Apple Balks and Walks from OpenAI Investment
Tom Dotan & Berber Jin
The chaos continues...
Apple is no longer in talks to participate in an OpenAI funding round expected to raise as much as $6.5 billion, an 11th hour end to what would have been a rare investment by the iPhone maker in another major Silicon Valley company.
Apple recently fell out of the talks to join the round, which is slated to close next week, according to a knowledgeable person.
It was big news when Apple was investing in this round in part because Apple almost never invests in such rounds. Now it's big news that Apple is not investing in this round because it was big news that they were investing in this round. So why are they no longer investing in this round? Well, there could be many reasons!
Firstly, it seems pretty clear that they intended to invest. Basically every publication has reported as much and it made logical sense. Both because of Apple's recent partnership with OpenAI for Apple Intelligence – announced on stage at WWDC, no less – and because it was an indirect way for Apple to pay for the services they'd be using when ChatGPT is baked into their product later this year. There's startup-scale and then there's Apple-scale. Even if only a small fraction of Apple devices can run Apple Intelligence, there were about to be millions upon millions of devices suddenly pinging ChatGPT's servers quite a lot, one presumes. As OpenAI's continually leaking financials should make clear: this isn't free. Nor is it even cheap. And it didn't seem like OpenAI's main benefactor Microsoft – who operates those servers, by the way – was going to appreciate Apple's free ride here. Especially while trying to compete in consumer AI on their own – awkwardly with both OpenAI and now OpenAI-partnered Apple.
That's a doozy of circular information and it also probably speaks to at least part of why Apple is now no longer investing in OpenAI. The entire structure of the entity is a mess. And even if and when they're able to convert it into a for-profit entity, as the past many months have shown very publicly, things are unlikely to get less messy anytime soon.
So seemingly it's a sort of headache question for Apple. Investing in OpenAI was always going to be a headache on some level, but at what point was the pain no longer tolerable? Timing alone here would seem to indicate that the latest sudden executive departures were the straw the broke the camel's back. But the many straws along the way also undoubtedly contributed!
Like, say, the time when Phil Schiller was teed up to be appointed as a board observer, only to have that offer rescinded. That seems like it perhaps could have annoyed Apple. Both because of the action and also because of the leaks about the action. Apple, in case you weren't aware, is not a big fan of leaks. Did Microsoft maneuver to ensure Apple wouldn't be in the room where it happened? Hard to know for sure, but they couldn't have been thrilled about it (see: above).
Microsoft also clearly isn't thrilled about the regulatory scrutiny they are constantly under in part due to the OpenAI involvement. So backing away from their own board observer role makes that at least a better story to tell regulators. And perhaps Apple got comfortable with having no such vision into a key partner because of this same reason: regulators were never going to like the most valuable tech companies in the world being in the board room of arguably the most important AI startup. There's already enough regulatory pressure on Apple so... why not come up with another way to get some information rights?
Like, say, investing in OpenAI. To be clear, I believe it was always part of the plan to have Apple invest in the company – which made even just the offer of a board observer role make a lot more sense – but now perhaps it would help ensure parties were aligned and there was at least some level of formal oversight Apple could have in a key partner. Not to mention the benefits – Wall Street cough cough – of being associated even more closely with the company considered to be at the forefront of AI.
But the past many weeks have turned an already tumultuous OpenAI narrative into an absolutely chaotic one. And so you have to imagine that positive halo effect Apple was hoping for from deepening the OpenAI relationship shifted the other way: perhaps the company now viewed it as a liability.
If that's the case, that will make the upcoming roll-out of ChatGPT within Apple Intelligence more than a bit awkward.1 To be fair, Apple's entire roll-out strategy for AI has been awkward thus far – and none of it is even officially rolled out yet, which is part of the problem!
Anyway, it appears that "oversubscribed" OpenAI round is now a bit less oversubscribed. Nice of Apple to make room for others to play in the chaos pit.2 OpenAI will be fine without Apple's money and Apple will be fine without OpenAI taking their money.3 But my god, this isn't a good look for anyone.
One more thing: Apple's investment in OpenAI was always going to be potentially problematic for the inherent conflict it created with other would-be partners on Apple Intelligence. Apple has been stating very publicly that they intend to eventually roll-out third-party AI integration beyond ChatGPT. But unless they were going to invest in all of the other companies – including Google? – that was going to be awkward and perhaps could have scuttled some deals. Now Apple can remain more neutral.
Anyway, with Apple now on the verge of investing in OpenAI, you do have to wonder what it will mean for other would-be Apple Intelligence partners. Apple has not been shy about wanting more of them, even mentioning Google's Gemini by name at times. But will such partners now be shy about partnering with Apple when they have a literal interest (in the profits, if not the company, lol) in OpenAI succeeding above all others? Maybe Apple can invest in Google too?
Though I'm very curious how they're going to "pay" OpenAI for that ChatGPT usage now...
M.G. Siegler
M.G. Siegler
M.G. Siegler
M.G. Siegler
M.G. Siegler
1 Also potentially now even more awkward: the joint effort/company between Jony Ive's LoveFrom and Sam Altman's OpenAI to work on new AI hardware...
2 One has to wonder if Apple backing out is what led to CFO Sarah Friar sending a note to the other OpenAI investors to assure them that the round is set and closing next week. Or if that was just the general chaos that caused the letter...
3 That said, OpenAI likely viewed Apple as a long-term capital partner, both because they're the most profitable company in the world and they always need more money *and* perhaps to counterbalance Microsoft as that relationship continues to get more awkward. Apple, meanwhile, never would have viewed this as return-driven investment, but a strategic one.
As I wrote last month:
To restate the obvious: Apple's would-be investment in OpenAI wouldn't be about buying a stake in the company, as that's not currently an option. And it's not really about buying a stake in the profits of the company – even if that option is soon uncapped. It's about solidifying their partnership with OpenAI, which means paying for their usage of ChatGPT in Apple Intelligence. And really, ensuring that OpenAI can keep the lights on as that functionality rolls out...
All eyes now turn with even more curiosity to that roll-out...