On this edition of the Futurum Tech Podcast, fear and loathing in tech news. Is dark PR infecting the tech world with fake news? Another iPhone ban after China, Apple found guilty of patent infringement again, this time in Germany. Drones and parrots, how new technologies have run into unexpected challenges. Chinese hackers get charged by the U.S. Government in massive hacking operation. And our top tech predictions for 2019. Those stories and more coming up on this episode of FTP.
Our Main Dive
Amid a move by the Defense Department to shift towards a centralized, single-contract cloud service worth up to $10b over the next ten years, a nasty tale of insider dealings, procurement irregularities, and personal innuendo suggesting ethical misdeeds have come to light. And yes, they’re all in a salacious dossier. It’s Amazon vs IBM, Oracle, Microsoft, and a slew of others in this tale of the Defense Department’s cloud-based Joint Enterprise Defense Infrastructure (yes, that’s JEDI).
Our Fast Five
We dig into this week’s interesting and noteworthy news:
- Drones ground Gatwick Airport (sort of)
- Amazon’s Alexa leans towards the dark side
- African Grey Parrots that order food over Alexa
- The hacking/privacy issues of India
- The China hacking/privacy issue
Apple is facing other potential ban on the sale of some of its iPhones, this time in Germany, as the ongoing litigation with Qualcomm moves to a new level.
Crystal Ball: Future-um Predictions and Guesses
Our top tech prediction for 2019, sort of.
Daniel Newman: Welcome back to another episode of FTP, Futurum Tech Podcast. I’m Daniel Newman, today’s host, joined by my always esteemed co-hosts, Olivier Blanchard, and Fred McClimans.
Today, we’ve got a great show ahead of us. We’re going to talk about a little conspiracy around Project Jedi, AWS, and several other players. Also, Apple was once again found for patent infringement. This time in Germany. We’ll get to that later. We will have our fast five, a little bit of Tech Bites, and at the end we’re going to make some predictions like we always do.
But kicking off this show, this last show of 2019, we’re excited to have you join us, Olivier and Fred, how are we doing today?
Olivier Blanchard: We’re doing great, Dan. It’s been a great week, a great year, looking forward to marching into the new year as quickly as possible, and putting a lot these, what’s the way to say it, the overabundance of stories that qualify for Tech Bites behind us.
Fred McClimans: Yeah, happy shut-down week, by the way.
Daniel Newman: Oh yes. And I’m going to stop asking that question.
Fred McClimans: Merry shut down.
Daniel Newman: Every time I ask you guys that, I have to pretend like I really care how you’re feeling today. No, I’m just kidding.
Fred McClimans: We know. We just play along.
Daniel Newman: I’ve watched enough Squawk Box to know what awkward introductions look like. We try to do it better here in the Futurum Tech Podcast.
Now before we kick off, I have to remind everybody out there that while we will be talking about many publicly traded companies, many who have lost twenty plus percent of their value in the last three weeks, thanks to all the winning we’re doing globally, we’re not a financial advice show. We’re not advising you to purchase, sell, or take any actions in any markets at all. This is for informational purposes only. But we do hope you enjoy our highly opinionated diatribes, and hopefully deep insights on all the doings that are going on in the tech industry. And yes Fred McClimans, there are a lot of tech companies that really do bite these days. We need to call them out as often as possible, but unfortunately only one segment a week, so we’ll have to slip them in throughout the rest of the show.
Let’s get into the main dive today. A very interesting article came from a source that was once extraordinarily reputable until a couple of months ago they put out an article about some chips, some Chinese spying that was going on. An article that is so far, to date been shown to be not factual, and that’s Bloomberg.
Once again, they’re coming out with probably one of the strongest headlines I’ve seen in a long time. The headline was inside the nasty battle to stop Amazon from winning the Pentagon’s cloud contract. Again, this is on Bloomberg. We’ll share the link in the show.
If you get a chance to read this, it takes you into the deep, dark PR world that is going on behind Project Jedi, a ten billion dollar, single source, cloud contract that is going to be awarded to one of the following, I believe, and let me know gentlemen if I got it right, but it’s between Amazon’s AWS, Google IBM, and Oracle, and Microsoft. And so-
Olivier Blanchard: Those are considered the leading contenders, but it’s open bid and there are a number of others that are-
Fred McClimans: I’m sure there are several others who have zero chance, spending and a inordinate amount of time writing up a bid for that contract.
Daniel Newman: But anyways, the article delves into this dark, corrupt world that’s taking place from a number of sources, and again, I’m paraphrasing. I’m learning about this as we go along as well. It talks about basically a concerted effort being made behind the scenes by an unknown, but possibly one of the competitors. Possibly a foreign national. But to basically slander AWS to put a lot of dark, negative publicity around the company, it’s technology, it’s executives and its leadership in order to try to steer the contract away from AWS, who’s considered the front runners.
