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Silicon Valley Should Drop Its Obsession With Apple-esque Secrecy

By Evan Niu, CFA - Jan 18, 2017 at 9:41AM

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Just because excessive secrecy worked fantastically well for Apple doesn't mean it will for others.

CEO Tim Cook is willing to sacrifice a little bit of secrecy for the sake of collaboration. Image source: Apple.

Without a doubt, an obsession with secrecy has worked very well for Apple (AAPL -1.51%). So much so that all those stories you hear about the seemingly insane security protocols that it subjects even its internal employees to have become part of Silicon Valley lore. In a way, Apple's success has created a mentality that excessive secrecy is a useful marketing tool, one that can be harnessed in powerful ways.

But this ignores the inherent downsides of secrecy, downsides that CEO Tim Cook has recognized. That's why Cook broke down Apple's internal silos with an executive restructuring in the name of collaboration nearly half a decade ago. It's awfully hard to collaborate with co-workers when you have absolutely no idea what they're working on due to systemic isolation.

For every Apple, there are a dozen (or more) not-Apples. In fact, I can't think of a single other tech company that has harnessed secrecy with such extraordinary results. But that hasn't stopped Silicon Valley from trying.

Dressing like Steve Jobs

Consider Theranos, the biotech start-up that has experienced a painful fall from grace that started in October 2015 following a series of investigative reports by The Wall Street Journal. Founder Elizabeth Holmes idolized Steve Jobs, including Jobs' fixation with secrecy and how well that worked for Apple. That contributed to the culture of secrecy that she created at Theranos, as well as her penchant for black turtlenecks. For a while there, Theranos was able to use secrecy as a way to build hype for what it was working on, claiming it could perform a plethora of blood tests using tiny samples of blood, while traditional methods required vials.

Has Holmes been raiding Jobs' closet? Image source: Theranos.

But the rules in biotech are far different than those in consumer electronics. This wasn't just some hardware or software product that you don't want copied by competitors; it's quite literally a matter of life and death. That's why the medical community is an open scientific community, where peer review is par for the course. For years, Theranos famously refused to release its internal data to the community, citing "trade secrets." During its decline, Theranos said it would start sharing data in August 2016. Too bad Holmes instead chose to use her presentation at that month's American Association for Clinical Chemistry's annual meeting in Philadelphia primarily to pitch a new product. She shared a little bit of data that day, but it was largely considered insufficient for scientific purposes.

Amid the controversy, Theranos also used its culture of secrecy as a way to internally downplay public concerns, which didn't help boost employee morale. It's safe to say that secrecy did not work out well for Theranos.

Imagine your work emails disappearing

More recently, Snap is preparing to go public within a matter of months. Snapchat has become an incredibly popular social media platform, particularly among teens. Founder Evan Spiegel is also obsessed with secrecy. Just yesterday, Bloomberg reported on the start-up's culture of secrecy. It's absolutely mandatory reading for any public investor that is considering buying in once shares are publicly available.

Many employees first learned of Snap's Spectacles through media reports and rumors. When asked, the company wouldn't even confirm to its own employees that such a product was in the pipeline. Following leaks regarding its upcoming IPO, Snap assumed that its investment bankers were leaking information and threatened to pay them less unless they agreed to even stricter confidentiality agreements (as if the standard IPO process wasn't secretive enough).

Video source: Snap.

Easily the most confounding part of the report is that Spiegel's preferred form of internal communication with other executives and employees is through Snap messages, which disappear after being read. That just sounds ridiculous. Imagine your boss or manager sending you an important work email, which disappears and self-destructs shortly thereafter. Forgot a pertinent detail in the email? Tough. Need to forward it to another co-worker for a work-related reason? Too bad.

Frankly, I'm not even sure how that's legal. Companies are subject to a wide range of state and federal document retention laws. According to Snap's own privacy policy, Snap doesn't just hide Snap content from public view once it expires or is seen by intended recipients; it actually deletes the content from its servers. Other types of content like Stories have "different deletion protocols." Presumably, Snap has different standards for internal Snap messages, noting that it may "retain certain information in backup for a limited period of time or as required by law."

Whether or not Snap can maintain its obsession with secrecy, which seems to be greater than Theranos', remains to be seen. Apple has been able to balance product secrecy with the public disclosures associated with being a public company (Apple went public nearly five decades ago). The irony for Apple is that attention is in part a function of size, so as Apple grew to become the world's most valuable company with an increasingly globalized supply chain, secrecy simply couldn't prevail. (When was the last time an Apple announcement wasn't leaked in detail ahead of time?)

Can Snap pull off such an Apple-esque balance? I doubt it.

Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool has a disclosure policy.

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