Apple and OpenAI Now Have a Way for Money to Change Hands
Immediately after the Apple/OpenAI partnership was announced at WWDC, the next logical question was: who is paying whom? The early guesses were that no money was changing hands – though as I wrote at the time:
So presumably OpenAI is just willing to take on this risk. Though how happy will Microsoft be about that, since this is all still presumably running on their servers?
Happy enough if they're getting paid, I guess (though there are other tensions with helping Apple in AI here), but that just leads to the question of who is paying whom here? The current consensus seems to be that there may be no money changing hands between Apple and OpenAI. Though perhaps it's possible that if the usage hits a certain threshold that Apple will have to pay some amount to keep the pipes open, as it were.
The following day, Mark Gurman confirmed that neither side was paying the other. But again, this still seemed to me more of a case "yet". That is, Apple may not be paying OpenAI directly for the partnership but they would probably have to figure out a way to down the line, as I followed up:
Playing this out to the extreme, if the ChatGPT integration on Apple's devices proved beyond popular, there's a world in which OpenAI is on the hook for millions and millions of dollars to Microsoft. And it feels like Microsoft may not be willing to cut OpenAI a break here given that Apple just entered the consumer AI space which Microsoft is actively working to own – the fact that Apple is leveraging a company in which Microsoft owns 49% is a fine salt applied to an open wound.
In other words, in the above best-case/worst-case scenario, Apple is probably going to have to pay something to OpenAI so the costs from Apple's own users to utilize ChatGPT don't spiral out of control...
Well, I think they figured out a way. While Apple may not be paying OpenAI specifically for their partnership in Apple Intelligence, Apple investing in OpenAI's new mega round of financing is effectively that. They'll be giving the startup money which the startup will use to pay to keep the lights on. And in this particular case, because Apple will presumably be passing millions of users ChatGPT's way, they'll be very directly adding the the cost of OpenAI's operations. And now OpenAI will be able to use Apple's money to pay for such usage.
In other words, Apple is effectively paying for the OpenAI partnership. Just indirectly.
I suspect this scenario was always in the cards, which is why I predicted it back in May and kept doubling down on the prediction until it was reported to be happening this week. I also think it played a role in the timing of a few things, such as the timetable for when Apple exec Phil Schiller was going to join OpenAI's board (before Microsoft may or may not have nixed that), and perhaps even the roll-out of ChatGPT as a part of Apple Intelligence. That was always going to be later this year, so there was no point in Apple paying OpenAI until then. And assuming the reporting is accurate about Apple's investment, that's around when they'll likely be paying them! Again, indirectly...
The wildcard here is how this investment will be structured. If it was going to be like previous OpenAI rounds, Apple's money would essentially buy them a right to get back a certain percentage of OpenAI's future profits,1 though capped at a fixed amount. Reports over the past couple days now suggest that OpenAI is on the verge of changing such a structure – which makes sense and is overdue. Perhaps the cap goes away, or perhaps the entity figures out a way to get shareholders actual equity in the business. (The former seems more likely right now.)
But the reality is that I'm not sure how much Apple cares about this.2 This isn't an investment to make some massive return in the form of cash. Apple has plenty of cash, they don't need more cash.3 They need interesting ways to use their cash. Such as, you know, investing in AI startups that allows them to leverage outside expertise and work to better their own products.
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...
Update September 28, 2024: And at the 11th hour, amidst fresh OpenAI chaos, Apple seemingly walks...
M.G. Siegler
M.G. Siegler
M.G. Siegler
M.G. Siegler
M.G. Siegler
1 Yes, yes, *snicker*. Startups never make money, and everyone makes fun of them -- until they do. To be clear, I think the jury is still out on OpenAI's model, but models have a tendency to morph and change over time... OpenAI's real enemy, IMO, is just time. And the capital required to buy enough of it...
2 Obviously, other non-strategic investors will care about such changes. Clearly, these tweaks would be meant to entice other investors to join the round, and such carrots are probably needed at these nose-bleed valuations. And Apple may appreciate them in so far as they better align interests for all parties so as better to position the company to achieve success. Which is to say, business success.
3 I mean, if they company eventually provided a huge windfall to Apple, I'm sure they wouldn't turn down the cash. I'm just saying it's not the motivating factor here. As it hasn't been for Microsoft!