As you read into this article, there is some particularly successful lobbying activities that have gone on by AWS, betting certain people in the right the places through organizational efforts to supposedly put them in that poll position, and the efforts by the competitors, or the alleged conspirators to try to take AWS down, seems like a well-designed, dark PR effort. Much like what we read about those chips in China. A little bit like all this stuff that we’ve heard going on with Apple and Qualcomm.
This brings me to two points, gentlemen. One is I want to talk a little bit about what’s going on with this particular case with Project Jedi, with the overall cloud contract. This ten billion dollar deal. And the second is just how far is the industry willing to go? Has dark PR and the tech industry hit its peak? Is it just getting its stride? Are we going to basically see our future, big contract big business, and specifically in the tech space becoming overrun with the similar political activities that we see in campaigns right now?
Let’s start talking about this particular case. Fred, I’ll let you dive in first since I know you’re probably just reading this as we speak. I’ll put you right on the spot. But what do you think about all this? Let’s just start at a high level about what’s going on here in this landscape. When you read through this article, how did this make you feel about what’s going on with Project Jedi?
Fred McClimans: Oh, oh. Now we’re getting into that question. How did you feel when you realized X, kind of situation.
Olivier Blanchard: It’s also a therapy session for me.
Fred McClimans: Yeah. This is an ongoing issue here. If you look at from a high level, the Pentagon has been looking for a while to figure out a way to consolidate their information resources so that they can more effectively, more efficiently deal with real-time data as it pertains to global conflicts. I think that’s a great thing for any organization to be looking to do. Their challenge in the past has been that they have had a multi-cloud strategy, and they have had interoperability issues, going cloud to cloud, and application to application.
They started pursuing this a couple of years back. Earlier this year, they were set to launch a preliminary RFP. That got pulled back at the last minute. There were some allegations at the time that some contractors that were working for Amazon, had been cozy with somebody else. All things that you would normally hear. Then it took a turn into the ludicrous realm where we’ve now seen connections between an executive at Amazon’s son, who happens to be friends with somebody who’s connected to somebody at this company, obviously influencing the deal in some major way.
We have, much like our political situation in the U.S., we have a dossier that has been created and shopped around by a private security firm, that it literally looks like one of the worst PowerPoint presentations I’ve ever seen in my life, and I’ve seen a lot.
Daniel Newman: That’s pretty bad.
Fred McClimans: It’s pretty bad but-
Daniel Newman: I imagine you’ve seen some pretty bad ones.
Fred McClimans: Yeah. The basics here though, you’ve got a contract where the government would like to bring everything together. It’s a two year initial contract with subsequent renewal years. The minimum value here I believe is about 1.6 billion or so, with a potential cap up to 10 billion over a ten year period.
It’s worth noting that this is not for everything that the government is doing. It’s for a very focused set of data, and resources, and even when this takes place, it’s not going to cancel any of the other existing cloud contracts that exist in other related areas. There’s certainly some importance here at hand tactically. But from a big picture perspective, it’s a broader thing.
Now, why does Amazon appear to be the favorite here? General Mattis, the Secretary of Defense, ex-Secretary of Defense-
Daniel Newman: He’s your ex.
Fred McClimans: … within the next few minutes, visited Amazon earlier this year, and shortly after that meeting there was an announcement that they would really be focusing on a single cloud provider, and not multiple cloud providers, as had originally been anticipated for this. That’s where things really started to fall off the rails here.
Like I said, it’s gotten into the ludicrous realm at this point. We’ve always seen contract disputes. It’s not uncommon in the defense industry for the competitors who fight tooth and nail, and challenge contract awards one day, to turn around the next and partner on another project.
It’s business as usual, which I think gets to your second question, Dan, which is has business as usual now become something where smear campaigns, allegations of insider collaboration … has that really become the norm?
I hate to say it, but I think at this point, it kind of has. The general discourse around politics and technology in general in our country has taken a nose-dive of late.
Daniel Newman: Yeah, you know-
Olivier Blanchard: Oh, I’m sorry. Go ahead.
Daniel Newman: No, I was just going to carry it over to you, Olivier, but I was going to say, this isn’t even just collaboration and corroboration. They were going after individuals on a personal level. Personally attacking people’s behaviors and slandering individuals.
Again, I have not gotten my hands on the full dossier, which I’m interested in reviewing. That will be one of the next steps. We may have to come back to this at some point.
Olivier, I’ll let you chime in. I do have a question for you, but I think you were-
Olivier Blanchard: Yeah, no. Go for it. Go for it. Ask your question now.
