How AI might destroy apple

Ben Thompson recently interviewed Sam Altman

Ben Thompson in bold.

I haven’t been watching all of Sam’s interviews lately, but this one is the first time where I hear him explicitly state that the model isn’t the moat. He caveats that by saying sustaining the most cutting edge model is a moat - if he had to take a stab at where “market cap” gets created I would bet this is something like what he would expect 10 years from now.

Today and for the next 5 years or so we’re likely to have a situation more like this

Note the green line for “cutting edge research” is essentially at zero. Today value is mostly accruing to the infrastructure layer. This line stood out to me

OpenAI and Microsoft parted ways because Satya and Sam started disagreeing on capital allocation. While I suspect they agree on where the market value is going to be created - I think Sam still wants to always have the leading edge model regardless of cost, both as a call option on super intelligence / fast takeoff post-AGI, but mostly because it’s part of the mission and culture of OpenAI, one that he built and shares.

If you’ve been reading my blog over the past two years you’ll know I’ve been predicting since January 2023 that the killer application for generative AI is personalized agents who are intimately familiar with our lives and connected to the operating systems and apps on our phones and computers. The list of people who have hinted at this as the future now include:

Sam, Zuck, Demis, Sundar, and many other lower profile individuals.

One of the key insights I feel like I’ve had thinking through how everything plays out with personalized Agents is that the companies who own operating systems are the ONLY companies who can deliver this vision. There are numerous reasons:

1. Security is a big deal. Apple already uses “privacy” as a reason to block certain types of data flowing through to app owners. How much more dangerous might an AI be that can control your OS and open apps (e.g. bank account) on its own?

2. The AI needs to be able to talk to all apps, the settings, etc - will all apps be happy letting just anyone (e.g. OpenAI) be the new point of contact through which people use them? I doubt it. Only the OS owner will have the negotiating leverage to make apps comply.

3. Business. They can easily come up with a story around why it’s too risky to have personalized AI (e.g. security, social hacking, etc) - so only they can protect consumers.

Now I’m going to play devil’s advocate. My view is that only the OS providers can deliver the killer app. But maybe Sam is right and new devices will pop up, new browsers will get a foothold. If that happens - what enabled it?

What is Apple’s moat?

I’m a PC user and always have been. I hate Macs. Still, I have used an iPhone since the year they came out, and purchase Airpods ~once per year (they break, but I love them and haven’t ever found a replacement). For about 9 months I tried out a new Pixel. I wanted to give it enough time to really learn the interface and adapt before placing judgment. In the end I went back to the iPhone because “it just worked”. There were too many instances of having apps glitch on the Pixel, the software just not seeming to work right, getting weird lags in the interface…This was only 3-4 years ago mind you.

For hardcore Apple users they have an iPad, a Mac and a Phone - and the devices make it extremely convenient to share information between them.

Arguably the strongest part of Apple’s moat is the ecosystem - which is at this point mostly built around apps that work (almost) flawlessly. In second place would be brand. I don’t believe brand can be a sustainable moat for large companies. Looking out I am bullish on the moat of small brands, but bearish on the giant ones - all of them. That’s a topic for a different post.

You could also name things like “Innovation and Design” and “Supply Chain and Scale” - but that’s simply not accurate anymore. There are numerous high quality sleek phones with comparable design and lower costs than iPhones.

In truth, gun to my head, I’d say the second strongest part of Apple’s moat after ecosystem lock-in is good old fashioned inertia. Their install base is huge. The phones work. The apps work. The cost is subsidized by carriers…

What’s the point in switching?

If a new device was going to succeed (phone or other form factor) in penetrating the moat, it would have to break the inertia with something that offered a strong enough valuation proposition to outweigh the ecosystem lock-in.

When we say: “it just works” - what we usually mean is that the user interface designed by a (human) person is very good and intuitive to use. Another example would be how easy it is to connect Turbo Tax to your brokerage account to pull-in financial statements.

What “it just works” really means is given the limitations of the current graphical user interface and [the knowledge base of an average human] - “it just works”.

Now consider the following…

Today if I want to send someone money I can open the Venmo mobile app - the interface is intuitive, it already syncs with my contacts, there’s a button in the middle of the screen that jumps out at you “Pay/Request”. Any idiot can use it. How well it works IS part of Apple’s moat. But what if in the future instead of doing all of the different steps of opening an app, adding a phone number, sending $1 as a test to make sure you have the right contact info, etc…What if instead you simply say to your personalized Agent: “Hey Grok, send $20 to Juan.”

