Speaker 1: Bloomberg Audio Studios, podcasts, radio news. When Apple released the
Speaker 1: iPhone sixteen last year, the company put out a series
Speaker 1: of TV ads promising shiny new AI tools. One of
Speaker 1: those ads featured Bellow Ramsey, the star of HBO's The
Speaker 1: Last of Us, trying to remember someone's name at a party.
Speaker 2: Sirih, what's the name of the guy I had a
Speaker 2: meeting with a couple of months ago at Cafe Grenell.
Speaker 1: Siri scans their calendar and answers, you.
Speaker 2: Met Zach Wingate at Cafe.
Speaker 1: Grenelle, And when Zach approaches Bella, they nail his name.
Speaker 2: Hey, Sach eh wow, I think that you don't remember me? Yeah. Push.
Speaker 1: It was a promise of what was to come with
Speaker 1: Apple and its AI ambitions, but Mark German, who edits
Speaker 1: Bloomberg's consumer tech coverage and has been covering Apple for years,
Speaker 1: says it hasn't quite gone. According to Plant.
Speaker 2: They advertised I was going to do that in order
Speaker 2: to sell the new phones, but that feature never came out.
Speaker 2: A complete disconnect between Apple engineering and Apple marketing.
Speaker 1: How rare is that for Apple to do something like that,
Speaker 1: to promise something, to advertise it, and then not actually deliver.
Speaker 2: It, this is AI, this is Siri. This is at
Speaker 2: the very core of this major technological revolution. So to
Speaker 2: the scale that this happened with the importance of these features,
Speaker 2: nothing like that has happened in modern Apple history, and
Speaker 2: I consider modern Apple history to be the last twenty
Speaker 2: or so years.
Speaker 1: Apple ended up taking the Seri add down, but that
Speaker 1: disconnect led customers to file class action lawsuits alleging false advertising.
Speaker 1: In March. Apple declined to comment on the lawsuits. The
Speaker 1: company also declined to comment on Mark's story or on
Speaker 1: behalf of the executives mentioned. Mark spoke with several employees
Speaker 1: and people close to the company, some of whom requested
Speaker 1: anonymity to discuss sensitive matters, and he says, based on
Speaker 1: his reporting, those missing features on the iPhone sixteen point
Speaker 1: to a much bigger issue for Apple that when it
Speaker 1: comes to the AI race, the company known for delivering
Speaker 1: on revolutionary tech, is way behind. This is the big
Speaker 1: take from Bloomberg News. I'm Sarah Holder today on the
Speaker 1: show inside Apple's efforts to catch up on AI, the
Speaker 1: challenges the company faces to keep its status as a
Speaker 1: tech pioneer, and the pitfalls of getting in the game
Speaker 1: too late. Mark, I want to start by getting a
Speaker 1: sense of your reporting process here. What made you want
Speaker 1: to dig into Apple's artificial intelligence efforts?
Speaker 2: You know, AI has always been an important topic, but
Speaker 2: until chet GPT launch at the end of twenty twenty two,
Speaker 2: it really didn't come into the mainstream. It really wasn't
Speaker 2: the center of the technology world. And it's so interesting
Speaker 2: because over the years, Apple has dominated so many categories
Speaker 2: that it wasn't first two the MP three player with
Speaker 2: the iPod, the smartphone with the iPhone, the table with
Speaker 2: the iPad, earbuds with the AirPods, smart watches with the
Speaker 2: Apple Watch. What was different this time around is not
Speaker 2: only was Apple late to AI or generative AI, this
Speaker 2: modern technology that we know from Chat, GPT and Gemini, Anthropic,
Speaker 2: you name it, but they also weren't the best. There
Speaker 2: was no Apple iPhone or Apple iPad moment for AI
Speaker 2: where they took something that people didn't really understand and
Speaker 2: made it mainstream into some beautiful, fully functional product. Right.
Speaker 2: That just didn't happen, And so for me that was fascinating.
Speaker 2: That was a c change for Apple. And then over
Speaker 2: time you start hearing from people working at Apple, people
Speaker 2: in the industry that there's a problem there.
Speaker 1: What products does Apple have that do use AI today?
Speaker 1: Like when you go on your phone, is AI there?