Daniel Newman: I want to carry this over, because Fred, you started talking about what I’m really interested in. But business as usual has gotten to the point now where the source of determination of a contract is not as much being won and lost by the company that’s most capable of delivering it, but it becomes this combination of playing these games, this dark PR, scandal, bribery, potential … And again, these are all potential. I’m not suggesting any of these things actually happened. I’ve read what everyone else has read. But have we lost the plot? This to me feels like everybody now gets so mad about fake news, and so mad about this concept of misinformation. It’s long been happening. This isn’t new. But now it seems to be getting worse, and technology is the enabler.
Olivier Blanchard: Yeah. Was there a question in that? I think I understand the question.
Daniel Newman: There’s a lot of thoughts. Tell me what you think, Olivier.
Olivier Blanchard: Let me compress that and distill it, and interpret it, and the question that I wanted to answer anyway.
I think that there’s obviously a PR aspect to this that we need to talk about. The complexity and dirty tricks, and politics of the palace intrigue, if you will, of powerful competitors with a lot of money, and a lot of resources trying to either to beat each other for a lucrative. That’s interesting, and we can make an HBO show about it, call Game of Thrones in the Tech World.
I think what’s particularly interesting and new, and different about all this is how dark PR, and social media, adjacent technologies are now playing a part in something that never traditionally used to.
On the one hand, a lot of these companies are publicly owned, so somewhere there must be a calculation made that in order to influence law makers, and people who answer to law makers in Washington, D.C., or wherever the seat of power happens to be, you have to also first influence their constituents, and power groups that support them, and fund their campaigns or fund their political ambitions. Now you’re seeing an effort of very concerted and well-funded efforts across the board, it’s not just for this, to kind of create these weird campaigns of disinformation, propaganda, or what we now call FUD. F-U-D.
If you haven’t heard what term yet, or you’ve been hearing it recently but didn’t know what it means, FUD stands for fear, uncertainty and doubt. There’s dark PR firms now that have kind of moved in to Silicon Valley, and other parts of the country, and are now working with tech companies the way that they used to work with political campaigns.
Instead of just putting out content that identifies itself as negative campaign content, like this campaign paid for, or this ad paid for by XYZ. What they do is they create these fake grassroots movements, these fake memes, fake information that they then disseminate through social media outlets, through pretty sophisticated targeting. And also push out to journalists and reporters in an effort to try to convince them that it’s either news or legitimate opinion, or something that they should write about.
We’ve seen this, and now we’re seeing this with this AWS story. We’re also seeing it recently with Facebook. Facebook allegedly hired this dark PR firm, usually associated with Washington, D.C., but now located on the West coast, to smear Apple.
I think that we’re only seeing the beginning of this. I think that if anything, the 2016 election campaign and Brexit have been a proof of concept for those types of operations. We’re going to keep seeing a lot more of it. The problem for us is that it becomes really difficult to identify fact from fiction because journalists don’t necessarily do their due diligence anymore. Their editors don’t require them to. And just reading articles about this. Reading articles about Facebook and Apple. Reading articles even about Apple’s response to those injunctions in Germany and China in the last two weeks for patent infringement, which we’re going to talk about a little bit later in the show, seem legitimate and are easy to believe, but aren’t necessarily factual. So that that fear, uncertainty, and doubt … the doubt element of that is definitely effective.
Fred McClimans: Yeah, well you know we’ve been using the phrase FUD for a long time. In this situation here it’s scurrilous FUD. SFUD I guess is the way. But look at some of the underpinnings, some of the factual items in here.
Personally, do I think that Amazon has an edge here? I think they probably do. Just given the fact that Amazon had a 600 million dollar contract back in 2013, to handle secure data for the CIA. That’s something that not too many other cloud providers can point to.
Countering that, why might others think that Amazon has an inside illegal track? One of the changes that was made to the RFP recently indicated that whoever wins this award must have the ability to stand up, secure classified facilities that seem to match closely what Amazon has in place. Is that an unreasonable thing for the Pentagon to ask? I don’t think so. But then you dig a little bit deeper. One of General Mattis’ top aides, Sarah Donnelly, who had been in the defense program previously, also at one point was doing some paid consulting work Amazon. That’s another thing that has been brought up here.
I think what we’re really seeing is to the broader information or disinformation points that we have going on in the social Internet media today, it’s not possible to connect, and I hate to say, it sounds a little bit like the seven degrees of Kevin Bacon, but it’s now possible to connect any two dots together if you try hard enough. When you have that ability, all of a sudden facts start to look like this giant spider web mesh, and they can be twisted any which way a particular party desires.
