AI could be the tie that binds frenemies Apple and Google

• By Dave Lee / Bloomberg Opinion

There are many reasons Apple Inc’s stock has not been so hot lately, but a big one is that investors feel the company lacks a compelling “story” on artificial intelligence (AI). By that they mean Apple CEO Tim Cook does not seem as if he has much of a plan.

Google, to its credit, does have an AI story. Unfortunately, it is a tragicomedy. Caught on the hop by upstart OpenAI, its Gemini model is best known not for its intelligence, but for its depiction of former US president George Washington as a black man, the pope as an Asian woman and other assorted embarrassments.

This is all to say: The BFFs — that is best frenemies forever — need each other’s support right now. They have long been rivals as mobile platforms, but news about talks of a tie-up between the two, which would bring Google’s Gemini AI to Apple’s iPhone, is a deal that could solve short-term headaches for both companies.

The “Geminiphone” — a nickname Apple would absolutely hate if it sticks — would give Apple devices a taste of the cutting-edge AI customers are soon likely to expect as standard and which developers are already demanding. Apple would have preferred, no doubt, to have built such capability itself, but without the huge server farms on hand to train models, it has been left behind — for now.

Google provides enhanced AI capabilities, albeit in a still highly experimental form.

Details of the partnership have not been filled out, and it does not yet seem to have been fully agreed upon.

However, it has similarities with Apple and Google’s deal on search, in which Google pays handsomely to be the default search engine on iOS devices. As in that arrangement, Google gets that one thing it is always hungry for: scale.

It might at first seem curious that Google is not planning to keep its AI to itself, making it exclusive to Android phones, but that runs counter to its long-established North Star of simply having as many users as possible.

By bringing Gemini to the iPhone, it would not only get millions more potential users, but affluent ones who might pay a premium to use advanced AI. More users means more data, and more data means a better, more valuable product.

However, where this deal might differ from search is that the BFFs are on a much more equal footing. Due to its laggard position, Apple needs Google’s AI in way it did not necessarily need Google Search.

That is why it would be surprising if Google ends up shoveling tens of billions of dollars into Apple’s hands for the privilege of being on the iPhone — especially not when it is being sued by the US Department of Justice over that tactic for cementing its position in online search.

No one knows if this would be an exclusive deal and, given those antitrust concerns, it might be wiser for it not to be — AI partnerships between tech companies are already on regulators’ radars. Bloomberg chief correspondent Mark Gurman said that Apple was also speaking to ChatGPT maker OpenAI, and it could well be interested in others. Although, like search, one wonders if users would pick one general-purpose AI and mostly stick with it, making first-mover advantage as important as ever.

Yet what is Apple giving up here? The company has shown in the past it has no qualms incorporating third parties, even rivals, when they offer great features Apple users might want. For example, the first iPhone came preinstalled with YouTube.

However, AI is surely not just a feature, but the future — one that Apple would not be satisfied with outsourcing for long. Of course, the company is working on its own AI projects, as described in a recently published research paper. It might even seek to shut out Google, and anyone else, as soon as it can do a good enough job itself.

Investors in both companies seem delighted, sensing something of an answer to the Microsoft and OpenAI surge. For months now, Cook has been steadily reassuring investors, hinting at significant breakthroughs that might be announced at its coming developers’ conference in June. Expectations are already sky high.

Dave Lee is Bloomberg Opinion’s US technology columnist. He was previously a correspondent for the Financial Times and BBC News.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.