ChatGPT is Free as in Beer for Apple, Right Now

But let's see what happens if it proves popular...
Apple to ‘Pay’ OpenAI for ChatGPT Through Distribution, Not Cash
The iPhone maker isn’t paying OpenAI to use the chatbot -- yet

Perhaps the largest lingering question post-WWDC keynote involved the Apple/OpenAI partnership: who is paying whom? Unsurprisingly, Mark Gurman was able to get some information here, though still a bit vague in terms of the whole deal:

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.

In other words, OpenAI is getting "paid" in eyeballs from Apple. And Apple is getting "paid" in not having to do much work to offer up the leading AI chatbot service to its users. Win/win, right? Well, it's perhaps a bit more complicated depending on how it plays out. As I wrote just yesterday:

Also on the topic of ChatGPT, Newton says that Apple doesn't plan to rate-limit usage through Siri, which happens now on the free version of the service. Though you have to wonder if this functionality is used to an extreme amount if OpenAI won't try to rate limit it on their end – but obviously Apple must have thought of that as it would lead to a shitty experience for the end user. So presumably OpenAI is just willing to take 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.

To that end, Gurman notes:

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.

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...

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.

I found it odd how Apple talked about OpenAI's paid tier with ChatGPT during the keynote. Craig Federighi noted that users would have the option to sign in to their own ChatGPT accounts to access premium features, but said nothing about the idea that Apple users would be able to easily upgrade to such a tier. I suspect this has just as much to do with keeping it simple (and secure) – Apple is explicitly allowing their users to access ChatGPT without creating an OpenAI account. This makes it simple to use and makes it easier to ensure data isn't being collected by OpenAI to tie to a specific user. If a user has an OpenAI account, well, that's sort of the purpose of having that account with features such as memory.

Anyway, the above makes it sound like Apple may indeed offer a way for OpenAI to upsell paid ChatGPT accounts/features to users eventually. Or perhaps they just leave it to route through the ChatGPT app, where, as noted, Apple is already taking a cut of subscriptions.

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.

This is all about optionality. If – still a big "if" – these services are eventually able to monetize in a way similar to search engines, Apple is going to want in on that action, in exchange for the millions (and at that point, perhaps billions) of users they're serving up to those services. Yes, just like the search partnerships.