Daniel Newman: Yeah. Just ask Sean Hannity when he puts his boards up there, and he starts making connections that you don’t think are possible. I’m not taking a left or right view. I’m just saying, you see people, it does become a little bit of a conspiracy theorist dreamland here.
Guys, I read this and I have to say it feels a little bit like money laundering. I feel like these behaviors have gone on forever. I ran an IT integration company, and it was not uncommon for vendors to work with integrators to write consulting specs or RFP specs that would lean very heavily in the favor of one particular vendor that the company wanted to win. But due to procurement policy, they had to write and RFP. They had to go through the process. They would write it in such a way that they gave every advantage to one company to win it.
This is just at a bigger scale. It’s at a grander scale. I’m going to come back to this at the end, in my crystal ball, but I want to put one thing in your guys mind. I do think there’s a certain insanity to the government contracting anyone of these players. I don’t think it’s in their best interest. I naturally gravitate towards divesting some of that risk across the different players. But that’s just a feeling I have, again. I’m not deep enough into the contract. I’m not deep enough into all of the specific objectives of the contract, but I do think anytime you give too much power, and you put too much of expectations in the hand of a single provider, you are setting yourself up for risk.
That’s where I start to wonder about why the government would think it’s really in their best interest, and that they would need only one provider, when they could give all five, or three of them multi-billion dollar contracts, which would get them a lot of interest, a lot of service and a lot of create a competitive environment for each company to attempt to do their best work.
I’ve got to move on from this, but this is really interesting. I’d say everybody on the show, stick with us. We might come back to this. We might forget about it when something bigger, crazier, and more insane breaks. But if we do come back to it, we hope you will be around to listen to us.
I got to move on to our Fast Five, because as everyone who’s been with our show for a while, knows it’s just not all that fast.
I want to kick off the first one is, and Olivier, I believe this one is you, right? About the justice department charging Chinese Nationals in extensive global hacking campaign.
Olivier Blanchard: Yeah. Talking about the risk of one vendor in technology, although I disagree with you on that point, but I’m not going to-
Daniel Newman: We’ll do that later.
Olivier Blanchard: Yeah. We can do that later. In this case, we’re always under attack, and we know that Russia tries to influence our opinions and our vote and our actions, but the Chinese are also a pretty big player in the cyber warfare against the United States. Two Chinese Nationals were just charged in and extensive, and apparently pretty successful global hacking campaign.
The basic facts of the case is that these guys apparently managed to steal information from, according to the report, at least 45 U.S. tech companies and government agencies. One of them being the U.S. Navy. It’s pretty big. It’s a big deal. I don’t know that we’ll ever actually get our hands on these guys. But it does single them out. It does send a signal that we know who you are, we know what you’re doing, and that the Chinese are still very actively, and successfully probing into your defenses, and hacking everything of substance that they can. Just be advised.
Daniel Newman: Yeah, it’s crazy Olivier, and again, it all starts to tie back to this. It all is like this big spider web. I’m sure that you could say that this hacking could have something to do with our whole opening segment. But of course it doesn’t, but it might.
Fred McClimans: Of course not.
Olivier Blanchard: Well, we are engaged in a PR war regarding technology with China, so you have the trade wars on the one had. You also have this push-pull against Huawei and ZTE regarding 5G and other technologies. You have the story that we mentioned earlier from Bloomberg, that was a little bit iffy, but that had some truth to it. It’s just that they went a little far with the magic chip, and what it could and couldn’t do. I think there is evidence that the Chinese are trying to probably plant spy chips and spyware in some of the technology that they ship over here, and all around the world.
Daniel Newman: You could certainly make the link, to Fred’s point, if you wanted to.
Speaking of making the link, think flying in London, Fred.
Fred McClimans: Yes. Well the one thing that’s not flying in London is airplanes.
By the way, just in the spirit of full disclosure, going back to that Amazon issue for a moment. For several years I did actually run the contracting operations for defense contractor that sold to the U.S. government and military. It’s a little known fact that I don’t mention often. I just don’t want anybody to think whatnot. I’m putting that out there before somebody else, you of you guys connects those dots here and says, “Aha.”
So London. Yes. We have arrived technically at that point where the future of civil protest and economic terrorism now involves some really interesting use of technology. I know on this show we had previously spoken about and individual who managed to stop an autonomous delivery vehicle that was running up and down his street, but simply realizing he could stand in front of it, and it would stop.
We now have something on a much grander scale. For the past 36 hours, Gatwick Airport in London has been open, closed, open, closed, opened, and I believe now is back maybe open or closed again at this point. The result of one or more individuals flying drones repeatedly into the airport’s airspace. They have, at this point, estimated that it’s impacted about 100,000 travelers. Thousands of flights have been shut down here. They actually at one point called out police snipers trying to see if they couldn’t shoot drones out of the air.
