Apple's iPhone 16 Set to Revolutionize Consumer AI, Faces Regulatory Challenges

Why Apple's AI-packed iPhone 16 sales matter to more than just Apple

Hello and welcome to Eye on AI. In this edition...why Apple's AI bet on the iPhone 16 matters to more than just Apple; a once-promising German AI startup pivots away from its own AI models; North Dakota emerges on the frontlines of the AI data center wars. Apple announced yesterday that its new iPhone 16 will go on sale later this month. The phone is the first to be designed specifically to support the company's "Apple Intelligence" features, including new AI photo editing tools, an improved version of Siri, generative AI writing aids, and the ability to summarize emails and notifications. The ability to access OpenAI's GPT models through Siri as well as an OpenAI-specific portal is coming to the phone soon. It's all powered by Apple's new operating system, iOS 18, and inside the phone by Apple's custom A18 chip which has been designed to support AI workloads. Many of these new AI features won't roll out to customers until later in the year, or even next year. Overall though, the phone represents a big bet that demand for AI features will convince consumers to upgrade, awakening iPhone sales from a somnolent period that has been a drag on Apple's revenues and its share price. Sales of the iPhone 16 are also poised to be a bellwether for the overall consumer generative AI market. And so far, the strength of that market seems far from certain. Yes, OpenAI and Meta both announced seemingly impressive user numbers last week. OpenAI said 200 million people now use ChatGPT each week. Meta said its AI chatbot had 400 million active monthly users and 185 million weekly users. Those numbers are an indicator that there is a real consumer market for genAI products. But it's unclear that an upgraded digital assistant and some new genAI writing and photo editing tools will really be enough to convince people to shell out between $799 and $1,200 (depending on the version) for a new phone, especially when you can already access ChatGPT or Meta's AI on your existing devices. The real money from generative AI is being made in enterprise software, even as some chief information officers complain they aren't seeing enough value from gen AI software. OpenAI revealed last week that it now has 1 million paying business customers for its service and that 92% of the Fortune 500 are using OpenAI's models in some capacity. Meta has said its Llama large language models -- which it makes available for free -- have been downloaded some 350 million times. That figure is an indicator that developers are trying to build AI applications based on Llama. Moreover, it's evidence that the generative AI boom is still far from petering out. (Meanwhile Anthropic has belatedly entered the enterprise AI space as my colleague Sage Lazarro pointed out in this newsletter on Thursday.) One thing that is apparent from this past week's news is the extent to which the next big technology platform -- AI -- is likely to be dominated by the same set of giant tech companies that currently rule the roost: Google, Microsoft, Amazon, Meta, and Apple, alongside AI chip titan Nvidia. There was a brief moment, 18 months ago, when a few of these giants looked vulnerable. ChatGPT, some argued, was poised to be a Google-killer. Apple and Amazon both seemed hopelessly behind in their efforts to build large language models and integrate them into their product lineup. But that moment was vanishingly brief. It is now becoming apparent that while the pecking order of these giants might be scrambled by AI, as a group their preeminence is unlikely to be usurped. OpenAI is the closest of any upstart to breaking into this top tier, but even it is completely dependent on the largesse of the tech giants. Its success is largely due to the funding and data center infrastructure Microsoft has provided it. OpenAI seems to be trying to break its dependency on Microsoft -- reports are that it is looking to raise billions in new funding in an investment round that could include Apple and Nvidia, as well as Microsoft and a gaggle of Silicon Valley venture capital firms. But the fact OpenAI needs more cash, despite having received a $10 billion commitment from Microsoft a little more than a year ago, is a testament to just how high its current burn rate is and how tricky its path to ever escaping the orbit of its Big Tech patrons will be. This concentration of power should be a concern. As with previous tech platforms, there is a tendency towards monopoly or at least oligopoly. That has costs -- in innovation and choice -- even if these harms are not always as immediately apparent as higher prices are. In the U.S. and the EU, governments are only now seeking to address the concentration power of inherent in previous