Bloomberg’s Spy Chip Report–Facebook Portal

Bloomberg’s Spy Chip Report

Late last week, Bloomberg wrote a report titled The Big Hack: How China Used a Tiny Chip to Infiltrate U.S. Companies. The implications of this report are significant and in the end, whether true or not, will undoubtedly lead to a stricter and more secure supply chain.

There are a few things about this report worth pointing out. Although this article came out last week, I wanted to take some time to reflect on it and see what new developments unfolded before writing about it. I’m glad I did, because subsequent reports, and statements from the companies in question (Apple, and Amazon) brought more clarity to this issue.

Both Apple (What Blomberg Got Wrong About Apple) and Amazon (Setting the Record Straight on Bloomberg) came out with a detailed and focus denial of the report. In Apple’s report, the title specifically calls out details of the errors in the Bloomberg report, and even the title gives insight into Apple’s position. Amazon similarly came out swinging stating the article has so many inaccuracies it is hard to count. It is rare that two of the world’s largest companies, one now valued over $1 trillion dollars and the other hovering around that valuation, to come out so strongly publicly against a public report and shoot it down point blank.

Further developments even led to the US Government’s Department of Homeland Security to chime in validating Amazon and Apple’s statements saying they have not found any evidence of supply chain tampering and are in full alignment with the position of Amazon and Apple. So what is really going on here?

There are a few things to highlight. First, both Amazon and Apple indicate in their public statements that they had been communicating with Bloomberg reporters on the topic for a year or better. Both took a deeper look into the implications just to make sure they did not miss anything and did not find any evidence to support Bloomberg’s claim. Both Amazon and Apple express both discouragement and shock that despite their cooperation with Bloomberg the story ran anyway. What became clear in both Amazon and Apple’s accounts was they felt they were being as transparent as they could and as forthcoming as they could with Bloomberg to make it clear their report is a dead end. But the story went out anyway.

Now, as I look at this, we have two sides of the story and no reason to doubt either side is knowingly lying or trying to be disingenuous. In the case of Apple and Amazon, they are public companies and such blatant misleading of the public (if they were lying or covering up this story) would likely result in both CEOs losing their job and come under significant SEC and shareholder scrutiny. So it seems unlikely Apple and Amazon are lying. It also seems unlikely, they simply missed these chips or that they truly are unaware. Both companies did an extensive audit to make sure what Bloomberg reports was not happening.

We have no reason to believe Bloomberg is intentionally lying, or intentionally trying to mislead the public with a fake news story just to get clicks since they have a generally stellar reputation and do not want to risk that. I firmly believe Bloomberg had sources, most of them it cited were U.S. Officials, and that Bloomberg felt their sources were credible and accurate enough to go forward with the story.

This is a difficult story to parse out. But, a question worth asking is who stands to benefit from this story? Given that question I find it interesting that the timing is aligned with the U.S. current trade battle and increasingly worsening relations with China. Was this an attempt to make China look bad from a publicity standpoint? Perhaps, but we will never know. But the question of who stands to benefit by giving Bloomberg either incorrect or somewhat incorrect/misleading information for the story is the area to focus on if we truly want to know what is going on. But, as of now, I think we can say with a high-degree of confidence their report is inaccurate and there is no Chinese spy silicon/grand corporate espionage conspiracy happening in the supply chain.

I strongly doubt any response from Bloomberg but some clarity from them would be nice, and helpful at this point.

Facebook Portal
Facebook unveiled the home video conferencing system which has been rumored for sometime. It is called Portal and it has a few nifty features, one in particular where the device is on a swivel and follows the person around the room so they are always in the screen. The commentary on this product was predicable. Most saying they would never let a product like this from Facebook in their house. Others, correctly stating, that this is the worst possible time for Facebook to release a product like this given all the bad publicity they have received lately. These reactions sum up the major themes from commentary and they are both true.

Besides those two points, another issue is a question of what makes this product better than others in the marketplace? It has a few nifty features, but none of those features are enough to overcome Facebook’s lack of trust. If there was some truly amazing and highly differentiated feature then maybe I’d be more optimistic on this product–barely. But even then, given all of Facebook’s issues, and the many consumer studies (including several by my firm) showing how low consumer trust in Facebook is, I do not believe this product will do well.

The real question I have is why did Facebook make it? If they did any market due-diligence, every bit of information would have come back making the case against this product. My only guess is that, much like Snap Spectacles, Facebook needed to learn by shipping and go through the process of making this hardware in order to gather more experience building hardware. This product itself is not competitive in the market and both Google and Amazon offer better competing products and a richer ecosystem.

It also seems, for Facebook, their belief is we will all get together in VR someday so this device seems like it was built for the late-adopter who needs simplicity with their technology. This type of customer also tends to be extremely privacy conscious and the exact opposite of the type of customer Facebook would appeal to with such a product.

Even though this product is likely not to sell well, I don’t think Facebook is done experimenting and bringing to market other hardware devices.