What it does is it highlights a really basic issue here that S technology has become much, much more sophisticated in its ability to engage in our everyday lives. It has also, at the same time, become very easy to shut down that technology. I’ll put this under the broader umbrella of complex systems fail spectacularly. This is one of those situations where somebody realized we could literally, through some type of protest, or terrorist activity, call it whatever label you want, literally deliver significant economic harm, as well as significant social harm to a group of people by simply flying drones into airspace.
Unfortunately, I have looked at a lot of the drone mitigation technologies out there, and there’s nothing right now that I see on the radar, on the horizon … two bad puns in aircraft parlance. Nothing that can really stop this kind of an attack. Unfortunately I expect to see more of these around the world moving forward.
Daniel Newman: All right. Well, speaking of causing social harm, what happens if your Amazon, your Alexa starts swearing at you, telling you inappropriate stories about your animals defecating, or recommend you kill off your foster parents? That actually happened.
In my fast five, it talks about some of last year’s untold stories about some of Alexa’s behind the scenes efforts to engage college students to make their Alexa platform more engaging. You know the smart speakers in your home, and give it the ability to launch into interesting conversations with you, using anything it finds on the web, in combination with some AI and machine learning technologies. But that technology has not gone completely the way it was planned. There were a number of stories about Alexa chatting with its users about sex acts. It said it gave a discourse on dog defecation. A hack this summer traced back to China, also said that some customer data has been exposed to due to Amazon’s efforts.
In the short run they’ve shut down this program, but it’s interesting this whole crowdsourcing. First of all, people are bringing smart speakers into their home at a great rate. Second of all, the goal to make those more and more a part of your daily life, we already have some concerns and worries about privacy and listening. Now we have to worry what it’s going to actually talk to you about.
This is really an interesting step. Kind of like Uber putting cars back on the road. They’re doing that back in, I believe, in Pennsylvania. Putting autonomous vehicles back on the road, as we’re developing the next era of AI and intelligence and human interactions with Chatbots. There’s going to continue to be these kinds of failures.
I do say I think this is part of where companies need to have some level of responsibility to slow down enough to get things right, because they are causing social harm, as Fred had suggested.
Fred, I’m actually going to come back to you. Tell me what’s going on, because you have a story that ties to Amazon Alexa. A little more fun than my story, but tell me what’s going on with the parrot talking to the speaker.
Fred McClimans: Yeah. One of the features that I like about Amazon in general is they’ve always been pretty good in the past when I’ve rung them up and said, “Hey look, my son just ordered XYZ movie, and unintended.” They’re really good about backing that backed out if you catch it. In fact, the first time that happened, they walked me right through the process for setting a private pin, and making sure that kids couldn’t do that. However, that does not always work in the world of Amazon.
There was an interesting article in CNBC this week that highlighted a couple of acts. A six year old girl in Texas ordered a $160.00 dollhouse, and four pounds of sugar cookies from Alexa. Another six year old in Utah order $350.00 worth of Barbies and a toy pony from her mom’s Alexa account.
This next one here just made me fall of the chair. A talking parrot, Rocco the parrot, had been listening to her owner, his owner, I’m not quite sure if Rocco is a boy or a girl parrot here. But this African Grey parrot actually managed to order, not something significant, but interesting. $3.00 worth of strawberries and broccoli. On Amazon.
I think on the one hand this speaks volumes to the ability of a parrot to mimic the human voice. But on the other hand, I have to ask about the quality of Alexa to maybe differentiate between human voice and parrot voice. It was an amazingly humorous situation here.
Olivier Blanchard: Yeah, and kudos to the parrot for exercising restraint.
Fred McClimans: And ordering healthy food.
Olivier Blanchard: Yeah. Single serving snack, too. It wasn’t a year’s supply.
Daniel Newman: So it could be something like, the headline could be parrot shows greater technical aptitude than baby boomers, as it proceeds to place order on Alexa.
Fred McClimans: Without a doubt.
Olivier Blanchard: So easy your parrot can use it.
Daniel Newman: Not your parents. Your parrot. Your parents don’t have a clue.
Last one here, Olivier. The last fast five of 2019. It’s your honor.
Olivier Blanchard: Oh no.
Daniel Newman: What’s going on in India?
Olivier Blanchard: It’s totally not worthy of that because this is a snafu, and has no long term bearing on anything, but I found it interesting. We don’t really talk about it here that much, although we should. Something happened today, apparently in India’s parliament regarding privacy and the government’s ability to snoop into everybody’s business. An uproar, according to BuzzFeed News, broke out in India’s parliament earlier today because the Ministry of Home Affairs, which is a federal agency in India that controls the country’s internal security, apparently authorized something like a dozen government agencies to monitor, intercept, and decrypt all data on all computers in the entire country. Apparently that just came out of the blue, and is in complete violation of privacy law in India.
