How can Apple compete now it relies on its deadliest rivals for AI and search?
Apple's AI promises fell flat with consumers and investors, as it announced it will rely on OpenAI/Microsoft to run Siri and Google for search...
Investors declare meh after Apple’s big promises on AI arrived looking limp. Shares tumbled two per cent as Tin Man Tim just didn’t have the goods.
The New York Times wrote how important this moment was.
“Apple’s plans to offer AI in its iPhones represents the next step in bringing artificial intelligence into the consumer mainstream.
“Apple, the marquee name of Silicon Valley, could do more than any other company to add credibility to a technology that has more than a few critics, who worry that it is mistake-prone and could add to the flood of misinformation already on the internet.”
Only it didn’t.
Instead, it offered a suite of updates and toys that Apple’s 2.2 billion consumers would have considered just the norm for a basic iOS update just a few years ago.
A fun emoji generator, some AI enhancements to mail, Airpods that answer calls with a nod, and the ability for Siri to use OpenAI to answer some more complex questions.
Ugh, really, that’s it?
This was a moment. A chance to take back leadership in ideas from the coolest product company in history, but it just looked tired, lost, and lacking lustre.
Investors wiped $3 billion off its value, in what’s been a rocky year for Cupertino so far. Its stock has risen only anaemically in a boom AI market, compared to its rivals.
Some might say that a bad day is not too much to fear when the market cap is $2.96 trillion, but markets are fickle, and fame is fleeting.
Apple’s flat performance is rapidly becoming a thing.
It’s fallen from the most valuable company ever, to second behind Microsoft, and now third behind Nvidia.
What’s more worrying for me is the longer outlook.
It’s impossible not to notice that Apple has relied on Google for search for years, and now it relies on OpenAI (which is really Microsoft) for AI.
What are its teams doing? Is it products? Errr, Vision Pro anyone??
Rival Samsung couldn’t help but sneer on X.
Surely Apple’s board are asking how they can meet their ambitions if they must rely on rivals to be competitive. How long will AI chief John Giannandrea, poached from Google, stick around?
WTF?
It’s not just me. The Wall Street Journal wrote:
“The new AI system, which it called Apple Intelligence offered a preview to what many consider to be the holy grail of AI, a voice assistant empowered with enough personal user information to meaningfully help complete an array of tasks.
“Apple has partnered with OpenAI, and its ChatGPT, for some new AI functions, such as answering more complex queries or composing messages, capabilities that Apple’s AI can’t handle.”
Apple’s AI can’t handle?
That’s a huge problem, so its value is headed down.
This was Tim’s time to shine, to put Siri on the forefront, and… bleugh, where was the magic? Was that really the very best it could do?
You can deep dive into Apple here.
I might be being too tough, but it’s tough at the top, so, let’s put Apple’s performance into context with its tech rivals and their big showcases in recent months.
This is how the Big Tech players have performed since the start of the year, with the S&P 500 as a comparison.
Nvidia’s CEO Jensen Huang looks for all the world like the new Steve Jobs, in his trademark leather jacket and with a swagger to boot.
Nvidia is a runaway train as demand for AI processors soars beyond all market expectations.
It’s up 146 per cent year to date and just became only the third company in history to reach a $3 trillion valuation.
Meta has bounced back strongly after a poor 2023.
I reported last week how it doesn’t need to rely on the web because its audience is in its owned and operated apps; Facebook, Instagram, WhatsApp, and Threads.
However, it’s now reaching peak earnings per user (ARPU), so it’s switching to scale.
It has an 85 per cent market share of social, has grown ARPU 10x in a decade, banks half of all display ad revenue, on an 80 per cent profit.
It’s Mark’s Magic Money Making Machine, and it’s still growing with room to increase its ad load to its 3.6 billion monthly active users.
You can deep dive into Meta here.
Like Apple, Google has struggled with AI but after it fluffed, it’s puffed, and it’s now doing just about enough to claw its way back.
Revenue rose 15 per cent to top $80 billion in the past quarter, but it has significant headwinds.
It has a 91 per cent share of search so it’s running out of audience.
Ads drive 87 per cent of its earnings so it’s heavily exposed to market wobbles, and
Antitrust lawyers are attacking its monopoly across every major market.
It’s why I’ve predicted it’s executing a revenue Hail Mary, pushing it to throw caution to the wind with risky efforts like AI Overviews, which threaten its legacy.
You can deep dive into Google here.
Amazon has yet to land its spot in AI, but its eye-watering revenue from online retail is keeping investors happy.
It made $574 billion last year (up 12 per cent). That’s $1.09 million a minute, and it’s still showing strong growth in AWS, and ads.
I focus on ads because most news brands rely on ads to some extent.
Amazon has become the third largest ad company in the world and is growing the fastest.
Want the numbers? Since launching pre-roll ads on Prime streaming, it’s booked $11.8 billion in ad revenue in 90 days.
Prime has 200 million monthly viewers worldwide and 115 million in the US, and Prime ads are rolling out globally.
I reported last week that Amazon has launched a business unit to sell publishers’ ads for them.
Microsoft soared late last year after showing it was leading the pack in turning AI’s promise into real cash profits. Its growth has continued more slowly this year.
But it has OpenAI under lockdown as it owns half the stock, it’s smoothly integrated AI into products with Copilot, and revenue growth is at a 10-year high.
Satya Nadella’s grown the share price a mind-blowing 969 per cent since becoming CEO a decade ago.
Microsoft also has two billion customers, most of them paying through subs to Office, Xbox, LinkedIn, and Github, and many are yet to get AI in full-force.
And now it runs AI for Apple. Not a bad suite.
Deep dive into Microsoft here.
So, Apple then, what are the positives?
Tim Cook told the WWDC event in the heart of Silicon Valley: “We think Apple Intelligence is going to be indispensable to the products that already play such an integral role in our lives.”
He’s right of course. WWDC, which runs all week, sees Apple playing catch up.
Many features announced yesterday have been around on Android for ages, including auto-replies for emails, photo editing that removes background images etc.
AirPods will soon allow users to take calls or send it to voicemail by nodding or shaking their head is a nice to have.
But this was Siri’s moment. Apple has frustrated users for years with Siri’s limited capabilities.
Now Siri will leap into the future by asking users if they want to connect with rival ChatGPT for a better answer. What?
Apple promises to maintain privacy by keeping AI processing on the device or through secure Apple servers.
But - and it’s a big but - none of the Siri stuff will happen yet. Apple’s still working on it, and we will need to wait until later in the year.
In a normal, thriving, competitive market, that would lead many early adopters to go looking for alternatives.
But in the mobile OS monopoly we have, that only means Android.
And that comes with all the problems of Google, and privacy, and the pernickety process of shifting accounts and data…
And that, right there, is monopoly.
That is the justification for antitrust.
When we as consumers have no choice but to pay top dollar for unappealing products from Apple.
Or worrisome products like Android.
Because the innovation that would have enabled competitors has been stifled.
Bring it on.
Google’s next antitrust trial is listed for September 9, Apple will follow, then Amazon in 2026, and Meta will soon get its court date.