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What's the Price of Gizmodo's $5K Scoop for Apple?

What's the Price of Gizmodo's $5K Scoop for Apple?

An attorney representing Apple told a sheriff's detective that the company could suffer "huge" losses due to the outing of its fouth-gen iPhone prototype on tech blog Gizmodo, as consumers might not buy the currently available 3GS model if they know a newer version will soon be released. Even a 1 percent dip in sales could represent $78 million in losses, suggested ITIC Principal Laura DiDio.

By Kimberly Hill MacNewsWorld ECT News Network
05/17/10 2:38 PM PT

The release of information about the prototype fourth-generation iPhone left in a restaurant bar by Apple engineer Gray Powell has been "immensely damaging" to Apple, an attorney for the company told a detective investigating the case. This is according to the affidavit filed by the detective in support of a warrant to search the home of Gizmodo.com editor Jason Chen for evidence related to the case.

The affidavit, documenting a conversation between Detective Matthew Broad of the San Mateo County Sheriff's office and several representatives of Apple has just been released. The text includes Broad's statement that the document should be kept sealed because release of its contents could hurt the investigation.

On Apple's side of the table were Rick Orloff, Apple's director of information security; Bruce Sewell, the company's general counsel; and outside attorney George Riley of the firm O'Melveny and Myers. Riley is the person who made the statements about how damaging the release of the trade secrets -- in the form of publication of photographs of the prototype -- could be for Apple. He couldn't estimate the loss to Apple resulting from leak of the prototype, but he said it could be "huge."

The issue, according to Riley, is that consumers might hold off on buying an iPhone if they learned that a newer version was about to be released. Thus, sales of the currently sold version of the iPhone, the 3GS, could be damaged as the public awaits the next version. Riley said that Apple's "overall sales" and "earnings" would be negatively affected by the prerelease information, according to Detective Broad.

In the Know

Was the existence of a prototype that foretold an updated iPhone model really such a surprise? Not at all, Alex Spektor, analyst with Strategy Analytics, told MacNewsWorld.

"Given Apple's historic product release cycle, we could have been nearly certain that a refreshed iPhone design was due on the market in the coming months," he said.

Those releases tend to come in June, and the prototype leak actually "gives Apple some additional buzz," he noted, which could be helpful.

That buzz is a two-sided affair, though, added Spektor. The publication of photographs of the innards of the phone on Gizmodo.com gives competitors the advantage of advance knowledge of some details of the device's specifications. The value of the knowledge is "debatable," he explained, but Apple still has "full right to keep its unreleased products tightly under wraps."

That they would want to do so, especially as the makers of high-end, Android-based devices attempt an onslaught of the market with new devices, is no surprise.

Mainstream Melee

However, while Apple's timing in unveiling new releases might be no surprise in tech circles, it might indeed be news to the average consumer, Adam Christianson, publisher and producer of the MacCast podcast, told MacNewsWorld. The trouble is that "because of it's unusual nature, the story went mainstream," said Christianson,

While those fans who watch Apple's corporate activities may know to expect new models around June, "I don't think the general public typically does," he noted.

Thus, consumers who may have been thinking of buying an iPhone late this spring may hold off until the new model's release, Christianson said.

While they might not be the types of buyers who would research their choices to the point of knowing about upcoming product releases, they could have learned of the upcoming new model through a variety of mass media news outlets, because it was covered at the local and national evening news level.

"Dave Letterman even did a Top Ten list around the theft," noted Christianson.

If iPhone sales dip even as little as 1 percent during the current quarter as a result of the leak, the losses could be substantial, Laura DiDio, principal with ITIC, told MacNewsWorld.

"Apple sold 8.75 million iPhones, which accounted for 58 percent of the company's record-breaking 2010 second quarter revenue of US$13.5 billion," she explained. "If iPhone sales dip by even 5 percent to 10 percent because of this leak, the financial loss could range from $390 million to $780 million. Even a 1 percent decline would be equivalent to $78 million."

None of this, of course, takes into account how much Apple may have lost in competitive advantage as a result of the revelation of trade secrets.


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