Is Apple's $20 billion revenue at risk from spinning off Chrome?

On Wednesday evening Eastern Time, the U.S. Department of Justice requested a judge to order Google to divest its Chrome browser and terminate its default search partnership with Apple.

Since 2003, Apple has earned billions of dollars annually by setting Google as its default search engine. Analysts estimate that if the DOJ's proposal is accepted, Apple could face revenue losses of up to $20 billion. As this change may take years to implement, Apple is actively seeking new revenue sources to offset potential losses.

According to a report by The Wall Street Journal on Thursday, Apple has turned its attention to the AI sector, exploring partnerships with several AI companies. Apple's AI system, "Apple Intelligence," is planned to be integrated across all Apple devices and will allow access to third-party AI systems. With a large user base, Apple has various ways to take a cut from third-party partners.

Apple has started late in the generative AI field, having developed some small AI models but also announced plans to find partners to handle more complex or specific tasks. Previously, at Apple's Worldwide Developers Conference, Apple announced that OpenAI's ChatGPT would be the first partner of "Apple Intelligence," and plans to integrate Google's ChatGPT competitor, "Gemini." Notably, Apple has even begun discussions with its old rival Meta to integrate Meta's generative AI models into Apple's AI system.

Additionally, according to informed sources, besides Google and Meta, AI startups Anthropic and Perplexity are also in discussions with Apple to bring their generative AI into Apple Intelligence.

Apple's Win-Win Cooperation with AI Companies

Craig Federighi, Apple's software chief, emphasized that providing multiple AI options makes sense, as users may prefer different models for different tasks. Apple aims to offer higher quality services to users by integrating various AI services.

According to The Wall Street Journal on Thursday, in talks with some AI companies, Apple discussed the possibility of extracting subscription revenue shares through "Apple Intelligence." This means that AI companies could sell their services to users through Apple's platform, with Apple taking a percentage of the subscription fees.

Although these discussions have not yet been finalized and there is a possibility of falling through, on one hand, while collaborating with Apple can help these AI companies promote their products to a large audience, it remains unclear how much financial benefit this will bring. On the other hand, AI collaborations require time, and Apple must negotiate with each company individually, which is different from Apple's App Store, where there is a mature process that allows developers to submit their applications for Apple's review more freely, and once approved, they can be showcased in Apple's digital store.

Gene Munster, an analyst who has long followed Apple and managing partner at Deepwater Asset Management, expects that collaboration with Apple will double the usage of ChatGPT, but OpenAI's infrastructure costs are expected to increase by 30% to 40% Munster also expects that 10% to 20% of Apple users will choose to pay for premium AI subscription services similar to ChatGPT. With a large user base, if AI companies can collaborate well with Apple's AI system, it could bring hundreds of millions of dollars in revenue to the AI companies.

Munster stated, "Getting a lot of people to use your product or service is not easy, but what Apple has built is great because it has a large number of loyal users to promote products on a large scale."

Apple has also allied with its old rival Meta

Meta and other companies developing generative AI want to enable more people to use their AI services through Apple's devices. According to informed sources, Meta and Apple have discussed integrating Meta's generative AI model into Apple's AI system "Apple Intelligence."

Analysis points out that the discussions between Apple and Meta highlight the formation of some "unlikely" alliances among large tech companies in the AI era. If Apple and Meta reach a cooperation agreement, it would represent a rare reconciliation between the social media giant and the iPhone manufacturer, as the two companies have been at odds over other emerging technology issues.

The tense relationship between the two companies has lasted for more than a decade. Most notably, Apple introduced privacy changes to its mobile devices in 2021, which Meta later stated would lead to a loss of $10 billion in revenue in 2022. In April of this year, Meta released guidance encouraging advertisers to use a workaround to avoid paying Apple a 30% service fee