Can you trust Apple? It would have you believe so (Trust series)

Can you trust Apple? That is a huge question covering its iPhone, iPad, Mac, MacBook, wearables, apps, services and much more. Apple professes trustworthiness, so we set out to see if it passes the Aussie pub test.

This report follows the same methodology as our first Trust Series. Can you trust Google? Yes, but it depends on your definition. It relies on extensive desk research, starting with the search, “Can you trust Apple?”. We gave more credence to results from the past year, although current management and its policy came after Jobs was replaced in 2011.

Who started Apple?

I had the pleasure of interviewing two co-founders, the late Steve Jobs in the 1980s and tech guru/nerd Steve Wozniak (later). Their interviews gave me a fascinating insight into each founder’s disparate aims—a kind of Yin and Yang. Jobs wanted to make an obscene amount of money, whereas Wozniak’s more altruistic aim was to improve the world through great tech products. I wish I had bought shares way back!

Regrettably, only one of those aims appears important to current CEO Tim Cook. I don’t think either Steves would be happy with today’s shareholder focus over true innovation.

What is Apple (Wikipedia)

Apple Inc. (formerly Apple Computer, Inc., Founded in 1977) is an American multinational corporation and technology company headquartered in Cupertino, California, in Silicon Valley. It designs, develops, and sells consumer electronics, computer software, and online services. Devices include the iPhone, iPad, Mac, Apple Watch, Vision Pro, and Apple TV; operating systems include iOS, iPadOS, and macOS; and software applications and services include iTunes, iCloud, Apple Music, and Apple TV+.

Apple certainly makes the right privacy trust noises

CEO Tim Cook has repeatedly stated that privacy is a “fundamental human right.” It is undoubtedly an impressive statement. He added that the company could not run into the same privacy issues as Facebook. “The truth is, we could make a ton of money if we monetised our customer — if our customer was our product”. Well, its new advertising focus does just that.

Apple states that it does not sell personal information and will never share it with third parties for marketing purposes. But as you will read later, that statement has a few truck-sized holes.

How does $APPL make money?

Apple’s 2023 revenue was US$383 billion, its net profit was $92 billion, and it paid a tax of about $12 billion.

• $200.6 billion (52%) iPhone sales. 2% up year-on-year (YoY)
• $85.2 billion (22.2%) Services (Advertising income, App Store, iCloud, Apple TV+, Apple Music). 16.3% up YoY.
• $31.2 billion (10.4%) Watch, AirPods, Accessories and licenses to make Apple-compatible products.
• $29.36 billion (7.7%) Mac, MacBook and Mac accessories. 34% down YoY.
• $28.3 billion (7.4%) iPad and accessories. 10% down YoY.

US sales were $162.56 billion, Europe/UK $94.29 billion, China $72.56 billion, Asia Pacific (inc Australia) $29.16 billion, and Japan $24.26 billion. 37% of sales were direct from Apple, and 63% via retailers. Apple spends about $30 billion annually on marketing – about the same as its R&D budget.

Interestingly, hardware component and assembly costs are only 37% of its gross margin, and 71% comes from highly profitable services.

The chart below shows Apple’s income and expenditure for Q1 (Jan-Mar 2024 – not the year).

Why is this important?

Because you need to know what drives Apple.

When you analyse it, iPhone sales drive the App Store and Services (71% gross profit). If you use an iPhone, you are more likely to use a Mac, iPad, and other accessories. It achieves this integration via its ‘walled garden’ approach, which is very hard to get out of without losing an investment in Apps, music, etc.

Apple has made it deliberately difficult to switch from iOS to Android or MacOS to Windows

If iPhone sales tank (gets a cold) for any reason, the rest of Apple gets pneumonia. For example, the Chinese decision not to allow iPhone use by Government and state-owned enterprises saw shares tank by nearly 20%. Read Apple is banned in China or Reuters report. It may have to contend soon with a South Korean Military use ban!

But the hidden gem is Advertising revenue—ads targeted to you

Apple does not break that out of ‘Services’ in finance reports. The Motley Fool estimates that it is about $20 billion from advertisers and $20 billion from Google to remain the default search engine (the annual cost of Apple not building its own search engine).

Ad serving in 2022 was embryonic. But since then, Apple has changed iOS to an opt-in tracking model (Ad tracking transparency ATT) that ’completely wrecked Facebook’s ad machine’ (from Apple devices). Apple now strictly controls advertisers’ access to its users. Apple owns everything you do on its devices or services: the App Store, Apple News, Apple TV, Music, Stocks, etc. Ads are served based partly on what you read or follow…

Apple openly states that its users are worth more to advertisers (e.g., higher disposable income, professionals, enterprise users) than other platforms.

Apple spokesperson Shane Bauer said, “A user’s data belongs to them, and they should get to decide whether to share their data and with whom.”

ATT’s rules should apply equally to all developers, including Apple – but they don’t. However, that does not stop Apple from serving targeted advertisements on its services.

Apple Privacy Policy

Its privacy policy (at the end of this report) is approx. 4400 words (but there is more!). It covers interaction with most of Apple and affiliated companies – good.

It distinguishes between personal data (which you can control to a degree) and aggregated anonymised data (which you cannot). You can’t use most Apple devices without an Apple ID/Account, so it can easily identify you.

It cannot control third-party apps from its App Store but has a comprehensive set of developers’ expectations.

You are not required to provide the personal data that we have requested. However, if you choose not to do so, in many cases, we cannot provide you with our products or services or respond to requests.