platform shifts -- to the internet and mobile. Maybe we won't have to wait as long for regulators to do something about the control these few companies exert over AI's development. But I'm not holding my breath. Here's more AI news. Jeremy Kahn jeremy.kahn@fortune.com @jeremyakahn Before we get to the news. If you want to learn more about AI and its likely impacts on our companies, our jobs, our society, and even our own personal lives, please consider picking up a copy of my book, Mastering AI: A Survival Guide to Our Superpowered Future. It's out now in the U.S. from Simon & Schuster and you can order a copy today here. In the U.K. and Commonwealth countries, you can buy the British edition from Bedford Square Publishers here. Countries sign Council of Europe Framework Convention on AI. The U.S., U.K., and the European Union, as well as Japan, Canada, Mexico, Australia, Israel, and others signed the convention at a meeting in Vilnius, Lithuania. It commits countries to take specific steps to ensure AI does not impinge on human and civil rights, that personal data is protected, and that AI is developed safely and responsibly. You can read more here. German AI startup Aleph Alpha pivots to providing AI support. The company had been developing its own powerful large language models and raised $500 million in funding. But it will now focus on helping companies and governments deploy generative AI models from any vendor through an operating system product it calls PhariaAI, according to a Bloomberg story. Elon Musk claims world's largest GPU cluster built in record time. The billionaire said he had completed a data center, which he dubbed Colossus, with 100,000 of Nvidia's H100 graphics processing units. The data center, which is designed to support the training of massive AI models by Musk's xAI startup, was built in just four months, according to the billionaire, a claim that has raised eyebrows among rival AI companies and the data center industry, not just for its size, which would eclipse the clusters available to many other AI companies, but also for the construction timeline, which is much faster than the 12 months it typically takes to erect, equip, and wire together such a large cluster. Skeptics also questioned whether the local power grid could actually support so many GPUs in a single location. You can read more in this story from The Information. Could crowd computing substitute for large GPU clusters? Some AI researchers and developers are hoping that it might be possible to harness the collective computing power of internet-connected machines across the globe to train large-scale AI models without the need for expensive, centralized clusters of graphics processing units. Now researchers at Nous Research have demonstrated that a model with 1.2 billion parameters can be effectively trained in this way. If the results hold for even larger AI models, the technique Nous pioneered could make it possible to train state-of-the-art AI models without the need for costly AI computing clusters. At the same time, such crowd-sourced computing efforts make it much harder for governments to regulate the development of powerful AI models. You can read the Nous research on GitHub here. Nvidia is a bargain now that AI is going beyond the hyperscalers, says Goldman Sachs -- by Christiaan Hetzner AI startup Glean aiming to build the 'Google for Work,' raises $260M at $4.4B valuation -- by Sharon Goldman Elon Musk's xAI startup could help Tesla with FSD, Optimus, and Siri-like feature, report says -- by Jason Ma Would a gen AI-powered Alexa return real profits for Amazon? -- by Jason Del Rey Dec. 8-12: Neural Information Processing Systems (Neurips) 2024 in Vancouver, British Columbia Dec. 9-10: Fortune Brainstorm AI San Francisco (register here) The race to build the $100 billion data center is on, and its starting line is in North Dakota. The largest AI companies are anticipating needing ever larger, more powerful data centers stuffed with graphics processing units or other AI chips. The Information reports this week that North Dakota's Commerce Commissioner Josh Teigen said he and the state's governor have been approached by two companies hoping to build supercomputing clusters in the state that each would cost as much as $125 billion and eventually draw 5 to 10 gigawatts of power. Five gigawatts is as much power, the publication points out, as the entirety of Microsoft's Azure cloud currently consumes in a year. While the public official did not say which companies were involved, the obvious candidates are Microsoft, Google, Meta, Amazon, Nvidia, and perhaps Apple or Musk's xAI. Increasingly, some communities are turning against these huge data centers, concerned they draw too much power and deplete precious groundwater resources, while not doing enough to contribute to either jobs or the tax base.

