David Heinemeier Hansson

March 17, 2021

Apple in China: Privacy, principles, purses, and pickles

It's easy to commit to principles when they don't cost you anything. That's why most mission statements ring so hollow. They're filled with free platitudes, and thus provide no guidance on how to actually drive "the mission" when trade-offs must be made. That's by design. The flowery mission statement is usually meant as a fig leaf over the real mission: grow as fast as possible / make as much money as possible.

But every now and then you will encounter a company that actually does pay for its principles. That's how brands are burnished. Standing for something is a risk, so it takes courage and conviction. We admire people who fight the fights worth fighting, and so too with companies.

Is Apple one of those companies? Does Apple really stand for something? I used to say "yes" without hesitation. That's why I was a mostly unreserved fan for so many years. Now there are many reservations, and many new doubts, but I still want to believe. Perhaps not in the grand narrative, they're just too big for that, but in specific areas where the remnants of the old pirate ethos still linger.

Take privacy. It's probably the key reason why I still use the iPhone. I simply trust Apple more than Google when it comes to protecting my privacy. Google's entire business model rests on the industrial-scale violation of said privacy. Apple merely flirts with such violations when it suits other purposes, and it's not where the big bucks are made. That's a key structural difference between these two monopolists, which otherwise share similar tactics.

So given the real difference in business models, Apple has been able to own the principle of privacy for free. It doesn't really cost Apple anything to mandate privacy labels for apps, so they do, and they reap the applause. It doesn't cost Captain Cook anything to shoot across the bow at Facebook for its privacy violations, so he does whenever he can.

But things are about to get interesting. Apple will finally get a chance to test the courage and conviction of its commitment to privacy. The upcoming iOS 14.5 will start asking users whether apps can track them with a unique identifier (which can be used to follow them around different apps and on the web). Facebook is clearly petrified that if users get the choice, most will say no, and their ability to sell surveillance advertising will be seriously harmed. Good, I say!

Facebook's opposition is hardly a test, though. Apple is clearly the alpha in that relationship. Facebook needs Apple more than Apple needs Facebook. So they have the leverage, and Cook seems to live for that flex.

No, the test is China. Patrick McGee at FT broke the story that Tencent and ByteDance, along with the state-backed China Advertising Association, have devised a workaround to the changes in iOS 14.5, such that they can continue to track users across apps without triggering the new permission dialog. This workaround is called CAID, and was briefly described online, before it got yanked, but The Wayback Machine caught it.

So Chinese tech giants, with the explicit backing of the Chinese government, are telling Apple that they're not going to comply with the new privacy controls, and basically daring "and what are you going to do about it??". This has all sorts of echoes of when Google bailed on China in 2010 over censoring search results (and later Gmail hacking). That did cost Google, and they later tried to recoup on those losses with the Dragonfly project, but the stakes are entirely larger for Apple.

Apple is frequently making in excess of ten billion dollars PER QUARTER in China. Last one blew all records and topped twenty billion, making up 20% of Apple's total revenue! That's good for Apple. It's less clear how this matters to China. If Apple was to leave the Chinese market tomorrow, those sales would likely just go to Huawai or Xiaomi. Local companies where profits stay in China, and companies that are even easier than Apple to control (not that Apple is putting up much of a fight!). Sounds like a Chinese win-win?

Surely Apple knows this. Which is why it's so interesting! Apple will be forced to weigh the value of its commitment to privacy against the value of billions in Chinese revenue. Because if they stick to their privacy guns, kill CAID, and anger the Chinese government in the process, it's not exactly a stretch to imagine how that might mean trouble. Maybe even a showdown. Maybe even a forced exit from the Chinese market.

On the other hand, Apple can't credibly let Tencent and ByteDance get away with skirting the protections in iOS 14.5, putting Facebook at a serious disadvantage against those two. It's perhaps the one plank in this sea of antitrust waves where Facebook comes out looking sympathetic. I could well imagine US senators writing concerned letters to Apple if they let Facebook's competitors get away with privacy murder while handcuffing the national champion.

I gotta say, this is a delicious pickle! I'm going to enjoy it with a side of popcorn. I'm sure Apple would like for nothing better than to strike a backroom deal without public scrutiny that lets it run a one-company-two-systems policy towards privacy in the world.  Cook already demonstrated with his pandering to the Trump administration that he has no qualms about moral compromises if it means an economic advantage for Apple ("I'll trade you a humiliating photo op for a break on tariffs, Mr Trump!"). But maybe that pony dance was deemed worth it, since the cost was measured only in Cook's dignity. These stakes are different.

So what's it gonna be, Apple? The purse or the principles?
partially rotten red apple.jpg

About David Heinemeier Hansson

Made Basecamp and HEY for the underdogs as co-owner and CTO of 37signals. Created Ruby on Rails. Wrote REWORK, It Doesn't Have to Be Crazy at Work, and REMOTE. Won at Le Mans as a racing driver. Fought the big tech monopolies as an antitrust advocate. Invested in Danish startups.