At Apple, Secrecy Complicates Life But Maintains Buzz Maker of Mac and iPod Keeps Customers, Workers in Dark; Watermark on the Memo Frustration for Business Buyers
By NICK WINGFIELD Wall Street Journal June 28, 2006; Page A1 http://online.wsj.com/article/SB115146095308592693.html?mod=hps_us_pageone Apple Computer Inc. generates buzz for its new products by obsessively enforcing a strict secrecy policy. But the policy can sometimes leave partners, big customers and even employees in the dark. Consider Hewlett-Packard Co.'s recent experience. In early 2004, H-P cut a deal to repackage Apple's iPod digital music player and sell it with the H-P label. Even though they were partners, Apple often didn't tell H-P about new iPod models until the day before they were introduced to the public, people familiar with the matter say. That left H-P scrambling to package and stamp its name on the jointly branded iPods for months after Apple put its version on sale. [New Tune] What's more, Apple insisted H-P work on iPods under tight security, even though Apple's versions in some cases were already sitting on store shelves, one person who was involved in the relationship between the companies says. For reasons including the secrecy issue, H-P terminated its Apple deal last August. An H-P spokeswoman said the company and Apple had a "mutually beneficial relationship," but declined to comment on how the partnership worked. Apple declined to comment about the H-P deal, or more broadly about its policy of secrecy. Apple's singular focus on secrecy is unusual, even among high-tech companies that closely guard their product plans. Microsoft Corp., far more often than Apple, talks about its products well in advance of releasing them. Manufacturers that use Microsoft software in their products and big customers thus have an opportunity to prepare for them. Apple, based in Cupertino, Calif., mostly keeps its plans for new products to itself. It rigidly compartmentalizes itself so that even its own employees don't find out about coming products. It has fired and later sued workers who leaked information about unannounced products. More recently, it has filed suits against Apple-enthusiast Web sites that publish tidbits about the company. While many tech companies assign internal code names to products, Apple goes a step further. It often gives different departments dissimilar code names for the same product, current and former employees say. If a code name leaks, Apple can more easily track down the department from which the leak originated. Apple managers carefully track who knows what about secret projects, maintaining "disclosure lists" of those who have been briefed, according to the former and current employees. When employees receive documents containing sensitive information about unannounced products, the documents are often watermarked with the recipient's name, a practice meant to discourage carelessness. Closed-Lips Approach This closed-lips approach is a key underpinning of Apple's marketing strategy. To the envy of many in the tech industry, co-founder and chief executive Steve Jobs uses secrecy expertly to amplify interest in Apple's products. Regis McKenna, a veteran Silicon Valley marketing executive who worked on some of Apple's earliest product introductions, says he marvels at how Apple continues to stimulate so much public curiosity about its coming products. "There's a great deal of mystery and speculation about what it will be," says Mr. McKenna. "That's created a marketing aura for them." The mystery helps Apple attract crowds at its retail stores and generally garner much more visibility than its relatively modest advertising budget would suggest. Apple spent $287 million on advertising last fiscal year, compared with $995 million for Microsoft and $1.1 billion for H-P, according to the companies' filings with securities regulators. While new wares from Dell Inc. or H-P rarely get front-page treatment, Mr. Jobs has repeatedly appeared on the covers of Time, Newsweek and Fortune showing off a new iPod or Macintosh computer. The secrecy has been a particular boon to Apple's fastest-growing product line, the iPod, which accounted for nearly 40% of the company's $4.36 billion in sales last quarter. Apple's reluctance to talk about new iPods, which are aimed at consumers, can add to the products' cachet. And consumers have proved willing to abandon their old iPods in favor of the sleeker and more feature-packed versions that the company unveils with such fanfare. It's a different story for corporate customers and other big technology purchasers, which buy about 60% of personal computers world-wide. Because of the hefty investments involved and the long lead times required by budgeting processes, surprises are anathema to them. They favor tech suppliers that give them "roadmaps" for products, letting them see major product plans a year or more in advance. One fallout: Even as Apple has enjoyed growth in its Mac business in the past two years, its share of new world-wide personal computer shipments remains near a historic low of about 2.3%, down from 9.4% in 1993, according to research firm International Data Corp. Until his retirement last year, Russell Vaught was an associate vice provost for information technology at Penn State University, with more than 15 years of experience buying Apple products for the school. While Mr. Vaught has three Macs at home, he was uncomfortable making sizable commitments to buy Apple products for the university. "Apple went from being the most open company in the mid-'90s to being an impossibly closed company," Mr. Vaught says. "You could no longer strategically position the institution to take advantage of Apple products. You ran the constant risk of purchasing stuff that was soon to be obsolete." People familiar with Apple say this approach is deliberate, as the company increasingly shifts toward the consumer market. Mr. Jobs has made it clear he favors selling technology directly to consumers rather than to chief information officers