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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. When Apple released the

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Speaker 1: iPhone sixteen last year, the company put out a series

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Speaker 1: of TV ads promising shiny new AI tools. One of

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Speaker 1: those ads featured Bellow Ramsey, the star of HBO's The

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Speaker 1: Last of Us, trying to remember someone's name at a party.

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Speaker 2: Sirih, what's the name of the guy I had a

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Speaker 2: meeting with a couple of months ago at Cafe Grenell.

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Speaker 1: Siri scans their calendar and answers, you.

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Speaker 2: Met Zach Wingate at Cafe.

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Speaker 1: Grenelle, And when Zach approaches Bella, they nail his name.

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Speaker 2: Hey, Sach eh wow, I think that you don't remember me? Yeah. Push.

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Speaker 1: It was a promise of what was to come with

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Speaker 1: Apple and its AI ambitions, but Mark German, who edits

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Speaker 1: Bloomberg's consumer tech coverage and has been covering Apple for years,

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Speaker 1: says it hasn't quite gone. According to Plant.

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Speaker 2: They advertised I was going to do that in order

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Speaker 2: to sell the new phones, but that feature never came out.

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Speaker 2: A complete disconnect between Apple engineering and Apple marketing.

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Speaker 1: How rare is that for Apple to do something like that,

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Speaker 1: to promise something, to advertise it, and then not actually deliver.

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Speaker 2: It, this is AI, this is Siri. This is at

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Speaker 2: the very core of this major technological revolution. So to

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Speaker 2: the scale that this happened with the importance of these features,

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Speaker 2: nothing like that has happened in modern Apple history, and

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Speaker 2: I consider modern Apple history to be the last twenty

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Speaker 2: or so years.

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Speaker 1: Apple ended up taking the Seri add down, but that

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Speaker 1: disconnect led customers to file class action lawsuits alleging false advertising.

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Speaker 1: In March. Apple declined to comment on the lawsuits. The

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Speaker 1: company also declined to comment on Mark's story or on

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Speaker 1: behalf of the executives mentioned. Mark spoke with several employees

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Speaker 1: and people close to the company, some of whom requested

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Speaker 1: anonymity to discuss sensitive matters, and he says, based on

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Speaker 1: his reporting, those missing features on the iPhone sixteen point

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Speaker 1: to a much bigger issue for Apple that when it

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Speaker 1: comes to the AI race, the company known for delivering

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Speaker 1: on revolutionary tech, is way behind. This is the big

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Speaker 1: take from Bloomberg News. I'm Sarah Holder today on the

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Speaker 1: show inside Apple's efforts to catch up on AI, the

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Speaker 1: challenges the company faces to keep its status as a

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Speaker 1: tech pioneer, and the pitfalls of getting in the game

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Speaker 1: too late. Mark, I want to start by getting a

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Speaker 1: sense of your reporting process here. What made you want

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Speaker 1: to dig into Apple's artificial intelligence efforts?

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Speaker 2: You know, AI has always been an important topic, but

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Speaker 2: until chet GPT launch at the end of twenty twenty two,

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Speaker 2: it really didn't come into the mainstream. It really wasn't

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Speaker 2: the center of the technology world. And it's so interesting

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Speaker 2: because over the years, Apple has dominated so many categories

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Speaker 2: that it wasn't first two the MP three player with

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Speaker 2: the iPod, the smartphone with the iPhone, the table with

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Speaker 2: the iPad, earbuds with the AirPods, smart watches with the

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Speaker 2: Apple Watch. What was different this time around is not

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Speaker 2: only was Apple late to AI or generative AI, this

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Speaker 2: modern technology that we know from Chat, GPT and Gemini, Anthropic,

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Speaker 2: you name it, but they also weren't the best. There

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Speaker 2: was no Apple iPhone or Apple iPad moment for AI

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Speaker 2: where they took something that people didn't really understand and

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Speaker 2: made it mainstream into some beautiful, fully functional product. Right.

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Speaker 2: That just didn't happen, And so for me that was fascinating.

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Speaker 2: That was a c change for Apple. And then over

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Speaker 2: time you start hearing from people working at Apple, people

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Speaker 2: in the industry that there's a problem there.

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Speaker 1: What products does Apple have that do use AI today?

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Speaker 1: Like when you go on your phone, is AI there?

