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ALPHABET AND APPLE HAVE CAUSE TO CIRCLE AI WAGONS

3D printed logos of Apple and Google are pictured on a keyboard in front of
binary code in this illustration taken September 24, 2021.

Source: REUTERS/Dado Ruvic/Illustration




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18 Mar 2024 | By  

Anita Ramaswamy

Follow @anitaramaswamy

Strange bedfellows.

The enemy of Alphabet’s enemy may be its friend. The $1.8 trillion search giant
pays Apple billions of dollars to make its Google search engine the default
option on the iPhone-maker’s devices. That has helped maintain its dominance,
but artificial intelligence threatens to flip the script. The two are now in
talks over licensing Alphabet’s AI models, Bloomberg reported on Monday. The
value of their existing partnership offers Apple boss Tim Cook some handy
leverage.

Over 2.2 billion devices run Apple’s operating systems globally, and it was the
top seller of smartphones last year, according to research outfit IDC. That
makes its search deal with Alphabet enormously valuable, since iPhones shuffle a
huge volume of traffic to Google and its advertisers. Cook's company got a cut
of as much as $20 billion in 2023 in return, Bernstein analysts say.

The risk is that users begin flocking to intelligent chatbots, like OpenAI’s
ChatGPT, in lieu of using Google search. Apple can’t wedge in its own service,
yet: Unlike Alphabet or Microsoft, which owns a stake in OpenAI, the company
hasn’t released its own offering. Analyst Ming-Chi Kuo of TF International
Securities reckons catching up will be costly, estimating that Apple will
purchase up to 20,000 servers for AI initiatives this year. Based on current
prices for Nvidia’s coveted H100 chips, crucial to machine-learning efforts,
that could cost nearly $5 billion. Even that would trail spending by rivals like
Meta Platforms.

Apple and Alphabet both have a problem, then. Apple controls an enormously
valuable contact point with users, but has no AI service to keep them ensnared.
Alphabet’s Google search, still the majority of its revenue, could lose a big
audience. And its own AI effort, dubbed Gemini, has been off to a slow start,
courting controversy over spitting out inaccurate images. Chatbot hype helped
send Microsoft’s stock up 13% in 2024, almost twice as much as Alphabet’s.

A deal could solve both issues. And while Apple has also had talks with OpenAI,
according to Bloomberg, it holds an advantage in negotiating with Alphabet,
because Google has something to lose.

Antitrust enforcers are the most imposing hurdle. The two companies’ existing
partnership has come under attack in a lawsuit from the U.S. Department of
Justice, alleging that Alphabet pays Apple to gain an unfair advantage in
search. The proposed deal makes so much sense for both technology behemoths that
watchdogs might feel they have little choice but to intervene.


CONTEXT NEWS

Apple is in talks to license a set of Alphabet’s generative artificial
intelligence models, known as Gemini, to power new features on its iPhone mobile
device, Bloomberg reported on March 18, citing unnamed sources. Analysts from
investment bank Bernstein reckon that Alphabet paid Apple roughly $18 billion to
$20 billion last year to maintain its search engine, Google, as the default on
Apple’s iPhones. Apple told investors in a Feb. 1 press release that it had an
installed base of over 2.2 billion active devices globally, including iPhones.


SUBJECTS:

Artificial intelligenceCompanies & FundsComputer HardwareDealsSoftwareTechnology


REGIONS:

AmericasUnited States of America


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