Consumer AI gets a glow up

Apple’s Glowtime launch event was just a little … meh.

Apple’s annual September event unveiled surprise surpise new iPhones, a new Apple Watch, new capabilities in its AirPods and … very little else. There was a lot of repeating what was covered in June’s WWDC.

My interest in this event was how Apple was going to bring together hardware and software when it comes to the new AI capabilities. There was a new button that would launch the Camera and open what Apple calls Visual Intelligence. The video looked very slick but Android users would shrug and say that’s Google Lens which has been around for more than five years.

AI forcing Apple to accelerate hardware roadmap

There was also a lot of under the hood improvements to improve the AI experience. In a radical for Apple move, the base iPhone skipped a generation of chips and went from the A16 to the A18. This new chip works on a new 3nm architecture that packs more computing power into the same area.

That new processing heft is needed to power much of the new AI features. Apple is playing up the feature that many Apple Intelligence features are processed on-device and not in the cloud so it enhances user privacy. More processing power generates more heat so there is a new layout for better heat dissipation especially on the Pro model where the processing demands for video would be even higher.

Apple probably thought the base Iphone 16 needed a much more powerful chip than was on its roadmap and skipped the A17 chip for the phone. This is great for consumers who get a more future-proof phone but it shows again how AI is forcing Apple to change its hardware roadmap.

It is almost unheard of for Apple to sacrifice its margins and they do that through a regular cascade of chips that go from the flagship models down to cheaper ones over time. For Apple to skip that cycle is more significant than most people think. The new chips are more expensive and Apple might have protected its margins by having a larger production base of more iPhone models to spread the development cost.

We should expect to see premium smartphones to continue having more on-device AI while the rest of the market will have a greater reliance on the cloud for AI processing.

EU will miss out on Apple Intelligence

Apple already announced in WWDC that Apple Intelligence would not be introduced in the EU given the uncertainties of its Digial Media Act. Some see this as Apple thumbing its nose at the EU for forcing it to open its iOS devices to alternative App Stores but I think this is very much a case of Apple not wanting to get into more regulatory fights. Apple is a for-profit market and without Apple Intelligence, it is much harder to sell the new Phones to the EU, which is still a large market. The EU will have to revisit the DMA at some point to see if its current implementation actually hurts EU customers.

Early buyers of the new iPhones can be excused for being disappointed when they unbox their purchase only to find the Apple Intelligence features absent. They will only be released on a staggered basis over the next year. It is anyone’s guess what that means.

Death of the first wave of AI wearables

I expect the iPhone 16 line will be the final death knell for the first wave of AI wearables. A year ago, we saw new startups trying to usurp smartphones by designing from the ground up with AI in mind. They looked like brooches or pennants with different display technologies and some genuinely innovative hardware design choices. Unfortunately they all suffered from poor performance, limited use cases and poor distribution.

The sales figures from the new flagship phones from Apple, Samsung and Google this year will show that people still love their phones and consumer AI needs to be in a form- and user-factor that comes within the box of a smartphone, not in a new device category.

Will we have to pay for AI?

One short remark was not picked up by anyone as far as I can tell but set off my B-School antennae. In the introduction for Apple Intelligence, Craig Federechi said that this was a free feature update. It seemed to me unusual that he would include the word free when describing Apple Intelligence unless it is to prep the market for a future paid-version of Apple Intelligence.

Making consumers pay for software- cloud services is not in and of itself unusual for Apple. It gets a good chunk of change from iCloud storage above the paltry free 5GB tier, and it offers iCloud+ for services such as Private Internet Relay. I would assume that a paid form of Apple Intelligence could either be a standalone service or be folded into iCloud+.

I would also assume that any paid feature set for Apple Intelligence would be those that are hosted on Apple's servers and be part of what Apple calls Apple Cloud Compute. I can't see how Apple could justify making people pay a subscription fee for on-device AI features, which they presumably had already paid for when buying the phone.

I also can't see Apple charging you to use ChatGPT or any other Generative AI service that Apple chooses to offload the more demanding AI tasks to. At launch, Apple is only offering OpenAI as a choice for consumers if their AI requests cannot be served on-device, or through Apple's Private Cloud Compute. And in a nod to regulators, Apple said at WWDC that it would bring in other generative AI services. China will be a big part of this because OpenAI's ChatGPT is blocked in China. I would also not be surprised if Apple gets a referral fee for sending requests to partners such as OpenAI..

Don’t forget China

What is less visible in the West is how Chinese handset manufacturers are rolling out AI features. I confess I don’t know anything at all about Huawei, Xiaomi and others. DM me if you know how the Chinese handset manufacturers are approaching consumer AI.

This is the last in the series in consumer AI. The bottom line in September 2024 is that it is going to take a lot longer than investors think that the generative AI capabilities get mass market adoption. Tech companies whose valuations were buoyed by the hype on consumer AI will come down to earth.

But all the building blocks for a killer app are there. It just has not arrived yet.

When it does arrive, the big winners will again be the companies with distribution, so think Apple, Samsung, and maybe Google.