Speaker 2: Touch ID face ID the way you unlock your phone
Speaker 2: with biometrics, that is a form of artificial intelligence. The
Speaker 2: ability for the phone to say you have a meeting
Speaker 2: and for five minutes, there's forty minutes of traffic, you
Speaker 2: should probably leave right about now in order to get
Speaker 2: there on time. That's artificial intelligence. They've been really good
Speaker 2: at heavily integrated AI. Where they missed was this new
Speaker 2: topic of generative AI. And so there's a big disconnect
Speaker 2: between the AI that Apple has long offered and the
Speaker 2: AI that both Wall Street and consumers are clamoring for.
Speaker 2: And Apple knew that. That's why they spun together Apple Intelligence.
Speaker 2: They called it AI for the rest of us, just
Speaker 2: like they called the original Mac the computer for the
Speaker 2: rest of us. Expectations for sky high the presentation looked
Speaker 2: pretty good. In reality, it fell extraordinarily flat. I used
Speaker 2: the first beta version of Apple Intelligence back at the
Speaker 2: end of July early August of last year, and I
Speaker 2: wrote a column about this, saying, this is kind of unbelievable.
Speaker 2: They've hyped it and hyped it and hyped it. It
Speaker 2: has basically nothing. People are going to start using this
Speaker 2: thing and be like, that's it, right, and people were
Speaker 2: shocked at the time.
Speaker 1: This is where you get a couple of texts from
Speaker 1: your friends and then they give you basically an AI
Speaker 1: summary of what was said.
Speaker 2: That is one of the futures. So you have the
Speaker 2: summaries and it can summarize, you know, a slew of
Speaker 2: text messages. It was able to summarize news headlines right,
Speaker 2: but they had to pull the news headline's feature because
Speaker 2: the BBC complained. They sent a headline out about Luigi
Speaker 2: Maggioni and the headline actually spit out after going through
Speaker 2: the Apple system that he had shot himself and so
Speaker 2: that was a sign the system was quite broken. So
Speaker 2: they pulled that months ago and that's still not back. Actually,
Speaker 2: there's the gen moji's feature where you can create your
Speaker 2: own emoji of that one. That is a cool feature.
Speaker 2: There's writing tools which allows you to summarize text synthesized
Speaker 2: text into bullet points, but the Generative AI to create
Speaker 2: something that actually uses OpenAI chat GPT, which is also
Speaker 2: integrated into iOS eighteen. So there's a slew of these
Speaker 2: little features throughout, but many of them have also been delayed,
Speaker 2: many of them don't work as intended, many of them
Speaker 2: don't work as it's been marketed. And what we have
Speaker 2: today is really a far cry from the vision Apple presented,
Speaker 2: and it's an even farther cry from what you're seeing
Speaker 2: from competitors.
Speaker 1: Well, benefit of the doubt for a second, being a
Speaker 1: little late to the game isn't exactly new for Apple.
Speaker 1: They've historically sat back while their competitors developed riskier new products.
Speaker 1: They've entered the ring when the bumps and the kinks
Speaker 1: are kind of smoothed out. Is Apple lagging behind now
Speaker 1: as a strategy to work more on the tech, or
Speaker 1: is it really struggling to keep up?
Speaker 2: Well, I think it's all of those things. Right. One,
Speaker 2: they're struggling to keep up. They have fewer AI engineers
Speaker 2: than other companies like Amazon at this point. The other
Speaker 2: issue is that they don't have the vision for exactly
Speaker 2: how they can be different and how they can implement
Speaker 2: these things. But also AI is something that the company
Speaker 2: is not necessarily built to produce. AI is messy. There's
Speaker 2: a frequent problem called hallucinations, right hallucinations could be you
Speaker 2: ask chat GPT or claud or Perplexity a question and
Speaker 2: it's so confident that it knows the answer the AI
Speaker 2: and it'll give you an answer, but it's complete nonsense
Speaker 2: based on nothing, and it's completely wrong. And so Apple
Speaker 2: as a company with two point three to five billion
Speaker 2: devices out there, they want to avoid those types of issues.
Speaker 2: So there is a bit of approach to go slow.
Speaker 2: There are the technical challenges that they've had trouble overcoming,
Speaker 2: but then there's also the true reality that this stuff
Speaker 2: takes a lot of time in the oven in order
Speaker 2: to be a great place for consumers, and they put
Speaker 2: it in the oven quite late.
