Making big money from Siri! AI is of great significance to Apple

At this year's autumn iPhone 16 launch event, Apple Intelligence (AI) became the focus of the entire event.

The Apple AI features are set to be rolled out starting in October, marking a new era for Apple's voice assistant Siri. How to monetize AI in the future is crucial for Apple.

On September 27, Bank of America Merrill Lynch released a research report stating that there are multiple ways for Apple AI to generate profits:

1. Through downloading AI applications from the Apple App Store (Apple will receive a standard 30% share of the download revenue);

2. A subscription-based platform for Apple Intelligence itself;

3) Integration with Siri.

Bank of America Merrill Lynch pointed out that the first two methods have been widely analyzed and undoubtedly will bring Apple significant revenue opportunities. What is often overlooked is the monetization potential of Siri integration, which is expected to become increasingly significant over time.

The bank stated that Apple AI will empower Siri with deeper integration capabilities with applications, which is projected to bring Apple approximately $3 billion in potential revenue starting from 2026, and this revenue could reach close to $50 billion over the next decade.

Specifically, Apple will use Siri as a virtual assistant to perform tasks for users, such as booking rides, ordering food, or scheduling meetings. Although Siri can already perform these relatively basic tasks, with AI, Siri will be able to complete complex multi-step tasks (such as booking an Uber or ordering food).

This raises a question: Which app or platform will Siri recommend to users? Bank of America's answer is that whoever pays Apple more money will be recommended first to Siri or users.

This auction-based platform concept is similar to Google's advertising strategy, where companies can pay to have their business rank higher in search results. This will also bring a new way of monetization based on advertising for Apple, such as Apple not previously generating App Store revenue from physical services like Uber.

New Monetization Method: Siri Integration, Recommending Based on Payment

Based on its existing large user base, Apple AI will open up new revenue streams for the company.

Bank of America Merrill Lynch believes that deep integration with Siri will give Apple more control. The interaction between users and smartphones will shift from choosing applications to letting Siri decide which application is the "best choice." This will open up an opportunity for applications to compete for user business.

For example, a user might say, "Siri, help me find a ride home," and multiple ride-hailing companies may bid to win this order. This auction-based platform concept is similar to Google's advertising strategy, where companies can pay to have their business rank higher in search results.

At this point, Apple can create an "auction" mechanism where ride-hailing platforms compete for priority recommendations to users. Apple can charge a certain percentage of the order amount from companies like Uber as the cost for being prioritized. This auction process is one of the pillars of Apple AI's profit strategy

What is the profit potential?

Bank of America Merrill Lynch predicts that Siri's first integrated "tasks" will include the food, travel, and business industries. For example, ordering food through Siri, booking a taxi, flight, or hotel accommodation through Siri, etc. Apple's AI is expected to have these capabilities by 2026 and will start applying them. By then, Siri will be mature enough to handle tasks requested by users.

Apple's TAM (Total Addressable Market, the total target market for a product or service) in these industries will depend on two main factors: 1) the percentage of revenue generated through mobile devices; 2) the proportion of users using iOS devices. According to IDC data, in 2023, Apple/iOS smartphones had a global market share of about 20.1%, and in the United States, it was 42.6%. Companies like Uber, Lyft, and food delivery platform DoorDash generate almost all of their revenue through mobile devices.

Bank of America predicts that Siri integration will bring Apple approximately $3 billion in potential revenue starting from 2026, and this revenue could reach close to $50 billion in the next decade.

By 2036, Apple is expected to capture about 9% of industry revenue from Uber, Lyft, DoorDash, hotels, and airlines.

For example, the bank estimates that by providing integrated services, Apple could earn about $15 billion from Uber's total order value by 2036.

Bank of America Merrill Lynch remains optimistic about Apple's long-term hardware, services, and profit margin growth trends, maintaining a "Buy" rating on Apple