Apple – AI Breakdown

AI is not needed to sell iPhones yet.

• Apple’s run of trouble with AI is continuing as a good proportion of the much-hyped Apple Intelligence services are being delayed again in yet another sign that Apple is still struggling with AI raising the possibility of an acquisition to plug the gap.
• The good news is that AI is not yet needed to sell iPhones giving Apple time to sort the mess out, but this does give Google an opportunity to take the fight to Apple.
• Both the “more personalised version of Siri” (which I take to mean powered by an LLM) and certain Apple Intelligence services such as “on-screen awareness” are taking “longer than we thought” to come to market as testing has revealed that they don’t work very well.
• This news comes at the same time that Bloomberg is reporting that Apple is in licensing discussions with Google that it reports could see Gemini power the iPhone.
• I think that this is a very unlikely outcome as:
  • First, competition: where Google’s ecosystem is Apple’s main rival in the smartphone business.
  • Google and Samsung are currently working hard at integrating Gemini functionality into Google’s ecosystem services on Samsung devices meaning that if Apple were to follow suit, iOS could lose some of its differentiation.
  • If AI becomes a differentiator in the user’s decision to live his or her life with Apple or Google, then this loss of differentiation could be disastrous for Apple’s gross margins.
  • Instead, Apple needs to have a service that is distinct from Google’s to prevent user perception that the quality of the two user experiences is converging.
  • Second, control: which is something that Apple has gone to great lengths to preserve and extend.
  • Apple is one of the most vertically integrated technology companies in the world, and its focus on its own silicon for processing, graphics and now modems is a sign of how important this is.
  • Hence, if AI is going to be important, the last thing Apple is likely to do is cede the foundation of its AI service to a 3^rd party and least of all its biggest competitor.
  • Consequently, I think that Apple will either build or acquire a complete system over which it will have complete control.
• The net result is that I suspect that these discussions are about adding Gemini as another option alongside ChatGPT as an external source when the request falls outside of the scope for which Apple Intelligence has been trained.
• This would be completely separate from Apple Intelligence and would have no impact on Apple’s competitive position.
• Consequently, I think that Apple will continue to develop its in-house system for AI or acquire one of the other players when they inevitably get into financial trouble.
• The good news is that Apple has time to sort this out as AI services on smartphones are not yet differentiating factors.
• However, Google is moving to infuse its digital ecosystem with Gemini and if users start to appreciate these services, that will start to put pressure on Apple to deliver.
• This requires that Google ensures that the best that it has goes onto Samsung devices and those from its Chinese partners rather than favouring its own in-house brand, Pixel.
• This is because Pixel is a rounding error in the smartphone market and so any new and differentiating features that are exclusive to Pixel are likely to go unnoticed by the average smartphone buyer.
• Google appears to have realised this and has been working more closely with Samsung but to see real impact it will also need to be quick to offer its latest and greatest on Chinese smartphones.
• Hence, I think Apple has some time to get this right but it is clear that it is struggling relative to its competitors and the other AI services that are available in the cloud.
• It looks to me that the main problem is orchestration which is the software link that allows the agent to access the apps, services, websites and APIs that it needs to be able to fulfil user requests.
• Hence, I think that this is a solvable problem but in the meantime, Siri remains as awful as ever and is only ever activated when I accidentally long press the side button.
• Time, however, is ticking.