Key Points
- Apple integrates ChatGPT with Siri, a significant partnership with OpenAI.
- Potential future partnership with Google’s Gemini AI model hinted at by Apple executive Craig Federighi.
- Apple might use competition between OpenAI and Google to negotiate lucrative AI distribution deals.
- The financial dynamics and data access issues are crucial in these negotiations.
In a groundbreaking announcement at WWDC 2024, Apple unveiled a partnership with OpenAI, integrating ChatGPT with Siri. This move signifies Apple’s serious entry into the AI arena and hints at a possible future deal with Google’s Gemini AI model. This strategic positioning by Apple could set the stage for a high-stakes competition between OpenAI and Google, with substantial financial implications.
The AI Integration and Financial Dynamics
Apple’s integration of ChatGPT into Siri marks a significant leap in the capabilities of its digital assistant. Craig Federighi, Apple’s Senior Vice President of Software Engineering, hinted at potential integrations with other AI models, including Google’s Gemini. This statement was likely aimed at keeping Google in the running for a similar distribution deal, thereby leveraging competition to Apple’s advantage.
Craig Federighi: “We’re looking forward to doing integrations with other models, including Google Gemini.”
This competitive dynamic is reminiscent of the existing $20 billion annual deal where Google pays Apple to be the default search engine on iPhones. By suggesting potential future deals with Google, Apple can negotiate better terms, much like it does by leveraging Microsoft Bing as an alternative in search engine negotiations.
Neither side paying the other makes sense. Apple is giving OpenAI access to customers so should get paid like Google pays them for search defaults. However OpenAI doesn’t have any money so they can’t afford to pay.
So they’ll split revenue from OpenAI upsells to paid accounts. pic.twitter.com/6lHqDFBew9
— Dare Obasanjo🐀 (@Carnage4Life) June 13, 2024
OpenAI vs. Google: Who Pays Who?
The financial arrangements of the Apple-OpenAI deal remain unclear. Traditionally, securing a distribution deal on iPhones would require substantial payments to Apple. However, given Apple’s current lag in AI capabilities, it is possible that Apple might have made concessions to integrate ChatGPT, possibly even paying OpenAI.
Morgan Stanley Analysts: “Unit economics obviously matter… Google must weigh the cost of paying Apple for AI model distribution against the opportunity to get more Gemini users.”
The suggestion that Google might also be considered for similar integrations sets the stage for a bidding war, potentially leading to significant payments to Apple from the highest bidder. This dynamic could echo the lucrative search engine deal but within the AI domain.
Data Access and Privacy Concerns
Data privacy and access are critical factors in these negotiations. At WWDC, Apple stressed that user requests through ChatGPT would not be logged, and OpenAI would not be able to train its models on Apple user data. This level of privacy might not align with Google’s needs, as it relies heavily on data access to improve its AI models.
Morgan Stanley Analysts: “Google, which currently has access to data for any queries logged via the web/its mobile app, would likely want this level of access should they be servicing these queries via channels like Siri.”
This potential deal breaker could explain why Google has not yet secured a similar arrangement with Apple. Google’s need for data to enhance its Gemini models might conflict with Apple’s strict privacy policies, creating a significant hurdle in negotiations.
The Future of AI-Powered Smartphones: “Intelliphones”
Another critical factor is Google’s potential strategy to reduce reliance on Apple distribution deals by enhancing its own Android ecosystem. With advanced AI features integrated directly into Android, Google could potentially lure users away from iPhones, especially through its Pixel devices, which are positioned to showcase the best of Google’s AI capabilities.
Morgan Stanley Analysts: “The way in which AI functionality is built directly into the Android operating system is also enabling Google to improve the utility offered on Pixel phones with new use cases that in some ways may end up being superior to what Apple can offer for now.”
This move could lead to increased sales of Android devices, reducing Google’s need to negotiate expensive deals with Apple.
Apple’s strategic positioning between OpenAI and Google could lead to significant financial and technological benefits. By keeping both AI giants in the running for integration deals, Apple can leverage competition to secure favorable terms. However, the complexities of data privacy and the evolving AI capabilities of competitors like Google mean that the landscape is dynamic and highly competitive.
Apple’s ability to navigate these negotiations will be crucial in shaping the future of AI integration in consumer technology. Whether Apple can secure the best deals while maintaining its privacy standards remains to be seen, but the potential for substantial revenue and technological advancement is clear.
