IP Democracy: AppleGate and Cognitive Dissonance

For those of you not enmeshed in the blogosphere, a tempest in a teapot, dubbed Applegate, has brewed up regarding a report by the authoritative blog Engadget. Engadget reported, wrongly as it turns out, that Apple was postponing the launch of its wildly anticipated iPhone from June to October and was pushing back its Leopard operating system launch from October until January 2008.

The report’s author, the very good Ryan Block, retracted the original report (which was posted around 12:50 pm EDT yesterday) a few hours minutes later but in the interim news of the iPhone’s delay knocked an estimated $4 billion in value off of Apple’s stock. This was very embarassing for Engadget and quite the testament to the power of the blogosphere.

After a delay of about a day, Ryan has posted this explanation of the donnybrook. As it turns out, Ryan’s reportage was top-notch, but the source he relied on was a fraud. It seems that someone spoofed an email from Apple’s HQ and sent word of the delays internally to some Apple employees, one of whom sent the email on to Block.

That’s pretty solid inside information, except it was fraudulent. The question is: why would someone do this? Some folks speculate that the phony emailer wanted to mess with the public markets to make some money on the inevitable stock speculation.

This explanation doesn’t sound right, mostly because a tactic like this must amount to securities fraud (or something to that effect) and the SEC has ways of identifying people who earn suspicious windfalls on Wall Street.

In any event, I had my own weird experience with the Engadget story. As coincidence would have it, from 12:15 pm to 12:45 pm EDT yesterday I listened to a live webcast by AT&T’s CFO Rick Lindner, who was speaking to a Merrill Lynch conference. AT&T has the exclusive rights to the iPhone, in the short-term anyway, and is banking on the gorgeous gadget to give its wireless service a gust of uplift.

During Q and A, Lindner was asked about the iPhone and one of the first things he said was that Apple has confirmed it will begin shipments of the device in June. Shortly after I listened to the webcast I was checking out Techmeme and saw that Engadget’s report of the iPhone delay was starting to get play.

Imagine my confusion, my cognitive dissonance, as psychologists would put it. The CFO of AT&T had just told a Merrill Lynch conference that the iPhone would ship in June while Engadget was citing solid sources inside Apple who had evidence that the iPhone would be delayed until October. Not only that, the supposed internal Apple email also claimed that a press release announcing the delays had been sent to the wire services.

My confusion was only temporary. I quickly realized that Engadget was in deep trouble. If anybody would have known about an iPhone delay outside of Apple, it would have been Rick Lindner, the CFO of AT&T. If a press release, for goodness’ sake, had been drafted and sent to the wire services, you’d better believe Lindner would have seen it beforehand. If Lindner believed that the iPhone wouldn’t ship until October, he wouldn’t tell a group of big investors that the iPhone would ship in June.

There’s no way I believed Engadget’s report and I sensed trouble was coming for the first-rate blog. I could only sit and wait for the inevitable storm, although I didn’t realize what kind of impact the report would have on investors. This controversy, more than any other single development, signals that bloggers now move markets in a major way. As Mike Arrington writes:

the fact is that big blogs now have an incredible amount of power to move information quickly, and influence people more broadly than ever before.

Ryan offers a detailed explanation of what transpired yesterday in the hopes of being as transparent as possible. Ryan also bends over backwards to assure Engadget’s readers that the blog holds itself up to extremely high standards and promises to “earn back the trust we have lost.”

In my view, Ryan and Engadget got burned by a few unknown malicious gremlins, and the rest of us went along for a short roller coaster ride. If anything, I will assume that Engadget will become perhaps the most reliable source of news and information on the Internet because it got so singed.

Update: As Ryan notes in his comment to this post, Engadget’s retraction was posted within minutes, not hours, of the original post, as I had originally written and Apple’s stock was back up as quickly as it fell. So, this whole episode is even more of a tempest in a teapot.

Posted by Cynthia Brumfield on May 17, 2007 10:39 PM to IP Democracy