and other gatekeepers that buy technology for enterprises. In orientation sessions with new employees, representatives of Apple's corporate-security department stress the dire consequences of leaking information. A gruff member of Apple's corporate-security team often delivers a sermon on security, telling new staffers that leakers will be caught, fired and prosecuted, current and former employees say. Apple has recently gone after enthusiast Web sites that cover the company, variously suing them for allegedly divulging trade secrets or seeking court orders forcing the sites to divulge their sources. In one such case involving the Web sites PowerPage and AppleInsider, a senior investigator in Apple's corporate-security department described why the company vigorously protects its product information. "Secrecy surrounding announced products enables Apple to generate more publicity for the product at the time of launch," said the investigator, Al Ortiz Jr., according to court documents. Several years ago, as Apple plotted to open its own chain of retail stores, Mr. Jobs instructed Ron Johnson, the head of the new-store initiative, to build a store prototype before the outlets were rolled out. The project was so hush-hush, Mr. Jobs said when announcing the stores, that he asked Mr. Johnson and his crew to build an exact replica of the 6,000-square-foot store entirely inside a sealed-off warehouse away from Apple's main campus. Much of the fortress-like security at corporate headquarters -- an oval of buildings surrounding a courtyard next to Silicon Valley's Highway 280 -- reinforces the compartmentalization imposed by Mr. Jobs. Apple employees are outfitted with electronic badges that grant them access only to specific areas and no others. "No tailgating" signs are posted outside entry doors, staffed by security guards, to deter people from bypassing Apple's badge system by holding the door open for others. Cloistered for Years Apple employees are sometimes cloistered for years on secret projects. In June 2005, when Apple announced plans to switch its computers to microprocessors made by Intel Corp., Mr. Jobs said the Mac had been living a "secret double life" for five years, during which engineers adapted new versions of the Mac operating system to run on Intel chips. Underscoring the project's clandestine nature, Mr. Jobs showed a satellite image of the building on Apple's campus where engineers toiled in obscurity on the effort. Apple, which Mr. Jobs founded with Steve Wozniak in 1976, wasn't always so secretive. During the company's early years, Mr. Jobs himself was known as a strategic leaker, frequently inviting in reporters to see products under development. Mr. Jobs, in conversations with journalists, has repeated a saying about the Apple of old: "Isn't it funny -- a ship that leaks from the top?" After Mr. Jobs was ousted from Apple in 1985, the company became even more of an information sieve. MacWeek, a trade magazine, was commonly referred to within the industry as MacLeak for its prodigious output of stories about products Apple hadn't yet officially announced. That all changed after Mr. Jobs returned in 1997, when Apple acquired NeXT, the computer company he ran while away from the company. When he later assumed the top job at Apple, Mr. Jobs reinvigorated the company's lackluster computer line. He also instituted a vigorous clampdown on leaks. In late 2002, representatives of Argonne National Laboratory, a government research center in Argonne, Ill., visited Apple headquarters for a confidential product briefing, according to an executive summary prepared by Apple. The document was shown to a reporter by Stephen Bates, a former Apple sales official who says he was fired last year in a dispute over commissions. The representatives were eager to learn more about product plans for "high-performance computing," in which many PCs are linked together to handle complex computing chores. But Argonne representatives didn't learn enough to help them determine whether the products could fit into the lab's computing project, according to the summary. "They were frustrated that Apple did not give them any indication of future directions," says the summary. "One of the attendees said that he didn't learn anything he didn't already know from the Web and chat sessions." In written customer comments included in the document, Rémy Evard, now Argonne's chief information officer, said, "With other companies, ranging from small companies to Microsoft and Intel, I learn an awful lot more useful info for my time investment than we got here." In an email, Mr. Evard confirms his comments, adding that he has made such comments to Apple more than once. Apple can be closemouthed about even seemingly picayune details. Several years ago, David Sobotta, Apple's former director of federal sales, says he accompanied a top technology official of a large National Aeronautics and Space Administration facility to Cupertino. In a meeting one Friday with an Apple product manager, the official wanted to know when Apple would release a version of one of its Mac laptops that could connect to Apple's external flat-screen displays. The product manager declined to say, according to Mr. Sobotta, who joined Apple in 1984 and says he was fired last year over a dispute involving sales commissions. The following Monday, Apple publicly announced a laptop that included the very feature the NASA official had asked about three days earlier. The official didn't respond to requests for comment. But Mr. Sobotta says the NASA official -- a major customer, who spends millions of dollars a year on Apple products -- was miffed. ================================================= George Antunes Voice (713) 743-3923 Associate Professor Fax (713) 743-3927 Political Science Internet: antunes at uh dot edu University of Houston Houston, TX 77204-3011 Reply with a "Thank you" if you liked this post. _____________________________ MEDIANEWS mailing list [email protected] To unsubscribe send an email to: [EMAIL PROTECTED]