Apple

It collects:

• Account Information. Your Apple ID and related account details, including email address, devices registered, account status, and age.
• Device Information. Data that could identify your device, such as its serial number, or information about your device, such as its browser type.
• Contact Information. Data include name, email address, physical address, phone number, or other contact information.
• Payment Information. Data about your billing address and method of payment, such as bank details, credit, debit, or other payment card information.
• Transaction Information. Data about purchases of Apple products and services or transactions facilitated by Apple, including purchases on Apple platforms.
• Fraud Prevention Information. Data used to help identify and prevent fraud, including a device trust score.
• Usage Data. Data about your activity on and use of our offerings, such as app launches within our services, including browsing history; search history; product interaction; crash data, performance and other diagnostic data; and other usage data.
• Location Information. Precise location only to support services such as Find My or where you agree for region-specific services and coarse location.

Continued

• Health Information. Data relating to an individual’s health status, including data related to one’s physical or mental health or condition. Personal health data also includes data that can be used to make inferences about or detect an individual’s health status. If you participate in a study using an Apple Health Research Study app, the policy governing the privacy of your personal data is described in the Apple Health Study Apps Privacy Policy.
• Fitness Information. Details relating to your fitness and exercise information where you choose to share them.
• Financial Information. Details include salary, income, and asset information where collected and information related to Apple-branded financial offerings.
• Government ID Data. In certain jurisdictions, we may ask for a government-issued ID in limited circumstances, including when setting up a wireless account and activating your device, for the purpose of extending commercial credit, managing reservations, or as required by law.
• Other Information You Provide to Us. Details include the content of your communications with Apple, including interactions with customer support and contacts through social media channels.

There is nothing out of the ordinary that Google does not collect. The items highlighted are to help profile you for advertisements.

The devil is in the details of 106+ additional privacy policies

There is an extensive list of Data and Privacy for approx. 106 possible interactions with Apple. For example, using:

• Apple Music adds another 3500-word nested privacy policy.
• Apple Pay adds another 3300-word ….
• Health adds another 2900-word …

Theoretically, an avid Apple user might have to read over 300,000 words to understand Apple’s actual privacy policy. We think that is super extreme. If Apple is serious about being an uber-privacy-focused company, this quagmire of nested policies must be addressed.

Apple’s move to AI opens a whole new can of worms and more privacy issues.

It gets a Pass for exposing all the nested privacy policies but a FAIL on expecting users to read up to the equivalent of half the words in the Bible.

Does Apple spy on its users?

New research from Aalto University in Espoo, Finland (home of HMD/Nokia) shows it does.

The researchers studied eight ‘system’ apps: Safari, Siri, Family Sharing, iMessage, FaceTime, Location Services, Find My, and Touch ID.

We focused on apps that are integral to the platform and ecosystem. These apps are glued to the platform, and getting rid of them is virtually impossible. The fragility of the privacy protections surprised even us.

They explained that due to the way the user interface is designed, users don’t know what is going on. For example, the user is given the option to enable or not enable Siri. But enabling only refers to whether you use Siri’s voice control. Siri collects data in the background from other apps you use, regardless of your choice, unless you understand how to go into the settings and specifically change that,

Participants couldn’t stop data sharing in any of the Apple apps.

Apple expects its users to believe, ‘What happens on your iPhone stays on your iPhone’.

Apple operates a closed ecosystem where its devices are tightly integrated, giving the company a competitive advantage in leveraging user data. It allows Apple to retain control for its own benefit while limiting access and ability for its competitors.

Stephen Cheliotis, Strategist at Gravity Global

He argues that many will take Apple’s words at face value, and it should build positive perceptual value. However, for others, this may be seen as no more than a misleading piece of positioning to steal an advantage against the likes of Google, with which it is fiercely competitive.

Trust is a hot-button topic for consumers, developers, and regulators alike. Apple has quietly built a suite of tools for developers to tap into and grow their audiences and monetise their apps with its multi-billion-dollar advertising machine.

Matt Barash Index Exchanges senior vice-president

Strenuously arguing for self-regulation has brought Apple time to a world with a greater restrictive privacy policy on the horizon. Through the lens of public perception, Apple checks its boxes.

CyberShack’s view: The more I went down the ‘Can you trust Apple’ rabbit hole, the more I wished I hadn’t.

Apple clearly states that it does not sell your personally identifiable data – good. For most, that is all the reassurance they need.

Apple hopes you won’t dig too deep into what it does with that aggregated, anonymised data. Because that is what drives its increasing advertising revenue, and as the landlord of the walled garden, it can do what it wants.

Our take: Apple users must have a serious propensity for cognitive dissonance (the mental discomfort that results from holding two conflicting beliefs, values, or attitudes) because, in the final analysis, they are paying premium prices for a privacy-focused (or not) device – according to Apple’s self-assertion.

In the end, Apple and Google collect as much data as possible to enable advertising revenue.

Can you trust Apple to…

• Make eye-wateringly expensive gear? Yes
• Extract maximum money from hardware, software, and services? Yes
• Say it is a feature – not a bug and ignore the problem until a class action? Yes
• Use its deep pockets to appeal against practically every legal action to wear down opponents? Yes.
• Have a monopoly in the App Store? Yes.
• Never comment on rumour, even if it is a fact? Yes.
• Not to sell your personal data? Yes.
• Make a tonne of money from your aggregated anonymised data? Yes.

Data privacy and protection will be the key technology issues of this decade.

Can you trust Apple? Can you trust Apple?