Apple & OpenAI – Arm’s Length

Being on the board will make no difference.

• Inviting Apple as an observer onto its board is a pitch to Apple to more deeply integrate OpenAI into its ecosystem but given how unstable OpenAI is, I expect that Apple will continue to decline its advances.
• In the run-up to WWDC, there was a lot of chatter about how Apple was going to integrate OpenAI into its ecosystem such that when the reality was revealed there was a lot of misunderstanding.
• Apple Intelligence (see here) is a completely self-contained system which as far as I can see, includes no OpenAI technology at all.
• Instead, Apple offers the option to send the inquiry to one of the large language models (LLMs) available on the web of which OpenAI’s ChatGPT is the first to be enabled.
• Given the hype prior to WWDC, this has been misinterpreted as deep integration into Apple Intelligence which is clearly not the case.
• This is evidenced by the fact that Apple is going to enable the other LLM providers in time and so users will be able to choose which one they want to use very much like search.
• However, this move by OpenAI to invite Apple onto its board leads me to think that OpenAI was pitching Apple for deeper integration into Apple Intelligence which Apple declined.
• I think that Apple declined OpenAI’s advances for three reasons.
  • First, Not made here: Apple likes to develop its own technology where it can and not create the kind of dependencies that others have on Apple.
  • Hence, allowing 3^rd party AI into Apple Intelligence has the potential to create a dependency that Apple thinks that it does not need.
  • Second, Small Language Models: What little we know about Apple Intelligence is that the on-device system is a lot like CoPilot+ which is a runtime full of small models that can each perform a generative AI task.
  • OpenAI does not address this requirement as it firmly believes in ever-larger models consuming more data and more computing power.
  • Hence, I don’t think OpenAI had anything to offer Apple for the Apple Intelligence piece that it would want.
  • Third, Basket case: OpenAI has demonstrated that it is a powder keg waiting to explode.
  • Despite almost imploding in November of last year (see here), it has not addressed the fundamental issues and simply papered over the cracks meaning that it could just be a matter of time before it goes off again.
  • Hence, the last thing any prudent user of OpenAI technology should do is to create a dependency on the company as a source of generative AI.
  • This is where I think Satya Nadella has made pretty much the only mistake of his tenure at Microsoft although he does have the option to acquire the company should it go bang again.
• Hence, I am not surprised at all that Apple declined to integrate OpenAI more deeply into its digital ecosystem and I can completely understand why it will continue to try and convince Apple.
• Google makes a substantial portion of its revenue from the Apple ecosystem and even though it pays many billions of dollars for the being on the ecosystem, it remains extremely profitable.
• Hence, it makes complete sense from a commercial perspective that OpenAI would seek to be integrated into the Apple ecosystem.
• However, I suspect that once Apple gets a look under the hood by sitting on the board meetings, it will decide that OpenAI needs to be kept at arms-length given the corporate governance issues and the risk they represent to anyone who has a dependency on OpenAI.
• I also suspect it will also conclude that the capability of its models is broadly in line with everyone else’s and that there is no advantage in having an exclusive relationship.
• The net result is that I don’t think that this signals a deepening of the relationship between Apple and OpenAI and in fact, may reinforce Apple’s decision to remain at arm’s length.
• The inevitable implosion of OpenAI is why I think that Microsoft has no choice but to buy it at some point.
• This point is likely to be either the next time OpenAI sets itself on fire or when the AI bubble pops and everyone loses interest and cuts spending.
• This is why when I think about the competition in AI, I think of Microsoft and OpenAI as one company.
• This acquisition looks inevitable to me.