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Speaker 2: Touch ID face ID the way you unlock your phone

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Speaker 2: with biometrics, that is a form of artificial intelligence. The

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Speaker 2: ability for the phone to say you have a meeting

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Speaker 2: and for five minutes, there's forty minutes of traffic, you

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Speaker 2: should probably leave right about now in order to get

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Speaker 2: there on time. That's artificial intelligence. They've been really good

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Speaker 2: at heavily integrated AI. Where they missed was this new

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Speaker 2: topic of generative AI. And so there's a big disconnect

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Speaker 2: between the AI that Apple has long offered and the

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Speaker 2: AI that both Wall Street and consumers are clamoring for.

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Speaker 2: And Apple knew that. That's why they spun together Apple Intelligence.

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Speaker 2: They called it AI for the rest of us, just

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Speaker 2: like they called the original Mac the computer for the

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Speaker 2: rest of us. Expectations for sky high the presentation looked

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Speaker 2: pretty good. In reality, it fell extraordinarily flat. I used

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Speaker 2: the first beta version of Apple Intelligence back at the

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Speaker 2: end of July early August of last year, and I

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Speaker 2: wrote a column about this, saying, this is kind of unbelievable.

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Speaker 2: They've hyped it and hyped it and hyped it. It

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Speaker 2: has basically nothing. People are going to start using this

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Speaker 2: thing and be like, that's it, right, and people were

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Speaker 2: shocked at the time.

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Speaker 1: This is where you get a couple of texts from

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Speaker 1: your friends and then they give you basically an AI

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Speaker 1: summary of what was said.

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Speaker 2: That is one of the futures. So you have the

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Speaker 2: summaries and it can summarize, you know, a slew of

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Speaker 2: text messages. It was able to summarize news headlines right,

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Speaker 2: but they had to pull the news headline's feature because

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Speaker 2: the BBC complained. They sent a headline out about Luigi

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Speaker 2: Maggioni and the headline actually spit out after going through

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Speaker 2: the Apple system that he had shot himself and so

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Speaker 2: that was a sign the system was quite broken. So

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Speaker 2: they pulled that months ago and that's still not back. Actually,

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Speaker 2: there's the gen moji's feature where you can create your

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Speaker 2: own emoji of that one. That is a cool feature.

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Speaker 2: There's writing tools which allows you to summarize text synthesized

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Speaker 2: text into bullet points, but the Generative AI to create

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Speaker 2: something that actually uses OpenAI chat GPT, which is also

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Speaker 2: integrated into iOS eighteen. So there's a slew of these

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Speaker 2: little features throughout, but many of them have also been delayed,

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Speaker 2: many of them don't work as intended, many of them

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Speaker 2: don't work as it's been marketed. And what we have

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Speaker 2: today is really a far cry from the vision Apple presented,

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Speaker 2: and it's an even farther cry from what you're seeing

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Speaker 2: from competitors.

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Speaker 1: Well, benefit of the doubt for a second, being a

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Speaker 1: little late to the game isn't exactly new for Apple.

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Speaker 1: They've historically sat back while their competitors developed riskier new products.

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Speaker 1: They've entered the ring when the bumps and the kinks

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Speaker 1: are kind of smoothed out. Is Apple lagging behind now

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Speaker 1: as a strategy to work more on the tech, or

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Speaker 1: is it really struggling to keep up?

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Speaker 2: Well, I think it's all of those things. Right. One,

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Speaker 2: they're struggling to keep up. They have fewer AI engineers

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Speaker 2: than other companies like Amazon at this point. The other

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Speaker 2: issue is that they don't have the vision for exactly

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Speaker 2: how they can be different and how they can implement

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Speaker 2: these things. But also AI is something that the company

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Speaker 2: is not necessarily built to produce. AI is messy. There's

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Speaker 2: a frequent problem called hallucinations, right hallucinations could be you

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Speaker 2: ask chat GPT or claud or Perplexity a question and

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Speaker 2: it's so confident that it knows the answer the AI

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Speaker 2: and it'll give you an answer, but it's complete nonsense

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Speaker 2: based on nothing, and it's completely wrong. And so Apple

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Speaker 2: as a company with two point three to five billion

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Speaker 2: devices out there, they want to avoid those types of issues.

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Speaker 2: So there is a bit of approach to go slow.

