https://www.bloomberg.com/news/newsletters/2024-05-19/what-is-apple-doing-in-ai-summaries-cloud-and-on-device-llms-openai-deal-lwdj5pkz

May 20, 2024 at 12:45 AM GMT+12

You're reading the Power On newsletter.

Get the inside scoop from Mark Gurman on all things Apple and consumer tech.

Bloomberg may send me offers and promotions.

By submitting my information, I agree to the Privacy Policy and Terms of Service.
Apple was caught flat-footed in the generative AI race, and the company will need to change its strategy if it wants to catch up. Also: The misguided attempt to differentiate the iPad from the Mac; get ready for a new AirTag; and Apple banks on Asia to make the Vision Pro a success.

Last week in Power On: The insiders poised to take over the top roles at Apple.

The Starters


A customer uses the iPhone 15 Pro.Photographer: Krisztian Bocsi/Bloomberg

Apple Inc. has faced its share of challenges during Tim Cook’s tenure, but none may be bigger than the one it’s contending with now: the need to come from behind and win in artificial intelligence.

As chief executive officer, Cook successfully steered Apple away from a potential rut after the death of Steve Jobs in 2011. He navigated a trade war with China, proved the company could still pioneer new product categories and fought off smartphone rivals like Samsung Electronics Co. But the dawn of AI is his biggest test to date.

To give a sense of what Cook is up against, let’s compare this to a basketball game. Coming in, Apple has actually practiced longer than its rivals and has the home court. After all, it launched the Siri digital assistant in 2011, years before others got into the space. And yet, the game is now underway and Apple is already down 20 points.

Even if it’s only the game’s first quarter, staging a comeback is going to be difficult for Apple. Their competitors (OpenAI and Alphabet Inc.’s Google) have become AI superstars, and they’re only getting stronger as the contest goes on. Apple’s priority now is not getting smoked on its home floor.

Of course, Apple has some advantages of its own — money, talent and a powerful platform — and should at least be able to make it a closer game. But it will require a meaningful change to its strategy, as well as some help from its AI competitors.

Though Apple might disagree, the company’s AI-related features like Siri have been stymied by an outsized reliance on processing information on the iPhone itself and a lack of data collection. Apple does both these things deliberately, part of its efforts to protect privacy and security. But they don’t always make for the best experience.

The good news is, Apple has an opportunity to start fresh. The company is unveiling new generative AI features at its Worldwide Developers Conference on June 10 and is poised to make some bold changes.

Though the company will still rely on the on-device approach — with its own large language models powering AI features on phones and computers — it’s also planning to deliver services via the cloud. As I’ve reported, Apple is putting high-end Mac chips into its data centers to handle these online features.

Sam Altman, chief executive officer of OpenAI.Photographer: Dustin Chambers/Bloomberg

The move shows that Apple recognizes the need to evolve. As part of the changes, the company will improve Siri’s voice capabilities, giving it a more conversational feel, and add features that help users with their day-to-day lives — an approach it calls "proactive intelligence."

That includes services like auto-summarizing notifications from your iPhone, giving a quick synopsis of news articles and transcribing voice memos, as well as improving existing features that auto-populate your calendar and suggest apps. There will also be some enhancements to photos in the form of AI-based editing, but none of those features will impress people who have used AI in Adobe Inc.’s apps for the last several months.

The big missing item here is a chatbot. Apple’s generative AI technology isn’t advanced enough for the company to release its own equivalent of ChatGPT or Gemini. Moreover, some of its top executives are allergic to the idea of Apple going in that direction. Chatbot mishaps have brought controversy to companies like Google, and they could hurt Apple’s reputation.

But the company knows consumers will demand such a feature, and so it’s teaming up with OpenAI to add the startup’s technology to iOS 18, the next version of the iPhone’s software. The companies are preparing a major announcement of their partnership at WWDC, with Sam Altman-led OpenAI now racing to ensure it has the capacity to support the influx of users later this year.

Still, that agreement will only go so far. To be as successful as possible in AI, Apple is going to have to eventually move away from a partnership approach, build a chatbot of its own and integrate it deeply into the company’s products. For now, it believes the combination of its homegrown AI features (both on devices and in the cloud) and the OpenAI deal will be enough to get the job done.

Though Apple has held talks to license Google’s Gemini for iOS 18 as well, the parties haven’t reached an agreement, and we’re less than a month away from WWDC.

Then there’s the question of how to handle online searches. For years, Apple has toyed with the idea of building a search engine of its own — possibly one with privacy features that would make it more like DuckDuckGo than Google or Bing. Given how close search and AI are aligned, Apple should probably revisit this idea and move forward with its own search technology.

That would be costly. Apple gets billions of dollars a year from Google to have that company’s search engine be the default option on devices. But in the long run, Apple having its own AI-based search engine could be worth more.

Last week, both OpenAI and Google rolled out the next phase of their AI efforts, putting Apple even further behind. OpenAI’s GPT-4o model can hold a lifelike conversation, prepare users for a job interview, portray sarcasm and even serve as a customer service agent. It’s all ridiculously impressive — and scary to some extent. For its part, Google is deeply integrating generative AI into search.

