The news on the activities of National Security
Agency (NSA) include a story that has been overlooked by many: there is a
leaked document about a piece of spyware software called "DROPOUTJEEP", which makes an iPhone reveal significant information about its owner, including
details such as files stored, messages sent and received, phone calls, and
location. Apple has issued a denial that it collaborated with NSA to make this
program. The denial is interesting because the document says nothing about a
role of Apple in creating this software, and the NSA is perfectly capable of making
spy software without help from the maker of a device. In user forums there have
indeed been allegations that Apple is involved, but such allegations typically
happen and don’t have much weight if there is no supporting evidence.
So why does Apple care? We could take a hint from the
reactions of other technology companies to information on NSA activities to
monitor their users. Google, Facebook, and Yahoo have issued angry responses to
reports that NSA were listening in on their user’s communications by doing the
Internet equivalent of a wiretap. Google went a step further by using
encryption so that NSA would be left with a decryption task if it was able to
continue wiretapping Google’s communications. That is a hard slap, because listening
in on the internet is fairly easy, but decrypting digital communications takes a
lot of time and computing power.
Apple, Google and other firms are not against national
security. They do, however, dislike any technologies that will let the
government monitor their users without legal backing. And
because their managers are practical with respect to what they like and
dislike, we can conclude that they are well aware that their users dislike such
monitoring too. We know that customers can react by backing off from
transactions with firms that do things they are against. That finding was
in a paper by Stefan Jonsson, Takako Fujiwara-Greve, and myself on how a scandal
involving favoritism in an insurance company led to withdrawals from mutual
funds that customers saw a similar to insurance.
But now there is new research on
others who have opinions on what firms do, and can react to it. Amandine Ody-Brasier and Freek Vermeulen published a paper in Administrative Science Quarterly looking at the pricing of grapes to Champagne producers. One would think that
grapes had a single price, or at least one that was only determined by quality,
but in fact there is substantial variation in the pricing. And here is the
interesting finding: Champagne producers who were doing (or suspected of doing)
things that the grape makers disliked, such as having a non-French subsidiary
or making Champagne under a store brand, were secretly punished by having to pay
more for their grapes.
So firms that are concerned with
keeping a distance between themselves and any rumors of misconduct and scandal
are doing the right thing. Not only is misconduct an embarrassment, it can also
be punished on both sides, by suppliers and customers. Walking the straight and
narrow path seems to be the way to get to profitability.
Wakabayashi, D. 2013. Apple Denies Working With NSA on
iPhone Backdoor. Wall Street Journal, 31.12.2013.