Speaker 1: Well, let's talk about when they put it in the oven,
Speaker 1: because part of that beginning of the baking process of AI,
Speaker 1: if you will, started with poaching John Andrea from Google
Speaker 1: back in twenty eighteen. They wanted him to kind of
Speaker 1: kickstart the AI program at Apple. How was he supposed
Speaker 1: to change the game.
Speaker 2: So that was a big coup for Apple. That was
Speaker 2: one of the most dramatic at caires at the time.
Speaker 2: JG as he's known, was probably the second most important
Speaker 2: person at Google. He ran all Google Search and all
Speaker 2: of Google AI and don't forget back in twenty eighteen.
Speaker 2: Google is really at the forefront of AI, putting it
Speaker 2: into Gmail Translate photos. They were really a pioneer and
Speaker 2: JG was supposed to come in and take everything AI related, serelated,
Speaker 2: put it under his own umbrella. Before you had Siri
Speaker 2: and different AI teams scattered throughout the corporation. Apple executives
Speaker 2: at the time felt like the scattered nature of the
Speaker 2: AI work made it more difficult for them to get
Speaker 2: things working properly. They brought it under one roof. He
Speaker 2: did a lot of analysis of what features people were
Speaker 2: using and not using in Syria and proposed killing a
Speaker 2: lot of those features. He brought in his own people
Speaker 2: from Google and elsewhere, some of the top scholars and
Speaker 2: AI researchers in the world. But then everything sort of
Speaker 2: fell flat since he came to Apple. There wasn't a
Speaker 2: lot of change that we've seen in Siri or Apple's
Speaker 2: machine learning. Artificial intelligence were a lot of the AI
Speaker 2: work in the years before Apple Intelligence went to development
Speaker 2: of a self driving car. They spent billions billions on that.
Speaker 2: They never launched the car. That AI didn't go entirely
Speaker 2: to waste because they were able to use some of
Speaker 2: that technology towards the generative models that they're putting on
Speaker 2: the iPhone, iPad and Mac at this point.
Speaker 1: But not a lot happened until November twenty twenty two,
Speaker 1: when open ai released chat gpt to the public. According
Speaker 1: to people familiar with the events who spoke with Mark,
Speaker 1: that set off a flurry of activity at the company and.
Speaker 2: Craig Federigi, who runs software engineering for Apple. He and
Speaker 2: JG and other people at Apple. They started meeting with
Speaker 2: open Ai, met with Anthropic, met with other smaller AI players,
Speaker 2: and determined they need to figure out these AI models
Speaker 2: and they need to make the twenty twenty four release
Speaker 2: of iOS very much an AI driven release with AI
Speaker 2: features throughout. The edict get is many AI features into
Speaker 2: the operating system as possible.
Speaker 1: So three years and several delayed AI products later, the
Speaker 1: question is when will Apple catch up? Can it? That's
Speaker 1: after the break mark. Your reporting shows that internally Apple
Speaker 1: is really worried that falling behind on AI could be
Speaker 1: a critical error. But why couldn't Apple just be content
Speaker 1: to be a good hardware and software company without being
Speaker 1: a leader in AI.
Speaker 2: That's a good question. So, really, there's this predicament inside
Speaker 2: Apple right now, how much of this stuff should we
Speaker 2: be building versus how much of this stuff should we
Speaker 2: be licensing? And already you have OpenAI chat GPT integration
Speaker 2: into siriy in writing tools for those generative use cases
Speaker 2: like writing an essay and whatnot. They're going to add
Speaker 2: Google Gemini as an alternative to CHET GPT inside of
Speaker 2: Siri and writing tools as well. They're also working to
Speaker 2: redo the search engine in their browser Safari to integrate
Speaker 2: AI engines. That's still to come. So you have this
Speaker 2: question internal versus external partnerships, Like you said, why do
Speaker 2: we need to be an AI expert? Why can't we
Speaker 2: just license? That's what Samsung does, right, Samsung uses Google
Speaker 2: Gemini to power there ALAI.
Speaker 1: Right, and all these other companies are putting so many
Speaker 1: resources and energy into developing this AI.