John Giannandrea, Apple’s chief for AI.Photographer: David Paul Morris/Bloomberg

I don’t expect Apple’s in-house AI announcements to be nearly as impressive as what OpenAI and Google have already showcased. Apple’s executives have admitted internally that they’re playing catch-up, I’m told. And there’s concern that users will shrug at the new Apple features and not even bother using them. Apple, of course, will position its approach to AI (other than the chatbot) as vastly different than rival offerings.

One reason OpenAI and Google are out ahead is their speed. They can improve their AI technology quickly and keep wowing users. Improvements to Siri and other Apple features, meanwhile, have come at a snail’s pace.

It doesn’t help that Apple releases one big iOS overhaul each year. To keep up with the AI frenzy, Apple will need to add major new features at a far quicker rate. The OpenAI deal and cloud-based AI services will help — but there’s no plan in place for Apple to accelerate its iOS release cycle, at least in the next year.

The company isspeeding up its hardware upgrades, though. Earlier this month, Apple rolled out a new iPad Pro with an M4 chip that promises to vastly enhance AI processing. And the M4 is headed to every Mac in an end-to-end overhaul of the lineup by 2025. In September, the iPhone 16 Pro will get another leap in AI silicon.

But the hardware improvements can only do so much. In keeping with the basketball analogy, making better chips and devices will help Apple nail layups and free throws. But if it wants to truly catch up, it’s going to have to start making three-pointers. That’s only going to come from releasing cutting-edge AI features and improving them — at a faster pace than it’s accustomed to.

That will require an attitude adjustment at Apple, but it’s a necessary one: Its very business may depend on it.

The Bench


New iPad Pros on display at Apple retail store.Photographer: Michael Nagle/Bloomberg

Apple’s misguided attempt to differentiate the iPad and Mac continues to hold it back. The iPad Pro now has a better chip than most of the Mac lineup, an awesome new keyboard case and a screen that blows away the displays on Apple’s laptops. However, the iPad’s software continues to be a weak spot — and that’s the company’s fault.

Apple’s marketing brass has made no secret that it wants to keep differentiating the iPad and the Mac because it doesn’t want the products to cannibalize each other. But that only makes the devices weaker: The iPad lacks macOS, and the Mac doesn’t have a touch screen.

At some point, customers are going to get tired of this exercise. It’s way past time for Apple to take a different approach — in a way that I don’t think will discourage costumers from buying both products. Apple should give the iPad a much better operating system and the ability to run Mac apps. And it should give the Mac a touch screen and the iPad Pro’s crisper new OLED display. (In fairness to Apple, it’s already taking steps toward those Mac changes.)

The two devices can still be different. The Mac will always have more powerful chip options, larger displays, a built-in keyboard and trackpad, fans for heavy workloads, more ports, and better battery life. The iPad will always be far more portable, better for gaming, superior for watching video, and a device that can capture photos and video. It’s time for Apple to make the iPad and Mac both as capable as possible.

Apple AirTag.Photographer: James D. Morgan/Getty Images AsiaPac

Get ready for a new AirTag. It’s hard to believe that it’s been three years since the AirTag — Apple’s physical-item tracker — hit the market. Now the company is preparing a new version, code-named B589. The product is scheduled to arrive around the middle of next year, and Apple is already doing test runs with manufacturing partners in Asia. As for what’s new, expect a better chip with improved location tracking. Personally, I’d like a louder speaker, better battery life and a version optimized for wallets.

Apple Vision Pro.Photographer: David Paul Morris/Bloomberg

Apple banks on Asia to make the Vision Pro a success. The Vision Pro has done reasonably well in the US (considering the challenges of selling a $3,499 headset here). But the real test may be when it reaches a market where virtual reality is more popular. We’re going to see that happen soon: Apple is training retail employees from overseas to sell the Vision Pro — a step toward offering the product outside America for the first time. The initial overseas markets include China, South Korea, Japan, Hong Kong, Singapore, Canada, Australia, the UK, France and Germany, and the rollout will begin after Apple’s Worldwide Developers Conference in June. Consumers in Japan and other Asian countries could have a higher comfort level with the mixed-reality headset, which melds VR and augmented reality. In preparation for the expansion, the company just got approval to sell the device in China from the local equivalent of the Federal Communications Commission.

The Schedule


Apple WWDC introduction.Photographer: David Paul Morris/Bloomberg

WWDC 2024 — June 10-14: Apple’s Worldwide Developers Conference is set to kick off on Monday, June 10. That’s when the company will unveil iOS 18 and the next major versions of its iPad, Apple Watch, Vision Pro and Mac software. The new iPhone operating system is considered internally to be the biggest upgrade in the device’s history, and the Vision Pro is getting its first significant software update since the headset was released. Apple used WWDC 2023 to unveil the Vision Pro, but the stakes are even higher this year. The 2024 event is expected to showcase its renewed AI strategy.

Download PDF