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Speaker 2: There are the technical challenges that they've had trouble overcoming,

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Speaker 2: but then there's also the true reality that this stuff

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Speaker 2: takes a lot of time in the oven in order

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Speaker 2: to be a great place for consumers, and they put

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Speaker 2: it in the oven quite late.

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Speaker 1: Well, let's talk about when they put it in the oven,

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Speaker 1: because part of that beginning of the baking process of AI,

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Speaker 1: if you will, started with poaching John Andrea from Google

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Speaker 1: back in twenty eighteen. They wanted him to kind of

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Speaker 1: kickstart the AI program at Apple. How was he supposed

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Speaker 1: to change the game.

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Speaker 2: So that was a big coup for Apple. That was

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Speaker 2: one of the most dramatic at caires at the time.

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Speaker 2: JG as he's known, was probably the second most important

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Speaker 2: person at Google. He ran all Google Search and all

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Speaker 2: of Google AI and don't forget back in twenty eighteen.

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Speaker 2: Google is really at the forefront of AI, putting it

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Speaker 2: into Gmail Translate photos. They were really a pioneer and

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Speaker 2: JG was supposed to come in and take everything AI related, serelated,

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Speaker 2: put it under his own umbrella. Before you had Siri

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Speaker 2: and different AI teams scattered throughout the corporation. Apple executives

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Speaker 2: at the time felt like the scattered nature of the

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Speaker 2: AI work made it more difficult for them to get

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Speaker 2: things working properly. They brought it under one roof. He

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Speaker 2: did a lot of analysis of what features people were

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Speaker 2: using and not using in Syria and proposed killing a

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Speaker 2: lot of those features. He brought in his own people

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Speaker 2: from Google and elsewhere, some of the top scholars and

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Speaker 2: AI researchers in the world. But then everything sort of

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Speaker 2: fell flat since he came to Apple. There wasn't a

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Speaker 2: lot of change that we've seen in Siri or Apple's

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Speaker 2: machine learning. Artificial intelligence were a lot of the AI

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Speaker 2: work in the years before Apple Intelligence went to development

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Speaker 2: of a self driving car. They spent billions billions on that.

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Speaker 2: They never launched the car. That AI didn't go entirely

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Speaker 2: to waste because they were able to use some of

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Speaker 2: that technology towards the generative models that they're putting on

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Speaker 2: the iPhone, iPad and Mac at this point.

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Speaker 1: But not a lot happened until November twenty twenty two,

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Speaker 1: when open ai released chat gpt to the public. According

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Speaker 1: to people familiar with the events who spoke with Mark,

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Speaker 1: that set off a flurry of activity at the company and.

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Speaker 2: Craig Federigi, who runs software engineering for Apple. He and

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Speaker 2: JG and other people at Apple. They started meeting with

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Speaker 2: open Ai, met with Anthropic, met with other smaller AI players,

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Speaker 2: and determined they need to figure out these AI models

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Speaker 2: and they need to make the twenty twenty four release

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Speaker 2: of iOS very much an AI driven release with AI

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Speaker 2: features throughout. The edict get is many AI features into

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Speaker 2: the operating system as possible.

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Speaker 1: So three years and several delayed AI products later, the

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Speaker 1: question is when will Apple catch up? Can it? That's

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Speaker 1: after the break mark. Your reporting shows that internally Apple

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Speaker 1: is really worried that falling behind on AI could be

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Speaker 1: a critical error. But why couldn't Apple just be content

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Speaker 1: to be a good hardware and software company without being

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Speaker 1: a leader in AI.

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Speaker 2: That's a good question. So, really, there's this predicament inside

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Speaker 2: Apple right now, how much of this stuff should we

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Speaker 2: be building versus how much of this stuff should we

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Speaker 2: be licensing? And already you have OpenAI chat GPT integration

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Speaker 2: into siriy in writing tools for those generative use cases

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Speaker 2: like writing an essay and whatnot. They're going to add

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Speaker 2: Google Gemini as an alternative to CHET GPT inside of

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Speaker 2: Siri and writing tools as well. They're also working to

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Speaker 2: redo the search engine in their browser Safari to integrate

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Speaker 2: AI engines. That's still to come. So you have this

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Speaker 2: question internal versus external partnerships, Like you said, why do

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Speaker 2: we need to be an AI expert? Why can't we

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Speaker 2: just license? That's what Samsung does, right, Samsung uses Google

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Speaker 2: Gemini to power there ALAI.