Apple and Google just lost two giant legal cases that will cost them billions

And so, another iPhone launch has come and gone. Apple did announce some notable stuff: A new camera control button on the iPhone, a bigger Apple Watch, new AirPods Pro that can supposedly act as a "clinical grade" hearing aid. But there were no huge surprises. In fact, I'm quite happy to have last year's iPhone 15 Pro rather than this year's iPhone 16 Pro, as the newer model's telephoto lens has a 5x zoom while the 15 Pro has a 3x lens, which I find generally more useful for portraiture and street photography. Overall, yesterday's event seems to have been in line with what Wall Street was expecting, as Apple's share price ended the day pretty much flat. But today it's down, and that has nothing to do with the iPhone 16. Rather, it's because Apple has to pay Ireland €13 billion ($14.4 billion) in back taxes. In 2016, the European Union's competition directorate decided that Ireland had granted Apple a sweetheart tax deal that let the company pay an effective corporate tax rate as low as 0.05% on its European profits. Like most Big Tech firms, Apple's EU base is in Ireland, which offers comparatively generous tax terms and light-touch regulation. The Commission found Dublin gave Apple an even sweeter tax deal than usual to preserve thousands of jobs in the country -- and that this special treatment amounted to illegal, market-distorting state aid that needed to be paid back. Four years later, Apple's appeal to the EU's General Court, which handles appeals of decisions by the Commission, proved successful. The Commission's ruling was overturned, with the General Court finding that it hadn't proven Ireland gave Apple a particular advantage over its peers. Vestager had gone out on a limb by trying to apply antitrust law to a tax matter -- "total political crap," as Apple CEO Tim Cook called it at the time -- and it looked like she had indeed gone too far. But the Commission then appealed to the Court of Justice of the EU, which is the bloc's highest court. And today the Court of Justice gave antitrust commissioner Margrethe Vestager what she wanted: an overturning of the General Court's 2020 ruling, and confirmation that she got it right the first time. Apple must pay that €13 billion and Ireland, which has fiercely resisted claiming that vast pile of cash, has to take it. (The cash has been sitting in escrow for years.) "Today is a big win for European citizens and for tax justice," Vestager said. And that wasn't the only thing to put a spring in Vestager's step today. The Court of Justice also upheld the €2.4 billion fine that her department levied on Google in 2017, for favoring its own comparison shopping service in its regular search results by downranking rivals when the user searched for clothes or washing machines. Google is still appealing the other two big fines it subsequently received in the EU (€1.5 billion for AdSense for Search abuses, and €5 billion for Android abuses), but today's decision is another huge win for Vestager. The Google Shopping case was where she originally made her name, by successfully reviving a fight that her predecessor, Joaquín Almunia, had all but surrendered. And the Apple-Ireland case is where she gained international notoriety -- partly because of the massive sum involved, and partly because it prompted former U.S. President Donald Trump to refer to her as the EU's "tax lady." Now her combative and boundary-pushing approach has been vindicated in both cases. Both Google and Apple said they were "disappointed" by today's decisions. Vestager is about to step down as competition commissioner. The liberal Dane no longer has enough political support back home, so Denmark has proposed someone else to be its representative in the Commission. We'll only find out next week who the EU's new antitrust chief will be. But for Vestager, this is one heck of a way to go out. Huawei answers Apple. Just after Apple unveiled the iPhone 16, its Chinese rival Huawei showed off its much-awaited tri-fold phone, the Mate XT. As Bloomberg reports, the device folds out into a 10-inch tablet, but at a starting price of 19,999 yuan ($2,800), which could limit its appeal. That said, Huawei was boasting 3 million pre-orders before the Mate XT was even officially revealed. AMD changes tack. AMD is reducing its focus on flagship graphics processing units so it can focus on AI chips, and of course lower-price-point GPUs too. As The Verge notes, this echoes Nvidia's increasing prioritization of data-center AI chips, while also recognizing that AMD's flagship GPUs haven't prevailed against Nvidia's alternatives. Oracle pop. Oracle's share price rose 9% at the start of trading today, thanks to its cloud business thriving in the AI boom. The Wall Street Journal explains that Oracle may have been late to the AI cloud party, but its data centers are relatively new and tailored to AI training -- and because Oracle isn't developing its own large language models, it has developed useful partnerships with companies that are, like Microsoft and Google. -- The amount that Russia will spend to boost internet censorship over the next five years, according to the Russian edition of Forbes, which says upgrades to Russian internet filtering systems will make it easier to restrict access to censorship-bypassing VPNs. SpaceX launches daredevil billionaire into space to conduct first spacewalk by a private citizen, by the Associated Press Tesla posts 2024 high in China car sales last month, but is still losing share to rivals like BYD, by Christiaan Hetzner Struggling Volvo Cars says 'safety is our superpower' as EV ambitions dashed by flatlining market, by Ryan Hogg Americans were scammed out of $5.6 billion in 2023 as crypto fraud losses spiked 45%, by the Associated Press China refuses to sign agreement to ban AI from controlling nuclear weapons, by AFP The future is charging at us -- and humanity must cope with what was once the stuff of science fiction, by Vivek Wadhwa (Commentary) Online rules. Online platforms have for the first time overtaken TV as the main source of news for Brits, according to the U.K. media regulator Ofcom. As TechCrunch reports, the shift will probably lead Ofcom to pay more attention to online media in the future. "Television has dominated people's news habits since the '60s, and it still commands really high trust," said Ofcom strategy chief Yih-Choung Teh. "But we're witnessing a generational shift to online news, which is often seen as less reliable -- together with growing fears about misinformation and deepfake content."