Apple and Microsoft seem to be playing very different games with their OpenAI deals

Apple and Microsoft have forged close ties with OpenAI to get ahead in the AI race, but their agreements with the ChatGPT maker differ markedly.

• The world's two most valuable companies both have close ties to OpenAI.
• Apple could soon join Microsoft in having an observer role on OpennAI's board, Bloomberg reported.
• However, both companies have very different arrangements with the ChatGPT maker.

The world's two most valuable companies know what it's like to miss the boat on the latest technology.

In the 1990s, Apple watched as Bill Gates took Windows global, giving Microsoft absolute dominance over the nascent PC market. By the late 2000s, a Steve Ballmer-led Microsoft was left reeling as Steve Jobs' iPhone would go on to shape the smartphone industry.

Now, in the AI era, it's clear neither company wants to fall behind on a technology touted by Gates as being "as revolutionary as mobile phones and the internet." It even seems that the longtime rivals are willing to sit at the same table to ensure they don't suffer the same fate again.

According to a Bloomberg report on Tuesday, Apple is set to get an observer role on the board of OpenAI as part of an agreement unveiled last month. The deal will see Apple integrate ChatGPT into its iPhone, iPad, and Mac operating systems.

Phil Schiller, a prominent figure at Apple who leads App Store operations, has been chosen for the role, the report said. Microsoft has had a similar observer role on OpenAI's board since November.

However, while the two Big Tech companies could soon share similar status on OpenAI's board, it's worth reflecting on just how different their relationships with Sam Altman's company are.

Apple's OpenAI deal

When Apple revealed a partnership with OpenAI at its Worldwide Developers Conference (WWDC) in June, questions swirled about the terms of the long-rumored tie-up.

Given Apple's silence on its generative AI ambitions before the reveal — a silence that had investors wondering if it had serious AI ambitions at all — a fair question to ask might have been: "Is Apple willing to pay OpenAI to get access to the buzziest AI chatbot in town?"

For those more confident in Apple, the better question would have been whether Apple would strike a deal with OpenAI that emulates its long-standing arrangement with Google.

For years, Google has paid Apple a lot of money to remain the default search engine on the Safari browser. In 2022, it paid Apple $20 billion for that position, recognizing Apple's distribution power with a user base of more than two billion active devices.

OpenAI is a much smaller company than Google, and does not have the luxury of handing Apple billions of dollars. That said, an arrangement reaffirming Apple's distribution power could materialize differently. And that it did.

Last month, Bloomberg reported that Apple was getting to integrate ChatGPT into its operating systems for free while giving its users a version of AI that it had full control over.

Apple's new suite of AI features revealed at WWDC, dubbed Apple Intelligence, hardly relies on OpenAI's technology. Apple's own AI models are the driving force behind new tools aimed at helping users write texts, create original images, and more. ChatGPT is more of an add-on that Apple users can choose to give, or refuse, permission to respond to queries.

Although Apple isn't getting direct financial benefits from OpenAI, it will hope the partnership helps trigger a massive upgrade cycle among iPhone users keen to try out Apple's new AI features, which will only be available on the most decent devices.

Microsoft's OpenAI deal

Microsoft's relationship with OpenAI is seemingly more involved.

It first backed OpenAI in 2019 with a $1 billion investment, has since put billions more into the ChatGPT maker. CEO Satya Nadella has sought close ties with OpenAI — the company arguably responsible for the generative AI boom.

Microsoft's reasons for strengthening links with OpenAI are different. Having invested billions, Nadella hopes the investment will eventually generate outsize returns for Microsoft.

OpenAI depends on Microsoft's massive cloud division to gain access to the computing power needed to train and run its large language models (LLMs), such as the GPT-4o model revealed in May.

In return, Microsoft takes almost half of OpenAI's profits, according to terms of their deal, and hopes that OpenAI can one day scale these models to a point where they create a new paradigm by achieving artificial general intelligence, or AGI.

Getting this close to the ChatGPT creator has its risks, however.

The potential for LLMs to develop into AGI is a theory that's faced growing scrutiny among AI experts including Yann LeCun, who has argued that the technology is an "off-ramp" on the path to AI that's as smart as humans.

Meanwhile, last month, Bloomberg reported that Microsoft's OpenAI investment could face questions from European regulators about the impact OpenAI's exclusive use of Microsoft cloud technology may have on the rest of the industry.

Of course, it's not yet clear which company will find their OpenAI relationship the most lucrative.

The success of Apple's OpenAI tie-up could come down to how many people are willing to buy new iPhones. Microsoft seems to be banking on a whole lot more.