Apple made once-unlikely deal with Sam Altman to catch up in AI

By Mark Gurman | Bloomberg

When a 23-year-old Sam Altman took the stage at Apple Inc.’s annual developer conference in 2008, he gushed about being able to use the company’s new App Store to promote his software, a friend-locating service called Loopt. “We think this is a new era of mobile, and we’re thrilled to be part of it,” Altman said.

Now, 16 years later, Apple is calling upon the entrepreneur again — but with a twist. This time, the company needs his help as much as he needs Apple.

Altman currently runs OpenAI, the leading startup in generative artificial intelligence. And Apple, racing to catch up in that area, has forged a partnership to integrate OpenAI’s ChatGPT into the iPhone’s operating system. Though the controversial Altman is unlikely to take the stage at the event, the agreement will be a key focus of Apple’s Worldwide Developers Conference next week — and it shows just how much the power in Silicon Valley has shifted over the past few years.

The deal gives OpenAI access to hundreds of millions of Apple users, including ones that might have been hesitant to try ChatGPT otherwise. For Apple, the arrangement brings the company the hottest technology of the AI era — a chatbot with eerily powerful abilities — that it can pair with its own services.

Apple has been developing a host of AI features, including ones that run on its devices and others that require cloud computing. It’s also infusing its Siri digital assistant with AI. But the company’s own chatbot isn’t yet up to snuff.

The OpenAI partnership is likely a “short- to medium-term relationship” for Apple, said Dag Kittlaus, a tech veteran who co-founded and ran the Siri business before it was acquired by Apple. “But you can bet that they will be working hard building out their own competencies here.”

The WWDC keynote address, delivered by Chief Executive Officer Tim Cook on June 10, is seen as Apple’s biggest sales pitch in years. The company has to convince consumers, developers and investors that it can thrive in the AI era. And there’s added pressure because Apple’s existing business is stagnant, with revenue declining in five of the past six quarters.

The two companies haven’t disclosed the deal publicly yet, and terms of the arrangement aren’t clear. Cupertino, California-based Apple declined to comment, as did San Francisco-based OpenAI.

Apple once had a head start in AI services. It released the Siri digital assistant in 2011, beating Amazon.com Inc.’s Alexa and the Google Assistant to the market. But it soon fell behind rivals, and that was before a seismic shift in 2022 when ChatGPT debuted.

The introduction of OpenAI’s chatbot in November of that year captured the imagination of consumers and sent tech giants scrambling to develop their own AI services. Apple’s biggest peers have all made headway since then. Google’s Gemini chatbot is vying with ChatGPT for supremacy in the nascent market. Microsoft Corp., OpenAI’s biggest backer, has begun weaving its AI-assisted Copilot into software. And Amazon.com Inc. has demonstrated an AI-enhanced version of Alexa.

In contrast, Apple kept its AI ambitions quiet until now. Cook said last year that the company would tread carefully in the new space and only add AI technology on a “very thoughtful basis.” More recently, he’s argued that Apple will have an edge in AI because of its “unique combination of seamless hardware, software and services integration.”

Behind the scenes, Apple employees have been working furiously to back up that promise. Around the time of the ChatGPT launch, small teams within the company’s AI and software engineering divisions began working on a competitor to ChatGPT, using a framework dubbed Ajax.

Software chief Craig Federighi pushed managers to pack the latest version of the iPhone and iPad operating system — known internally as “Crystal” — with as much AI as possible. Eddy Cue’s services division got to work on new data center infrastructure for powering online AI services. Staffers also began investigating how AI could come to Apple Music and the company’s office-productivity apps.

Apple found that its AI is capable enough to power features like voice memo transcriptions and photo editing, as well as new search capabilities in the Safari web browser and auto replies in apps like Messages. But it determined early on that OpenAI and Google were far ahead in chatbots and on-the-fly assistance.

That put Apple in a difficult spot. The company’s own technology wasn’t ready, and executives were concerned about reputational damage from a rogue chatbot. Some people within Apple even have a philosophical aversion to having a chatbot at all, people familiar with the situation have said.

But it was clear by then that consumers would expect Apple to offer such a service, and that set the company on the path to its deal with OpenAI. Several months ago, the company began meeting with the startup — along with Google and other chatbot providers — about integrating the technology into its iOS software.

By outsourcing the chatbot function, Apple can distance itself from the technology itself, including its occasional inaccuracies and hallucinations, the people said. But it also links Apple to a startup beset by upheaval and controversy. Altman, now 39, was briefly ousted last year for reasons that remain murky, and he recently drew the ire of movie star Scarlett Johansson for a soundalike AI voice.

Though Apple remains in talks with Google about using Gemini in its devices, the iPhone maker reached an agreement with OpenAI first. In the end, Apple may offer a number of third-party chatbots, but it’s negotiating the deals on a case-by-case basis, according to the people with knowledge of the situation.