China Forcing Apple to Choose: Customer Privacy or Revenue

In a pair of recent, interesting articles at Quartz, the suggestion has been made that Apple is giving the Chinese government access to its iOS devices and source code in order to preserve its business there. The facts aren't all in because Apple won't talk about it. And the implied scenario sounds doubtful. However, the situation does raise important issues.

Here are the articles I found interesting at

1. January 23. "Apple is reportedly giving the Chinese government access to its devices for 'security checks'."

2. March 5: "Apple’s capitulation to China undermines Obama’s tough talk on snooping."

In more detail, this section of the #2 article caught my attention.

But analysts told Quartz they believe the company is giving China access to the underlying source code for the iPhone and other devices and services, which could potentially allow Chinese officials to spy on users inside and outside of China.

That quote contains a link back to article #1. The key phrase being, "analysts... believe."

I found it all too easy to get overly excited about the language of these articles, but then I read them a second time, and everything, it seems, came down to what a selection of local analysts believed. We know some things, but not all the key facts in this case.

What Do We Really Know?

• Governments, for their own safety, like to spy on other governments. When countries import powerful products like iPhones from the U.S., for use by government officials, they worry about backdoors and the like. Recently, China dropped Apple products from its state-approved technology buying list.

• Governments, for their own safety, like to be able to track what terrorists may be planning to harm its own citizens. I wrote about that in a recent Particle Debris: "The Digital Betrayal of the Consumer is Officially Out of Control."

This creates a huge conflict of interest for companies, like Apple, who want to sell high technology computing equipment to other countries in a global market. Article #2 above points out, correctly, but with drama:

The stakes are undoubtedly high for Apple: Its China sales more than doubled to $16.1 billion in the fourth quarter, which helped the company post the biggest quarterly profit in corporate history.

Source Code. Really?

What I am not convinced of is that Apple turned over the entire iOS source code to the Chinese government to assuage their fears that Apple products spy on them. This doesn't sound like Apple to me.

First of all, the BSD UNIX core of iOS is already under open source in the Darwin project. iOS makes some changes, and there is a smattering of proprietary code held back by Apple from Darwin. Even so, it's telling that that wasn't mentioned in the articles.

Second, the implication that all the iOS source code, including the UI, in digital machine readable format was delivered is merely a conjecture on how Apple dealt with the situtation. Instead, Apple may have delivered pieces of communications code, stripped of comments, and on low contrast paper for visual inspection—making is tedious and impractical to import the text. Or, inspection of the code may have been on a Mac's display under supervision by Apple engineers without the opportunity to copy any of it en masse. The goal would seem to be to allay concerns, not deliver the iOS family jewels in their entirety.

The Ultimate Conflict

Still, along with other U.S. technology companies, Apple faces a serious conflict of interest. Either kowtow to foreign government demands for software and hardware disclosure or relinquish billions in potential sales. It's a fine line to walk.

At this point I'm not ready to believe in an all out cave-in by Apple because Tim Cook and the executive team have always shown such strong ethical and moral values. They'll prefer to seek an acceptable compromise. And Apple isn't without leverage. The Chinese government appreciates the significant economic benefits of Apple products being manufactured in China, even if the lion's share of the profits accrue to Apple.

Even the #1 article above admits:

In November [2014], Apple blocked access to apps that were designed to steal data from Chinese iPhone users.

At this point, I don't think we need to declare that Apple has engaged in a wholesale sellout, despite the many conjectures by analysts cited in these two articles. Apple knows what's at stake, and the company's executives are working to navigate these perilous waters.

On the other hand, $16 billion is sales to China per quarter, more or less, places a huge stress on Apple's character and values. It's something to keep an eye on because power and money always corrupt, and a major mistake by Apple could sow the seeds of a corporate downfall.