Speaker 2: They're ahead correct Sitting here today, AI is the most
Speaker 2: core fundamental technology that you can get. It's equivalent to
Speaker 2: the processors that go into their devices. Throughout Apple's history,
Speaker 2: it has been core technologies that have enabled their new
Speaker 2: types of products. The iPhone only was created because they
Speaker 2: owned a core technology known as multi touch we take
Speaker 2: it for granted today, but that touchscreen interface to the
Speaker 2: original iPhone on the iPad is enabled by very intense,
Speaker 2: expensive to develop multi touch technology. All the macs, the
Speaker 2: one you're using now, the iPad, those products, AirPods were
Speaker 2: enabled by these very advanced processors. But Apple needs to
Speaker 2: think about the next wave of technology. They already killed
Speaker 2: the self driving car, but let's just put that in there.
Speaker 2: So the next wave of hardware in the technology industry,
Speaker 2: autonomous cars, advanced augmented reality glasses, glasses that can scan
Speaker 2: your surrounding environment, robots, whether that's humanoids, whether that's roaming robots,
Speaker 2: whether that's tabletop robots. The only way to enable those
Speaker 2: products is by owning the core technology of AI, and
Speaker 2: we've already seen Apple's AI was not up to snuff
Speaker 2: enough to produce the autonomous car. But they're going to
Speaker 2: be doomed on the next phase of hardware if they
Speaker 2: don't get the AI working. And you cannot rely on
Speaker 2: third parties for technology as cores artificial intelligence. So that's
Speaker 2: why they need to keep digging in and building their
Speaker 2: own AI to enable the next way of a hardwork,
Speaker 2: because don't forget the end of the day they're a
Speaker 2: hardware company.
Speaker 1: Are these things that customers are actually, like, really really
Speaker 1: asking for?
Speaker 2: I mean it's hard to say. I think there is
Speaker 2: demand for augmented reality glasses. I think the meta ray
Speaker 2: bands have been somewhat popular, and so I think glasses
Speaker 2: are going to become a real category. I think there
Speaker 2: is going to be a time when pointing your watch
Speaker 2: at something or pointing your earbuds at something to get
Speaker 2: more data based on AI is going to be commonplace.
Speaker 2: I think there is going to be a market for
Speaker 2: different robotics devices, and certainly the ship has sailed. Autonomy
Speaker 2: and self driven cars is a real thing, so I
Speaker 2: think yes. Now, is it ever going to be as
Speaker 2: popular as the iPhone has been over the last twenty years?
Speaker 2: Probably not, but it is certainly the future.
Speaker 1: What does Apple actually need to change about its culture,
Speaker 1: its processes, it's core business model in order to actually
Speaker 1: compete in the AI space? And is it doing it?
Speaker 2: Apple needs to get a lot faster. They need to
Speaker 2: get a little messier. They need to make boulder bets.
Speaker 2: They need to be less afraid to launch things. They
Speaker 2: need to go back to that ethos of move fast
Speaker 2: and break things. There's going to be a new entrant
Speaker 2: that potentially could knock Apple off the top of the
Speaker 2: technology mountain right in in order for Apple to avoid that,
Speaker 2: they're going to have to beat out those new entrants
Speaker 2: time and time again. And AI is the big thing
Speaker 2: right now, and they have so far very much failed
Speaker 2: to do so. Because of their large user base, because
Speaker 2: of their design, because of their marketing, and the love
Speaker 2: that people have for Apple products. I mean, we're all
Speaker 2: using them right. They have a very big chance of
Speaker 2: turning things around, but they're only going to have so
Speaker 2: many chances and only so much time to break through
Speaker 2: these new, faster, cheaper competitors. Well, thank you so much, Mark,
Speaker 2: thanks for having me.
Speaker 1: This is the Big Take from Bloomberg News. I'm Sarah Holder.
Speaker 1: This episode was produced by Julia Press. It was edited
Speaker 1: by Aaron Edwards, Tracy Samuelson, and Jeremy Keene. Additional reporting
Speaker 1: by Drake Bennett. It was fact checked by our editorial
Speaker 1: team and mixed and sound designed by Julian Weller. Our
Speaker 1: senior producer is Naomi Shavin. Our senior editor is Elizabeth Ponso.
Speaker 1: Our deputy executive producer is Julia Weaver. Our executive producer
Speaker 1: is Nicolled Beamster Boord. Sage Bauman is Bloomberg's head of podcasts.
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