While big tech burns cash on AI, Apple waits
by Horace Dediu
Bonfire of the Tech Vanities
But consider an alternative reading. The foundation model market is beginning to exhibit classic signs of commoditisation. When one company introduces agentic capabilities, the others follow within months. Benchmark leadership changes constantly, with no provider establishing a durable lead. Prices are collapsing: Anthropic recently cut prices by 67%, Google has slashed rates by 70%-80%, and OpenAI has repeatedly reduced costs on successive models. This is textbook commodity market behaviour.
If foundation models are heading toward commodity status, then the strategic value shifts to whoever controls the integration layer and the user relationship. Apple has 2.4 billion active devices. It has the most valuable distribution channel in technology. And its recent moves suggest a deliberate strategy: rather than building frontier models, source them from whoever is best at any given moment.
This is precisely what Apple has done. It partnered with OpenAI in 2024, then switched to Google’s Gemini to power the next generation of Siri. The company is not building the engine; it is curating the best available engine at any given moment, wrapping it in Apple’s privacy architecture, and integrating it across the ecosystem. Own the experience, outsource the commodity.
Source: stocks.apple.com
NB: The definition of disruption is the process whereby a "good enough" entrant displaces an "over serving" incumbent by gradually improving and capturing low value customers first, but moving up-market thereafter with improved performance. However, implicit in this inversion of fortunes is the aversion of the incumbent to pursue the same strategy. Call it an allergic reaction to the low-end. Justified by lower margins and typically worsening financial metrics.
I've often said that Apple shows no aversion of AI whether building their own (Siri, ML in silicon) or licensing it (Gemini) or using it internally (Claude). There is nothing in AI which Apple finds repulsive, quite the opposite.
Moreover, the gold rush (or perhaps more appropriately, the spending rush) is an arms race with commoditization as the reward. It seems defensive to me and the participants are hardly humble about it. Keep watching this space for continuing debate on the topic.
1 comment
FredHS ·
Thanks for the perspective. Apple's AI strategy seems to be consistent with decisions, over the decades, to leave large capex businesses to others. Examples: Silicon Manufacturing, Wireless build-out, Fiber to the home* banking rails and back-end, and now foundation model factories. We might see their exit from Titan in that light, just for speculation.
This lovely approach allows Apple to expense, rather than capitalize, their cash outlays. So Apple has no goodwill or other intangibles on the balance sheet and very little PPE. For investors, there's no potential write-off.
On the other hand, Apple's buybacks have had a CAGR in the teens averaged over the years. This also does not appear on the balance sheet.
*On fiber to the home topic, over a decade ago, Google started a FTTH project in Austin. Went nowhere.