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Speaker 1: Right, and all these other companies are putting so many

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Speaker 1: resources and energy into developing this AI.

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Speaker 2: They're ahead correct Sitting here today, AI is the most

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Speaker 2: core fundamental technology that you can get. It's equivalent to

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Speaker 2: the processors that go into their devices. Throughout Apple's history,

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Speaker 2: it has been core technologies that have enabled their new

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Speaker 2: types of products. The iPhone only was created because they

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Speaker 2: owned a core technology known as multi touch we take

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Speaker 2: it for granted today, but that touchscreen interface to the

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Speaker 2: original iPhone on the iPad is enabled by very intense,

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Speaker 2: expensive to develop multi touch technology. All the macs, the

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Speaker 2: one you're using now, the iPad, those products, AirPods were

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Speaker 2: enabled by these very advanced processors. But Apple needs to

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Speaker 2: think about the next wave of technology. They already killed

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Speaker 2: the self driving car, but let's just put that in there.

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Speaker 2: So the next wave of hardware in the technology industry,

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Speaker 2: autonomous cars, advanced augmented reality glasses, glasses that can scan

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Speaker 2: your surrounding environment, robots, whether that's humanoids, whether that's roaming robots,

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Speaker 2: whether that's tabletop robots. The only way to enable those

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Speaker 2: products is by owning the core technology of AI, and

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Speaker 2: we've already seen Apple's AI was not up to snuff

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Speaker 2: enough to produce the autonomous car. But they're going to

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Speaker 2: be doomed on the next phase of hardware if they

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Speaker 2: don't get the AI working. And you cannot rely on

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Speaker 2: third parties for technology as cores artificial intelligence. So that's

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Speaker 2: why they need to keep digging in and building their

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Speaker 2: own AI to enable the next way of a hardwork,

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Speaker 2: because don't forget the end of the day they're a

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Speaker 2: hardware company.

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Speaker 1: Are these things that customers are actually, like, really really

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Speaker 1: asking for?

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Speaker 2: I mean it's hard to say. I think there is

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Speaker 2: demand for augmented reality glasses. I think the meta ray

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Speaker 2: bands have been somewhat popular, and so I think glasses

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Speaker 2: are going to become a real category. I think there

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Speaker 2: is going to be a time when pointing your watch

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Speaker 2: at something or pointing your earbuds at something to get

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Speaker 2: more data based on AI is going to be commonplace.

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Speaker 2: I think there is going to be a market for

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Speaker 2: different robotics devices, and certainly the ship has sailed. Autonomy

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Speaker 2: and self driven cars is a real thing, so I

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Speaker 2: think yes. Now, is it ever going to be as

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Speaker 2: popular as the iPhone has been over the last twenty years?

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Speaker 2: Probably not, but it is certainly the future.

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Speaker 1: What does Apple actually need to change about its culture,

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Speaker 1: its processes, it's core business model in order to actually

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Speaker 1: compete in the AI space? And is it doing it?

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Speaker 2: Apple needs to get a lot faster. They need to

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Speaker 2: get a little messier. They need to make boulder bets.

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Speaker 2: They need to be less afraid to launch things. They

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Speaker 2: need to go back to that ethos of move fast

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Speaker 2: and break things. There's going to be a new entrant

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Speaker 2: that potentially could knock Apple off the top of the

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Speaker 2: technology mountain right in in order for Apple to avoid that,

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Speaker 2: they're going to have to beat out those new entrants

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Speaker 2: time and time again. And AI is the big thing

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Speaker 2: right now, and they have so far very much failed

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Speaker 2: to do so. Because of their large user base, because

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Speaker 2: of their design, because of their marketing, and the love

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Speaker 2: that people have for Apple products. I mean, we're all

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Speaker 2: using them right. They have a very big chance of

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Speaker 2: turning things around, but they're only going to have so

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Speaker 2: many chances and only so much time to break through

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Speaker 2: these new, faster, cheaper competitors. Well, thank you so much, Mark,

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Speaker 2: thanks for having me.

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Speaker 1: This is the Big Take from Bloomberg News. I'm Sarah Holder.

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Speaker 1: This episode was produced by Julia Press. It was edited

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Speaker 1: by Aaron Edwards, Tracy Samuelson, and Jeremy Keene. Additional reporting

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Speaker 1: by Drake Bennett. It was fact checked by our editorial

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Speaker 1: team and mixed and sound designed by Julian Weller. Our

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