Apple’s New Fraud Problem: Cracked Walls and Broken Promises

Apple’s New Fraud Problem: Cracked Walls and Broken Promises:

Apple’s announcement of a dividend and stock buyback was a welcomed boon to already well rewarded shareholders. Yet to be addressed, however, is a critical issue that affects even more vital stakeholders — its customers and developers. The rising chorus of complaints about fraud perpetrated through the App Store is a major risk for Apple’s golden status.
As The New York Times reported last week:

The complaints come from consumers … who say that their accounts have been hijacked or that some apps are falsely advertised. And they come from creators of apps, who say they are having to deal with fraudulent purchases that drain their time and resources. Software makers also complain that competition in the App Store has become so brutal that many companies resort to artificially inflating their popularity rankings to grab attention.

Apple’s has taken the idea of a walled garden, and extended it to the point of becoming a fortress, with a single gate for passage in and out. They have insisted on, and maintained, absolute control over all activity on the iPhone platform.

Consumers locked into the platform for loading software are required to leave their credit card numbers with Apple for safe keeping. Developers can only sell their applications through the App Store, and then only after an opaque Apple-run vetting process. Operators are barred from offering their own portal into the phone.
The main justification has been one of quality control — in contrast to the ‘wild west’ of the rival Android ecosystem, the iOS platform was supposed to be an ultra-safe gated community. This was the promise and premise for Apple’s benevolent dictatorship, and the justification that Jobs famously offered to all objectors.
Fraud problems in the App Store undermine the entire premise. If the dictator gives no protection, the masses rebel. (Note to die-hard Apple loyalists: you are not the masses.)
Under the protective blanket of Steve Jobs’ “reality distortion field,” Apple’s famous lack of transparency was held up as sign of confident genius.  However, in the absence of distortion, opaque responses to security breakdowns are increasingly hard to admire.
When Steve Jobs faced his own execution failure with the iPhone 4, whose flawed antenna design led to an epidemic of disconnected calls, his response was, ‘You’re holding it wrong, dummy.’ And somehow he convinced the world that we were in the wrong.
Apple’s new CEO, Tim Cook, was able to bypass his first major leadership crisis, blunting outrage over poor working conditions in supplier factories with promises of fact-finding committees.  Fraud in the iTunes store, however, is a different test.  It is an execution failure that directly undermines Apple’s reputation for delivering on its promises. And it can’t be fixed with a hand adjustment, a simple hardware upgrade, or a task-force working paper.
Let’s see if Cook can pull off the same bluff as Jobs, making an execution failure blow over. Or whether he will make the fundamental adjustments — increased transparency and accountability — necessary to re-earn the trust of his loyal subjects.