Apple to ‘pay’ OpenAI for ChatGPT through distribution, not cash

When Apple Inc. Chief Executive Officer Tim Cook and his top deputies this week unveiled a landmark arrangement with OpenAI to integrate ChatGPT into the iPhone, iPad and Mac, they were mum on the financial terms.

Left unanswered on Monday: which company is paying the other as part of a tight collaboration that has potentially lasting monetary benefits for both. But, according to people briefed on the matter, the partnership isn’t expected to generate meaningful revenue for either party — at least at the outset.

The arrangement includes weaving ChatGPT, a digital assistant that responds in plain terms to information requests, into Apple’s Siri and new writing tools. Apple isn’t paying OpenAI as part of the partnership, said the people, who asked not to be identified because the deal terms are private. Instead, Apple believes pushing OpenAI’s brand and technology to hundreds of millions of its devices is of equal or greater value than monetary payments, these people said.

Meanwhile, Apple, thanks to OpenAI, gets the benefit of offering an advanced chatbot to consumers — potentially enticing users to spend more time on devices or even splash out on upgrades.

Representatives of Apple and OpenAI declined to comment.

The pact with OpenAI is part of a broader push by Apple into AI. The iPhone maker laid out the plans during a keynote address at its annual Worldwide Developers Conference, showing off AI features for the iPhone, iPad and Mac. The non-ChatGPT capabilities — branded as Apple Intelligence — were designed by the company in-house. 

But even if money wasn’t a major factor in the Apple-OpenAI deal, remuneration could come into play later. 

Under the current structure, the partnership could become costly for OpenAI, which needs to pay Microsoft Corp. to host ChatGPT on that company’s Azure cloud-computing systems. The more people use ChatGPT, the more OpenAI’s expenses rise. And the integration into Apple devices — while optional for users and limited to the company’s recent products — threatens to add significantly to the computing budget.

ChatGPT will be offered for free on Apple’s products, but OpenAI and Apple could still make money by converting free users to paid accounts. OpenAI’s subscription plans start at $20 a month — a fee that covers extra features like the ability to analyze data and generate more types of images. 

Today, if a user subscribes to OpenAI on an Apple device via the ChatGPT app, the process uses Apple’s payment platform, which traditionally gives the iPhone maker a cut.

Apple’s deal with OpenAI isn’t exclusive, and the iPhone maker is already discussing offering Google’s Gemini chatbot as an additional option. That agreement should be in place later this year.

Apple has also held talks with Anthropic as a potential chatbot partner, people familiar with the matter told Bloomberg earlier this year. The idea is to ultimately offer a range of AI services to users — similar to the way Apple has different search engine options in its Safari browser.

Eventually, Apple aims to make money from AI by striking revenue-sharing agreements whereby it gets a cut from AI partners that monetize results in chatbots on Apple platforms, according to the people. The company believes that AI could chip away at the billions of dollars it gets from its Google search deal because users will favor chatbots and other tools over search engines. Apple will need to craft new arrangements that make up for the shortfall.

Apple’s own AI services won’t be as costly to deliver because most of them are handled on the devices themselves, rather than through cloud computing. Still, the company is ramping up its data center operations to support new online AI services that handle more advanced tasks.

To make Apple Intelligence a success, the company will need to expand it to other languages and countries. That may be a challenge in China, one of Apple’s biggest overseas markets, where services like ChatGPT and Gemini are barred. 

The company has yet to reach a deal with a local Chinese provider to handle chatbot features, but has been considering an arrangement with companies such as Baidu Inc. and Alibaba Group Holding Ltd., according to the people. For now, Apple Intelligence is only available in American English, but the company is aiming to support more languages next year. –BLOOMBERG