Photo from Reuters.
On Monday, the company behind the iPhone, iPad, and Mac computer revealed its first generative artificial intelligence products. These new features, collectively referred to as Apple Intelligence, will be deeply integrated into upcoming updates for the company's operating systems. Among the anticipated enhancements is a significant improvement to Siri, Apple’s 12-year-old digital assistant, which has frequently been criticized for its lack of sophistication.
Due to its size and the intense interest from media and investors, Apple has found it challenging to keep surprises under wraps at its events. However, the pressure was particularly intense this time. For the past 18 months, Apple's potential entry into the AI race has preoccupied its trillion-dollar competitors.
This generated enthusiasm among investors. Over the past year, Apple's shares have underperformed compared to other major tech companies, but they surged 14% between the release of its fiscal second-quarter report last month and the beginning of its Worldwide Developers Conference on Monday. This marks the largest increase in this timeframe in a decade.
However, many of the new features Apple showcased on Monday, like image search and assistance with composing emails and messages, resembled those already available from Microsoft's and Alphabet’s Google’s AI tools. Apple also announced that the AI services unveiled, including access to the latest ChatGPT version from OpenAI, will be free to use. This raises the question of how Apple plans to generate additional revenue from these new technologies.
It is also uncertain what the partnership with OpenAI will cost Apple, considering the high expenses associated with AI computing and OpenAI’s significant lead in the field. By the end of trading on Monday, Apple’s shares had fallen nearly 2%, marking the largest drop following the start of its Worldwide Developers Conference since 2010.
Apple's entry into the AI arena was always going to be complex. Unlike its peers who have already ventured into AI, Apple primarily relies on device sales for its revenue. On Monday, the company stated that many of its new AI features would be processed on-device rather than through cloud-computing networks, making its hardware products central to its AI strategy. However, these products are rarely introduced at the company's developer conferences, which usually focus on upcoming updates to the operating systems for its devices. New iPhones, Apple's most crucial product line, are typically launched in early September.
Therefore, it is likely that Apple is reserving some of its AI developments for a later reveal. The upcoming iPhone release is particularly crucial after three consecutive years of sluggish sales. However, AI features might not be the most compelling selling point for potential iPhone buyers. On Monday, UBS analyst David Vogt referenced a recent survey of smartphone users showing that only 27% of those outside China are interested in devices with generative AI capabilities, with price and privacy being their primary concerns.
Apple has a strong reputation for privacy. Additionally, the company's marketing skills have been effective even during weaker iPhone cycles, as it has successfully encouraged more users to purchase the more expensive Pro versions, which feature superior chips and cameras. The next significant challenge for Apple will be to promote and upsell its AI capabilities.