There was some disagreements and confusion today, and there may still be going into the weekend, over what exactly these agencies are able and allowed to do. And what the Ministry of Home Affairs was thinking. Analysts seem to be leaning towards the notion that these agencies may all still need to obtain permission before they do this. Even that isn’t quite clear. We don’t really know what’s going on in India. If the government now has the right to access any computer, anywhere at will, or if that was a miscommunication from the Ministry of Home Affairs point. I guess the lesson in this is if you’re legislating, or creating policies about technology, and its national security versus privacy, the least you could do is at least be very, very clear about what you’re doing.
Daniel Newman: What I’ll say, Olivier, and there’s some themes going on here. If you look at all of our stories throughout this show, and the stories as we continue. We’re hitting a head when it comes to the cooperation, collaboration and integration of government and technology.
For weeks now, and months, the idea that the industry can self-regulate is clearly FUD. It’s actually not even … It’s beyond … It’s just BS. It’s not possible. The interests of these companies in pleasing its shareholder will always override social wellbeing. This is why governments and these companies need to partner. It doesn’t have to be a negative thing. It’s not government halting. But we need regulation. That’s why these things are continuing to happen.
The activity in Washington that we talked about with lobbying isn’t regulation, it’s just activity where people with good ties and tied to government are figuring out how to give more business to big tech. Listen, we want big tech to succeed. As analysts, we work with these companies, and we want them to be successful. We want to continue to work in this industry with these companies who are doing amazing things. But there is an issue. Going into 2019, I think one thing I really aspire to see, would be more cooperation between our governments globally, and in each country to have the technology companies and the governments work together for good. And also to fight all of this intrusion of privacy, and all the external intrusion that comes in through hacking.
A momentary diatribe. I’m going to bounce over to our Tech Bites. I almost forgot what it’s called, because all we’ve been talking about is tech that bites. It’s been literally every section of this show. I need a good story here. Maybe we’ll end this with some positive 2019 predictions, gentlemen, instead of where I wanted to go.
Let’s talk about Tech Bites, and Olivier, I’m going to hand this one over to you, as you’ve been our key correspondent in the Apple Qualcomm litigation. But there was some more breaking news, and once again, Apple kind of bites. Or maybe did Qualcomm take a bite out of the Apple?
Olivier Blanchard: Oh nice, nice. Yeah. So Apple got busted again. This time in Germany.
Let me backtrack a little bit. It you missed last week’s show, you need to go find it, click on, listen to it, because we did a pretty extensive expose of what’s happening in China with Apple and Qualcomm.
Essentially what’s going on is Qualcomm has been alleging for some time that Apple was infringing on a number of its patents with regard to the iPhone, and filed suit in China and Germany and through the ITC, which is the International Trade Commission, and alleging all these different instances of patent infringement by Apple.
Last week, China or Chinese courts found Apple guilty and imposed a preliminary injunction, which is basically a temporary but indefinite ban on iPhones, 6S all the way through 10. It’s effective immediately. There’s no appeal process. It is what it is. Yesterday, the exact same thing happened in a German, I think for the same iPhones. The patents were completely different so these are completely different instances of patent infringement. They’re not the same patents as the ones used in China a week ago. But it’s the same thing. There’s a ban on certain models of iPhone pending the posting of a bond by Qualcomm. That’s a procedural thing.
In ten days, essentially Apple has been found guilty of patent infringement in China, in Germany and there is still something like over 20 cases to be ruled on in China, six more in Germany and then the ones with the ITC. I think that Qualcomm is still filing, or planning to file new cases.
All of this to say that Apple, even though has been a very successful and profitable company, and is sitting on more cash than some small countries have on hand. For some reason has been apparently, according to this, involved in a years long pattern of patent infringements that is now coming to light. Apparently courts around the world are starting to take notice and hold them accountable. I think that Apple deserves to bite this week, because that’s just not cool.
Daniel Newman: I weigh in on it, I think one of my biggest frustrations is, when you get rulings, the willingness of Apple to pretty much just disregard them, because here’s the thing. IP law is really just a very, it’s a very unfair area for the innovators, and it’s very favorable for the implementers. I look at it like squatting. In so many states, if you have a rental property, and someone doesn’t pay, it’s almost impossible to get them out. That’s a little bit of what Apple is doing right now. They’re squatting on the technology. They’re using it. They’re throwing some grenades back to say, “Hey, we’re not violating any rules. This isn’t fair. We’re not being treated fairly.”
