Apple has turned to ChatGPT developer OpenAI as its first partner for equipping the iPhone with artificial intelligence. On the face of it, that looks like bad news for Google but there’s no reason for the search-engine company to panic.
On the surface, the Apple-OpenAI partnership looks like a significant redrawing of the technology map. Microsoft-backed OpenAI will have a foothold on a vast number of consumer devices—where Alphabet’s Google has previously been the key outside provider for services such as search and maps. Google currently pays Apple billions of dollars a year to be the default search engine on the iPhone and in the Safari internet browser.
However, OpenAI’s integration with Apple is limited. Apple emphasized that it was focused on providing AI experiences on its devices, meaning that it hopes users won’t require OpenAI’s technology for the majority of their needs. User information won’t be shared with ChatGPT, and OpenAI won’t be able to see all the queries they make.
“The ChatGPT relationship is not as critical as we had initially expected…it is our preliminary understanding that on-device OS [operating system] integration is largely Apple foundation models, not OpenAI/ChatGPT,” wrote UBS analyst David Vogt in a research note.
That could mean that, ultimately, the OpenAI-powered experience is less useful for Apple customers than the equivalent of using Google’s Gemini AI on an Android smartphone.
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“Gemini and Android integration offers a GenAI [generative AI] competitive advantage,” wrote Morgan Stanley analyst Brian Nowak in a research note. ”User adoption will matter but…this dynamic could lead to more sales of Android phones over Apple, or simply further increase Alphabet’s leverage in negotiations with Apple to offer comparable products on the iPhone.”
Nowak has an Overweight rating and $195 price target on Alphabet stock.
There was also no mention of the relationship between OpenAI and Apple being an exclusive one—or any monetary arrangements that would indicate the door being shut on competitors.
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Apple isn’t paying OpenAI as part of their partnership and is likely to strike a deal to also add Google’s Gemini chatbot to the iPhone later this year, Bloomberg reported, citing people briefed on the matter.
Apple and OpenAI didn’t immediately respond to requests for comment.
Write to Adam Clark at adam.clark@barrons.com
