How Apple brought ChatGPT to the iPhone for $0 (and why OpenAI is not complaining)

In this week’s edition:

• The Apple AI Announcement we’ve all been waiting for

• Apple Intelligence: the new “Normal” of AI

• The $0 deal that really makes sense 

• Key Strategic questions industry leaders and investors are asking

How Apple brought ChatGPT to the iPhone for $0 (and why OpenAI is not complaining) 

The Apple AI announcement we’ve all been waiting for

November 2022, you log into ChatGPT for the 1st time and type “Write a rap song about avocados”. You get instantaneous results.

It feels like magic. 

For most of us, it felt like the Future was here. The Next Big Thing.

Large Language Models. Artificial Intelligence.

Since then, everyone from the World’s largest companies to the leanest start ups have been tripping over themselves to show they, too, are in the AI Game.

But, no one was under more pressure than Big Tech. They were not expected to be players but leaders.

While all the major names rushed to show off products and plans, one name remained silent: the largest company in the World at the time, Apple.

• Are they behind on AI technology ?

• What will AI on Apple’s products look like ?

• What will their approach be ? Develop their own LLM ? Partner with another provider ?

We now seem to have our answer

Apple Intelligence: The New “Normal” of AI

Apple announced Apple Intelligence.

An injection of AI everywhere you could imagine in your Apple Devices.

The goal being an integration so seamless, you won’t even notice it.

It will be both “Normal and Useful” (Which I love)

You won’t be using Siri or “AIChatbot” but an AI powered Siri to provide better answers and get stuff done for you.

Most of these capabilities are seemingly being developed in-house. Except one. 

Apple announced a limited integration with ChatGPT (which users have to opt into)

Soon after, the supposed financial details of the deal were leaked:

Apple is paying OpenAI $0.

The $0 deal that really makes sense

The most common business deal structure is as follows:

• I give you $X

• You provide me Y product or service

But, the real core of any partnership is not money, but value exchange.

And Apple owns the most valuable piece of Real Estate in the Tech World, the iPhone.

Here’s a short list why:

• Your mobile is where you spend most of your time online (3h15min per day on average).

• The iPhone has 58% market share in the US (the world’s biggest and most lucrative economy)

• iPhone users’ salaries are 48% higher than competitor phones’ users.

• Gen Z and Millenials are more likely to be iPhone users. 

Companies pay $ Billions of dollars per year to provide apps, content and services on Apple’s products. 

In exchange they secure Distribution (Presence) on some of the most ubiquitous devices on the market. 

OpenAI got there first and “for free”. Sure, there will be costs to bear. But, with the AI Hype train in full motion, funding is no issue (for now).

Investors seem to be excited by the news. Apple’s stock is up 12% (at time of writing), adding $380 Billion in market cap.

This is the first step in Apple’s AI Evolution. There are a few key questions going forward.

Key Strategic questions

• Apple/OpenAI’s current integration:

  • How well will it work ?

  • Will it compromise Apple’s stated dedication to user privacy ?

  • Will the Economics of the deal make sense for OpenAI ?

    • A recent Goldman Sachs/Apple partnership on Savings accounts fell apart precisely because it supposedly didn’t live up to these quality and cost reasons

  • How will it impact already announced integrations with other LLM providers ?   

• International Expansion: 

  • Including new languages support is particularly challenging. Most of online content is in English. 

  • Partnering with local providers:

    • For political and regulatory reasons, Apple will probably need to partner up with local providers in China and Europe. For political, regulatory and capabilities reasons, it might not be as easy as in the US.

• In-House capabilities:

  • Will Apple develop its own LLM ? This would be more in line with Apple’s usual product approach

The information contained in this newsletter is for general informational purposes only. It should not be construed as financial or investment advice. Please consult a qualified financial advisor before making any investment decisions.