But the problem is, and I’ve heard this said in a few different ways, but if you don’t agree with the price that the gas station is charging for gas, you don’t get to just steal the gas, and then have a lawsuit, and then later on say, “I didn’t agree with the price. I would have paid for it, but I’m not going to pay for it now, because I wanted to get the right price first.” It doesn’t work that way.
But somehow in IP law, it’s been set up where Apple can basically not pay billions of dollars in what would be agreed licensing terms if they had to use the technology while they figured it out. I think that’s the biggest thing, is that the way the law works is totally, it’s backwards. It gives no leverage to the innovator to protect their intellectual property because the process is so long. It’s convoluted. It’s got to fought on so many fronts. When you’re trying to fight with a company like Apple, who has the deepest resources of just about any company on the planet, it’s not a fair fight. Even for a company as big as Qualcomm, it’s an extraordinarily difficult and expensive and long fight. Apple knows this. They’ve used it to their advantage in the past against smaller companies to essentially put those companies out of business.
With Qualcomm, they’re basically just trying to extend it as long as possible, I think, to see if they can get them to back down. The good thing is, I do think Qualcomm stands strong in terms of their belief in their IP, and I don’t think they’re going to give in here.
That’s probably the most disappointing for me is they’ve been found guilty, and they’re basically saying, “So what. We’re going to keep doing what we want. We’ll work it around, and we’ll also create a tremendous PR machine,” instead of to some extent just owning up to it, following it at some level, and fixing it. If Apple fixes it, I’m fine with it. Listen, fix the IP that you’re in violation of. Show the courts. Show the lawmakers, whomever you’re supposed to show, that you’ve done it.
Olivier Blanchard: Or just pay for it.
Daniel Newman: Or pay for it. Yeah. That’s fine too. But my point is the fact that they’re above the law to some extent is disappointing to me, because I think, again this just goes to show that in a criminal proceeding it never works this way. In a civil proceeding, and you know as a business owner I’ve seen it before. I can’t tell you how many times in my career running businesses, when you’ve had a legal dispute. You’ve had a lawyer tell you just pay it. It’s cheaper.
Even when you knew that the contractor, the vendor, someone was in violation of a contractor law, they actually tell you to bite the bullet because to fight it is too expensive. At this level and capacity, it’s so disappointing that there is no one to really hold accountable because the system is just so messed up.
Fred McClimans: I think it speaks a bit too, to the complexity of technology today. Patents today are much more complex than they were 10, 20 years ago.
Olivier Blanchard: But they’re not though. It has nothing to do with that.
Fred McClimans: No. I think they are. The number of patents that are in use today, and the way those patents have, to a large extent, become subsets of standard essential patents where somebody has to say, “Yes, this is our patent, but we understand it’s essential to international standards, therefore we’re going to make it available to everybody,” versus nonessential patents and the way they cross over, and the way the generic licensing of these patents has occurred. It’s become a confusing situation for the courts, I think, to understand, and for the general public to understand. I think that’s made it very easy to have that situation manipulated in the public court rather in the German court, or the Chinese court as it should be playing out in. But you’re right. In this particular situation, Qualcomm seems to have a fairly solid case to say, “Look, Apple is not playing by the rules.” Apple’s counter argument, “We don’t think those rules are right.” That’s a separate issue here that unfortunately has gotten injected into this, and made it a lot messier than I think it needs to be. From my perspective, if you’re Apple, license it. Pay it. You’ve got the resources. It doesn’t make that much of a material impact on your business, unless there’s something bigger down the road that you’re trying to pursue, that you think it might.
Olivier Blanchard: It’s interesting too, that Apple has no trouble understanding how patents work when somebody infringes on their patents. And they have absolutely no problem taking them to court, and justifying it all day long. But as soon as the roles are reversed, and they’re the ones infringing on somebody else’s patents, all of a sudden the rules are wrong.
Daniel Newman: This is all about power, and control. Let’s be very frank. And like I said, all these big companies to some extent are guilty of making money. I mean that somewhat facetiously, because in the end of it, Apple or Intel complaining about the profitability levels of Qualcomm, it’s so hypocritical to me because all those companies make tremendous profits. When did Apple volunteer what their margin is on an iPhone? They make tremendous money on every device.
And, you know what? They create an economic value, and people are willing to pay it. It’s economics 101. You pay the value of something. It’s like you always say, what is your house worth? Well it’s worth exactly what somebody’s willing pay for it. People are willing to pay a certain amount for an iPhone. In my opinion, it’s not us to decide what Apple should charge. It’s not up to us to decide how much the cost should be.
