Google's AI will enable improvements to several Apple services, including a more customised version of its virtual assistant, Siri.

Uniquely, Google's Gemini AI models will serve as the foundation for several of the iPhone manufacturer's core technologies as part of a “multi-year collaboration” unveiled by the tech giants.

The two companies stated in a joint statement that the collaboration will enable “innovative new experiences” for Apple customers.

Apple's New AI Development Path

Apple will implement Google's Gemini models for an updated Siri, launching in 2026, reportedly following considerations of partnerships with OpenAI and Anthropic.

Moreover, this collaboration allows Apple to leverage Gemini and Google Cloud while maintaining its privacy standards via on-device processing and Private Cloud Compute, with analysts anticipating consumer consent for data shared with Google.

Experts believe that Apple's conservative approach to developing AI capabilities has resulted in reliance on third-party enterprises. IDC analyst Francisco Jeronimo stated that by depending on Google's core AI layer, Apple concedes that its internal capabilities cannot compete with Google's Gemini in the short run.

Apple's recent strategy represents a significant shift from its traditional approach of owning all technology layers, which previously provided a competitive advantage, according to a BBC interview.

Analysts anticipate that the deal will be favorable for consumers, highlighting a demand for AI features among iPhone users, especially as competitors like Google and Samsung integrate these technologies.

However, tech analyst Paolo Pescatore points out that Apple's recent financial results indicate that AI is not a primary factor for consumers choosing to purchase an iPhone.

Google's AI Role in Apple's System

Apple has entered into partnerships with AI firms, including a notable agreement with OpenAI in June 2024, to incorporate ChatGPT into its generative AI tools, Apple Intelligence. The CEO indicated that the adoption of AI-powered services will gradually increase.

Notably, Google and Apple announced that Apple Intelligence will operate within Apple's Private Cloud Compute system, highlighting Google's AI technology as the best foundation for Apple's Foundation Models. This collaboration aims to enhance innovative experiences for users while ensuring compliance with Apple's privacy standards.

A Warning Sign for Regulators

Beyond the joint statement released on Monday, not much is known about Google and Apple's agreement, including its value.

However, prior agreements to integrate Google software into Apple products have been worth billions of dollars.

Jeronimo stated that although users of iPhones who are already acquainted with Google's products and methods might not be too alarmed by its AI driving certain Apple features, it was “likely to be a red flag” for regulators.

Regulatory Obstacles & Market Dynamics

In August 2024, a US judge ruled that Google had maintained an illegal online search monopoly, disclosing that the company paid over $26 billion in 2021 to firms like Apple to ensure its search engine was the default on iPhones.

This ruling follows earlier investigations by EU and UK regulators concerning big tech's potential to leverage their market power to sustain dominance in various sectors.

In October, the Competition and Markets Authority (CMA), a UK regulator, determined that Apple and Google had “an effective duopoly” in the country.

According to BBC reaching out the CMA, it deemed Apple and Google to have “strategic market status,” which gives it the authority to demand adjustments at companies it considers to have excessive market dominance.

In summary, Apple and Google, despite being competitors, maintain a complex relationship characterised by a long-standing agreement designating Google as the default search engine on Apple devices. This deal, which historically contributed to nearly half of Google's search traffic, exemplifies the notion of “co-opetition,” as termed by Apple's ex-general counsel Bruce Sewell.

Becoming the default AI provider for iPhones enhances Gemini's brand and market reach, though the partnership may face future antitrust scrutiny amidst AI market consolidation.

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