- This year, Apple and Google will face their first real test in a very long time.
- Apple has finally been able to open up its walled garden, potentially disrupting the App Store giant.
- The rise of ChatGPT threatens Google’s stranglehold on search – and its advertising business.
Over the past few years, I have often felt that the technology industry has been catching the pace.
Every innovation — foldable screens, 5G, even blockchain and cryptocurrency — has failed to shake the sense that the future of technology is moving forward incrementally rather than exponentially. Google has spent the past decade plus guarding its advertising business; Apple has built as many moats around its all-important iPhone business as possible, happily collecting App Store fees and Apple Music subscriptions.
Now, though, both companies are about to face what are arguably their most existential threats yet. And while it’s too early to write eulogies for either company, you’ll see Apple and Google move quickly to play defense in a way neither has had to do in recent memory.
For Apple, it appears that worldwide regulatory pressure has finally broken through its notorious walled garden, as new rules threaten to erode its dominance of the App Store. The timing is particularly interesting, as Apple is said to be preparing to launch a new line of smart glasses poised to extend the App Store’s hold to consumers and developers alike for a new generation of computing.
And at Google, the rise of AI chatbots like ChatGPT is a clear and present danger to the digital advertising engine that pays the bills. If you can get a clear and concise answer to a written question the same way you can ask a smart friend something, who needs a search engine? Microsoft seems to agree, as it is said to be turning ChatGPT into its own Bing search engine.
Let’s take a look at how this year Apple and Google will finally take on their most important competitor yet.
Walls are falling for Apple
After years of sabre-rattling, political scrutiny, international investigations, and a closely watched court battle with Epic Games (of “Fortnite” fame), regulators finally got what they wanted. Apple is said to be preparing an iOS update this year that would, for the first time, allow third parties to offer their own app stores for iPhone and iPad.
Apple has long argued that the App Store model, which checks every iPhone and iPad app internally to make sure it meets specific security and content standards before it appears on the App Store, is key to attracting customers to its devices.
The company justifies its 30% cut of most App Store transactions as a fair price to protect users from scams, malware, and shoddy apps. Presumably, Apple will bring the App Store to its upcoming augmented reality glasses, which Bloomberg recently reported could finally be shown in the first half of this year.
Critics — who have included, over the years, regulators, legislators, game developers, competitors, startups, Elon Musk, Mark Zuckerberg, and everyone who isn’t Apple — have said the App Store’s approach is fundamentally anti-competitive, on the grounds that there’s no alternative way for iPhone users to install software.
However, we’re about to take our first real-world test of whether Apple is right that a crack in its walled garden will bring everything down. If the App Store opens up and the iPhone doesn’t become a toxic hell, maybe Apple will reconsider its approach. Or the door may open wide, and the iOS ecosystem will become a lawless wasteland. Either way, at least we’ll know.
Google gets some real competition
The threat to Google becomes more and more visible in your face. ChatGPT, the popular chatbot made by OpenAI, has already won the applause of prominent figures in Silicon Valley. Investor Chamath Palihapitiya hailed it as the first great innovation in internet searches in a long time.
Google clearly takes the threat seriously: the company’s leadership declared a “code red” during the advent of ChatGPT. Investors and analysts praise Microsoft for its reported strategy of integrating the technology with the Bing search engine and Office productivity suite. Microsoft is also said to be planning to invest $10 billion in OpenAI itself.
ChatGPT is quite versatile. It can answer simple inquiries such as the population of Paris or the definition of “parliamentary”. But you can also have it write a William Shakespeare-style sonnet about the Burger King menu or a snippet of code ready to be added to your application in progress. While it’s not always perfect, it’s just as difficult to use a system that will find what you’re looking for if it’s there – or make something for you right away if it doesn’t.
It directly hits a weak spot for Google. Over the past several years, critics have complained that Google places too much priority on ads and sponsored results, burying the real information you need under a pile of unhelpful (but profitable) links. Why deal with all that when ChatGPT can hopefully give you a quick, useful, and correct answer to the very specific question you asked?
This puts Google in a bind. If ChatGPT and its ilk take off, more people will use it to search the Internet, which means users will see fewer all-important search ads from Google. On the other hand, if Google tries to imitate the concept — which certainly has the brainpower and talent on board — it will disrupt its business model, reducing the reach of those search ads.
It’s not clear when, or even if, the new wave of AI will begin to make a meaningful inroad into Google’s search dominance. As analyst Ben Thompson pointed out in an issue of his Stratechery newsletter this week, it’s usually foolish to underestimate how deep Google is in the larger tech ecosystem, from browsers to smartphones. ChatGPT is also very expensive and limited in its capabilities to run, at least for now.
No matter how you slice it, though, it’s probably a good thing for the industry at large that ChatGPT puts the tech giant in a rare position to play defense. Market competition helps everyone. And at least it won’t be boring.
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