But those costs that go into developing the device, they should pay for it. And when they’re using other people’s technologies to help them develop that device, they should pay for it. If they can make $1,000.00 a phone, good for them. To knock $25.00 a device off because they don’t feel they should have to pay for it … This isn’t a commodities market, where they’re barely scraping by at a 1% margin, and this insane overcharge from a hostile patent holder is stopping them from being successful. I’ve read their financial statements. They’re doing just fine.
I think that’s my bigger issue here is all these companies are successful. And you know what they’re successful, Intel’s successful, Apple’s successful, because they’ve innovated. At different points they’ve created products that people want and they sell them for a price people are willing to pay. Good for them. These are all the tolls that come along the way. If you’re going to use someone else’s innovation, you have to pay for it. That needs to be the rule.
When it’s enforced, to your point Fred, and I’m going to end my rant on this note, your point, it doesn’t matter at this point what they feel like. There’s been legal rulings made in governed regions that … It’s like I said, if a judge said to you, “You know son, you robbed a bank. You’re going to jail. You need to report to prison on January first, for your sentence due.” You better show up, or there’s going to be people coming for you.
They’re like, “We’re just going to keep selling these phones and we’re just going to tell the press it’s all good now and everyone’s going to write about it.” That to me is the really crazy part.
Let’s do some crystal ball here. I want to ask you guys two quick questions. One is, what’s going to happen with Project Jedi? I just want you to tell me who you think is going to win. And my second question is, give me one cool tech prediction for 2019, and we’ll wrap up the year at that.
Olivier it’s all you.
Olivier Blanchard: Oh, okay. I’m starting. I think Project Jedi is awarded to, drum roll, Amazon, because I think they do have the best solution and the best track record for that particular type of project.
My tech prediction for 2019 is going to be, and this is just because I have inside knowledge, having gone to the Snapdragon Summits last. We’ll have to talk about that at the beginning of the year. I think that laptops are going to branch off towards the ACPC line of laptop evolution. So what we’ll see in 2019 that will revolutionize laptops is multi-day battery life. Yeah, you heard that right. Laptops that actually last more than 24 hours on a single charge. And also are always connected. So they have LTE or basically wireless broadband productivity as opposed to just Wi-Fi. These are super portable, super light, and also not necessarily super expensive. I think that’s going to be one of the big things next year.
Daniel Newman: Very cool.
Fred McClimans: So winner of the return of Jedi contract award here, I think it goes to Amazon. Obviously we haven’t seen the actual bids from anybody and there’s so much stuff going on out there, but if I just had to stack rank the competitors here … And by the way, it’s interesting to note, Google is not one of them. Google has taken a very different approach to all of this. I’d say Amazon looks to me in pretty good shape. IBM also is in good shape. Microsoft is in reasonably good shape. Oracle, I’m just not even sure why they’re there at this point in time.
So, predictions for 2019. Yeah. I think 2019 is the year that we actually see significant regulatory push to actually rein in social data, and the potential breakup of at least one of the top fangs out there in the industry.
Daniel Newman: All right, well great predictions gentlemen.
I’m going to go against the curve a little bit. I do think Amazon wins the Project Jedi, but they don’t win the whole thing. I think all of this coverage it gets is going to force them into a multi-sourcing engagement, and I think it’s going to be Amazon, shared with Azure. I just don’t see one winning it all. I think the attention will win out to force the government to at least procure from a second source. We’ll see if I’m right or wrong. Probably like to go a little bit against the curve. It would be much easier just to say Amazon wins, because all signs do point to that. But I’m going for a two sources, and it will be Amazon, and Microsoft Azure.
My tech prediction is the move that Amazon announced to Outpost is going to set a trend into 2019 that is going to be multi-cloud where public cloud service providers become incredibly important to the on-premises offerings of companies. They’re going to bring their clouds into your data center, and they are going to connect them, help you run them. Companies like VM Ware are going to be critical. HPE potentially, but the one cloud concept where you’re typically only public cloud providers, they are going to find their way into your data center this year, and they’re going to be much, much more important to it.
That wraps up this year’s episodes of the Futurum Tech Podcast. Some bold stuff here gentlemen. I really like it. I think we probably made some strong predictions, ticked a few people off throughout this show. If we didn’t tick a few people off, we’re not doing our jobs as analysts and as commentators on this tech industry.
It’s been a great year in tech overall with a tough ending for the markets, but I do think there will be bounce back, once there’s a change in a certain large office. Again, we might have to wait until the wall, and then the elevator both get built with their go-fund-me campaigns.
For Futurum Tech Podcast, I’m Daniel Newman, with Olivier Blanchard, and Fred McClimans. I want to thank you for a great year, and we’ll see you in 2019.
There will be 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.
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