Grok may need to ask some clarifying questions if you have multiple “Juans” in your phone, but outside of that he’ll take care of it. He’ll be able to handle the verification, do the equivalent of a $1 test send, etc.

Start thinking through how you use most (utility) apps on your phone and it will immediately become obvious that IF you had an AI with access to the apps THEN the amount of time you would spend maneuvering through the user interface would fall precipitously - maybe by 75%+?

The Agent becomes another operating system - sitting there side by side with iOS/Android.

Remember, someone doesn’t have to build something capable of competing with Apple’s ecosystem in a vacuum. They get to start with Android - which is open! Google would be perfectly happy to provide the software…

Besides, the cost of “writing code” is dropping precipitously. It will be easier than ever to make sleek apps AND to ensure that they integrate seamlessly with everything.

All of the “integrations” between phones and computers and iPads that make the experience so magical are not necessary if you have an AI that can make everything work seamlessly on its own. Consider the issue of image sharing. It’s wonderful to have photos you take on your phone automatically appear in your iCloud account which is accessible by your computer.

But how easy would it be for an AI on an android phone to create the same automatic, happening-in-the-background experience? It would be trivial.

Before smartphones people mostly spent $200 on a phone (maybe $300 inflation adjusted). Now they regularly shell out >$1,000. What changed is the amount of value being delivered.

ChatGPT revenue - driven by consumer subscriptions, is going to grow from $3.7B last year to >$12B this year. I spend $20/mo on Claude, ChatGPT, more than that on Grok, and also pay for subscriptions for other family members and employees. $20 seems like an absolute steel relative to the value I’m deriving from it.

If you plugged ChatGPT into my GUI? Let it manage the mouse, share my screen, and simply execute on all of the things I’m always asking it how to do (like set up a web domain, format a file, change settings in Shopify, etc)…I would pay hundreds of dollars per month for that.

Remember, step one of training an AI is simply having it do all of the things you need to do all of the time. It won’t be long thereafter until it can simply become an employee or act like an actual personal assistant.

My belief is that ALL humans will pay $20+ (or start getting bombarded with ads) for an AI assistant within 24 month of the assistants getting access to the GUI. I think at least 1 billion humans will pay $100+ per month. The value delivered is just so large that this seems obvious.

Today, the iPhone is the indispensable piece of equipment. But - I think this flips sometime around 2029/2030 (which is 2 years after when I expect personalized autonomous agents to hit smartphones). The new indispensable piece of equipment will be Agents (which aren’t a device!).

With a potential revenue stream of $100B+ per month just from the top tier users, and that much again easily from the rest - we’re talking about a multi-trillion dollar addressable market.

The difference between Agents and what Apple is good at is that Agents will be software driven. Apple is world class (maybe the best) at creating chip architectures to make phones work well, at managing an ecosystem to ensure that apps integrate flawlessly, and melding software and hardware together. But no one would accuse it of being the best at writing applications.

Developing the “personalized Agent” app will be maybe the most challenging software problem of our time. It will need to rapidly customize its personality and communication style to the user. Adapt over time. And - it will need to have a customizable appearance just like in the beginning of role-playing video games where the user gets to choose what their character looks like.

Can Apple build this? Would they even be willing to?

Imagine an iPhone user having a conversation with their “Agent” - the agent is wearing a US flag bikini and ranting about how deranged some member of congress is. The user might love it and post the experience online. Would Apple really be willing to provide a product like this that exposes their brand to potentially catastrophic criticism?

We might end up discovering that it just takes a new company to provide this type of “product” - and this might be the hole in the armor a company like OpenAI or another upstart could pierce.

Remember, this was a game

My real perspective is that personalized agents are the operating system owners’ game to lose. Apple is in a better position than anyone to take advantage of them for the consumer use case (maybe Google is tied?). Their customer base is the 15% wealthiest people on Earth. Much of the hard work around making Agents a pleasant user experience will be clever hardware and software working together to eliminate latency so that communication feels human. Figuring out what to cache on device and off. This is exactly Apple’s skillset.

There is also a good chance that shortly after these things launch - IF they are truly customizable - that people will be held responsible for the actions of their Agents - not the companies providing them.

People will stop blaming Apple or Google for things the agents do as soon as they themselves use an agent and see how quickly the agent adapts to reflect themselves. It’s a cultural shift that will absolutely take place - but it’s hard to say when. Extreme personalization and (likely) avatars being rendered in real-time are both pre-requisites.