from the world, because that’s just hard not to know. Some of the details like, so how algorithms work. Well, of course it’s going to be biased, because if you look at the users of technology, there is actual bias towards more liberal and democratic users abundantly utilizing technologies in a lot of these, especially in districts, because you have localized search, so you have search that’s impacted by local, you have search that’s impacted by topic, you have search impacted by age. And so, if you look at things like youthful people tending to use the technology more, in more volume, and search in greater volume, you actually create this natural flow of algorithmic activity that’s going to lead to certain biases in search just by behavior.
The point is, is you can agree and disagree with me on this, but in order for them to understand how that works, they would probably need someone to actually kind of explain the depth of how an algorithm is created, how machine learning actually works, how this stuff gets created to an economy of scale as such that it could create bias, because it actually happens through learning. It was like, how did that Microsoft bot become biased in seven seconds? Well, the people on Twitter, there’s a lot of people hanging out with nothing to do but become trolls. So, they’re the first people that see everything are the internet trolls, and they actually have the time and opportunity to do this to that bot.
So, my point is, ignorance. We have this massive ignorance, but Olivier, I have no idea how we are actually going to solve this problem, because we are so far off the reservation in Washington right now that we’re like six to ten elections away from having a more technologically versed majority in Congress.
Olivier Blanchard: After these midterms, perhaps now there is definitely a younger wave of politicians going to, or representatives going to the House of Representatives, but what I would say though, is, what’s fascinating to me is, a lot of the questions that these congressmen had could have been answered pre-emptively by doing a Google search.
It appears that not only do they not understand what Google is and how Google operates, they also don’t know how to use Google, which is a pretty basic thing for anyone who has a computer in their office, or a phone in their pocket. That to me is… Aside from having staffers kind of brief them and give them tidbits of information and guidance on this, how hard is it to get on your computer and just do a Google search on how does Google do algorithms? How does this work? What’s a pop-up? They could’ve come prepared, and apparently they didn’t feel like they needed to or they didn’t think to use Google in their preparation, which is odd if you’re having a hearing about Google searches, that you wouldn’t yourself try to find answers using Google.
Fred McClimans: Yeah. Maybe, as Dan kind of implied earlier, it’s something that starts with every congressman having a tech staffer, somebody that’s just there to help them understand the technology, just as somebody would help them understand regulations in particular industries, trade, and so forth. Some of the questions, you’re right. Congressman King asking why his granddaughter would see an advertisement with a picture of him and some derogatory comments while she’s playing a game on an iPhone, yeah, I mean, clearly there’s a disconnect in just the basic understanding of how technology works there.
I think part of it, even bigger, is that we’ve become so polarized that this kind of an issue becomes sort of a flashpoint or a rallying cry about bias in technology. And I think, to Dan’s point, if you look at the users, people who are actually out there doing Google searches and clicking on links and impacting what the search engine is learning and what it’s presenting back to other people, yeah, if you’ve got half your country Googling the phrase idiot and a particular politician, that’s going to impact the search results that other people get in the system.
So, there’s a bit of bias there, perhaps, in the U.S. population reflecting this. I thought one of the great comments that came out was from another congressman on the Democrat side, challenging the Republicans, saying, “Look,” I think the direct quote here is from Ted Lieu, “If you’re getting negative search results, stop doing negative things. Don’t blame Google for that.” But it’s a very deep issue.
Personally, I was kind of expecting some of these less than informed questions, simply because that’s how just about every tech hearing has played out. But I will say I was a little disappointed in the lack of transparency, or the lack of explanation that Sundar offered to some of the questions. He literally sidestepped some huge issues with regard to the search engine in China and the developments that have been going on there. This was a really good opportunity to kind of dig in and understand the challenges that we face, and instead it became somewhat comical, unfortunately.
Olivier Blanchard: Yeah, the answers were not always entirely clear, but that will be a topic for another day.
So, that’s it for our Tech Bites section, I think. So, let’s move on to the final chapter in today’s podcast, our Crystal Ball. We still have a sound effect for it. So, my crystal ball circles back, as it often does, to the original story today, or main topic, Qualcomm and Apple. The question I want to put to you guys is, if you consult your crystal ball, how do you see this Qualcomm versus Apple dispute ending, or going, rather? Does it go on forever? Do these two companies continue to beat on each other for the next decade, or next few years, anyway? Or do they come to a resolution, some kind of settlement, some kind of amicable or semi-amicable ending in the near future, say in the next 6 to 18 months? What say you, Fred?
Fred McClimans: Well, the easiest answer to all of this, I think, would be for Apple to simply acquire Qualcomm. Qualcomm’s got a 61-
Olivier Blanchard: It’s not going to happen.
Fred McClimans: Oh, I know, I’m just… That would be the easiest resolution, here. Just grab them and be done with all of this. Do I think that they will resolve their issues within the next 12 months? This kind of injunction here, this definitely could put a hurt on Apple and force them to the table, but barring that, no. I think this is two companies that, while they co-operate in some areas, they’re enemies, the frenemies kind of situation here. I’m actually a little more than disappointed in the lack of operational focus that Apple has delivered to this. I would have expected Cook, being an operations guy, clearly Apple is not that innovation engine any longer, but I would have expected this type of an issue to be something that they would have found a resolution for. And the fact that they haven’t indicates to me that 12 months out, I think Apple and Qualcomm are still duking it out in court. 24 months out, probably still duking it out in court. 36? Probably.
