Apple may not be a leader in generative AI, but the company's grip on the app market means it can ride the coattails of others' success.
Last week, OpenAI launched an iPhone app for ChatGPT that quickly shot to the top of the App Store. As of Friday, ChatGPT was the number one in the category for free apps, and Apple had listed it as a "must-have" app under its "Essentials" category.
Users can subscribe to ChatGPT Plus, a premium version that costs $20 per month and offers faster response times and priority access to new features. Because OpenAI uses Apple's in-app purchasing system instead of redirecting users to a website where they can subscribe, the company is taking its usual 30% cut.
"Apple is getting their 30% tax," technology analysts at Bernstein told investors.
Is there a better illustration of a monopoly? Apple is behind in the AI Arms Race, and the company has contributed very little to public research in the field. And yet, it is still expected to make hundreds of millions of dollars a year from this technology.
Consider a hypothetical scenario, if ChatGPT Plus were to add 5 million new subscribers on iOS, that would generate roughly $1.2 billion in annual revenue for OpenAI — and Apple would collect 30% of that, collecting $360 million a year. OpenAI does not disclose how much revenue it has generated, but it was estimated in February that ChatGPT had reached more than 100 million monthly active users.
Tim Cook said on Apple's recent earnings call that the company would "weave" AI into its products and would be "deliberate and thoughtful" in how it did so. "There's a number of issues that need to be sorted," he added. Apple has also told employees to limit their use of ChatGPT because of fears it could collect confidential information, The Wall Street Journal reported.
None of that stops Apple from offering the service to users through its App Store and reaping a profit on subscription sales. Apple's services business, which includes revenue from App Store subscriptions, has been a major growth driver for the company in recent years as iPhone sales have slowed. Service revenue topped $20 billion in the most recent quarter, a record for a category that produces some of Apple's best profit margins.
Apple recently won an antitrust case filed by Epic Games. The "Fortnite" developer accused Apple of acting unlawfully by distracting app distribution on iOS devices and requiring developers to use its own payment processor through which it takes a commission on sales. The ruling was a setback for developers who hoped it would force Apple to open its devices to third-party app stores. Bloomberg reported that the company would soon begin supporting third-party app stores in the European Union, however, where new laws are intended to level the playing field for developers.
The judge ruled that developers could bypass Apple's commission by sending users to a web browser to make purchases. OpenAI is not doing that with its ChatGPT app, perhaps because the process is more clunky than Apple's built-in payment processor.
Nonetheless, it means that Apple can make a lot of money from OpenAI while still cautioning about the privacy implications — and using the proceeds to build its own models.