Olivier Blanchard: Yeah. What do you think, Dan?
Daniel Newman: Oh, gosh. Well, I think, first of all, everything you read you have to take with a bit of a grain of salt. I think it’s a little bit on all sides. If you can read anything, read our commentary, because to your credit, Olivier, I think you do a great job of digging in.
But I think Apple made comments in court about how if an injunction was to ever take place in China, they were going to be forced to settle, which would be totally unfair to them. Here we are, no settlement, no settlement being aspired to that anyone is aware of at this point.
So, looking out into the future, I think Fred’s on the right track. There’s so many cases, there would have to be such a massive breakthrough in one of these cases that almost takes one of these companies to their knees, to get them to come to the table. I think frenemy is no longer the word. I just think they’re just straight-up enemies. It’s animosity at this point. It’s business animosity and everyone can do anything in the name of “It’s just business,” but like you said, Olivier, there’s no winners here. Nobody is winning with this thing. However, I think everybody’s digging in.
They’re digging their feet in, and they’re going to see this thing through. I think both companies believe they’re right. I think there’s a lot of argument to be said that one of them is definitely wrong, and if you read our commentary you’ll kind of know where we stand on that.
All in all, I don’t think it gets settled in two years. I think the only way it gets settled is if a court passes a ruling that forces it to be settled. And the way these two companies swing with their humongous legal budgets, I just see it being dragged out in our court systems here, and nowhere else in the world moves fast enough to get this done in the next 24 months.
Fred McClimans: The interesting thing here, just sort of a side question, if we look at the venue in China, I think that you have to at least ask the question, is there a bit of influence on the part of the Chinese administration and the Chinese government, to kind of sow some discord, some uneasiness amongst companies like Apple, as part of a larger agenda?
Olivier Blanchard: Sure, the trade dispute is a factor. But it bears reminding that both Qualcomm and Apple are American companies, so there’s no reason for Chinese courts or the Chinese government to side with Apple or Qualcomm since they’re both American companies. If the challenge was from ZTE or Huawei against Apple, then yeah.
Fred McClimans: No, but, Olivier, my thought here is that by disrupting the flow of operations, and business, and revenue, and availability into the market place between these two companies, I think that clearly opens up the opportunity for Chinese companies to kind of step in, take advantage there a bit, perhaps. Certainly, this kind of a disruption would impact Apple on a global scale.
Olivier Blanchard: Right. And Apple’s market share in China, yeah, absolutely.
Fred McClimans: Oh yeah, yeah.
Olivier Blanchard: Yeah, that’s a good point. I think we all read the same article. So, I read a piece on Bloomberg that mentioned that Apple was complaining that it might be forced to settle with Qualcomm, and they were really mad and claimed that it would cause all kinds of mobile phone manufacturers’ pain as a result. But what this tells me, this sends a signal, and it’s the first time I think I’ve heard or read about Apple mentioning that they might be forced to settle with Qualcomm. So, this sends a signal that at least it’s on the table again, which that wasn’t the case six months ago.
I think that Apple’s strategy has been to kind of kick the ball down the road as long as it can. And it’s sitting on plenty of cash, it can, and the strategy is probably to try to inflict as much pain on Qualcomm as it can, because the calculation is that Apple can dish it out longer than Qualcomm can take it. I think that window’s closing. Apple’s been pounding on Qualcomm for nearly two years now, now Qualcomm seems to have the upper hand in the courts, definitely in China, potentially in Germany, and potentially through the ITC in the U.S.
It’s a complicated issue but I think everyone, investors want this to be over, I think that everybody, consumers want this to be over, everybody’s tired of this. So, I don’t see why it would be in Apple’s best interest to drag this out for another 24 months. I think that we see resolution in the next 12 to 16 months.
Fred McClimans: Your point on investors, there, as we talked earlier, Apple has had a massive loss in valuation. And if Apple has a fiduciary responsibility to their investors to keep that stock price moving upwards, you would think at some point maybe it’s investor pressure that steps in and says, “Look, Apple, you’re killing us here. Just settle this thing. You’ve got the cash. Put it aside and let’s grow the company and the value the way we think you could.” Maybe that’s in the works here.
Olivier Blanchard: All right. Well, we are out of time, so we’ll have to bring this up again next time something happens in this case, or if Apple and Qualcomm do come to the negotiating table to try to work this out. But until then, that does it for this week’s edition of FTP, Futurum Tech Podcast.
Thanks a lot for listening again. Catch us next week for another round of news and analysis, and as usual, don’t forget to hit that subscribe button. Have a great week.
There will be plenty of more tech topics and tech conversations right here on the Futurum Tech Podcast, FTP. Hit that subscribe button. Join us. Become part of our community. We would love to hear from you. Check us out, futurumresearch.com or Futurum Tech Podcast. Daniel Newman, Fred McClimans, Olivier Blanchard. We’ll see you later.
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.