Apple and Google face real competitive pressure in 2023

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This year, Apple and Google will both face their first real tests in a long time. Apple could finally open its walled garden, potentially disrupting the App Store behemoth. The rise of ChatGPT threatens Google’s grip on search and its advertising business. Loading Something is being loaded.

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In recent years, it has often felt as though the tech industry has cruise control.

Every innovation in folding screens, 5G, even blockchain and cryptocurrency has failed to shake the feeling that the future of technology is advancing incrementally rather than exponentially. Google has spent the last decade and more protecting its advertising business; Apple has built as many moats as possible around its all-important iPhone business, happily racking up App Store fees and Apple Music subscriptions.

Now, though, both companies are about to face what are arguably their most existential threats to date. And while it’s too early to write a eulogy for either company, you’ll see Apple and Google move quickly to play defense in a way neither has had to in recent memory.

For Apple, global regulatory pressure appears to have finally broken its infamous walled garden, as new rules threaten to undermine its hegemony over the App Store. The timing is especially interesting, as Apple is said to be preparing to launch a new set of smart glasses ready to extend the App Store’s grip on consumers and developers for a new generation of computers.

And at Google, the rise of AI-powered chatbots like ChatGPT pose a clear and present danger to the digital advertising engine that pays the bills. If you can get a clear, concise answer to a written question the same way you would ask a smart friend about something, who needs a search engine? Microsoft seems to agree, as it is said to be working on putting ChatGPT into its Bing search engine.

Let’s take a look at how this is finally the year that Apple and Google will face their most significant competition yet.

Walls fall for Apple

After years of cutthroat fears, political scrutiny, international investigations, and a closely watched court battle with Epic Games (of “Fortnite” fame), the regulators have finally got what they want. Apple is reportedly preparing an update to the iOS operating system this year which, for the first time, would allow outside parties to offer their own app stores for iPhone and iPad.

Apple has long argued that the App Store model, which checks every iPhone and iPad app internally to ensure it meets specific security and content standards before it appears on the App Store, is key to its devices’ appeal to consumers. customers.

The company justifies its 30% cut from most App Store transactions as a fair price to protect users from scams, malware and bad apps. Presumably, Apple will bring the App Store to its next augmented reality glasses, which according to Bloomberg could finally be presented in the first half of this year.

Critics who have, over the years, included regulators, lawmakers, game developers, competitors, startups, Elon Musk, Mark Zuckerberg and virtually everyone who isn’t Apple have argued that the App Store’s approach is fundamentally anti-competitive, on the basis that there is literally no alternative way for iPhone users to install software.

However, we’re about to get our first real-world test of whether Apple was right that a crack in its walled garden would bring the whole thing down. If the App Store opens up and the iPhone doesn’t become toxic hell, perhaps Apple will reconsider its approach. Or it could open the gates and the iOS ecosystem will become a lawless wasteland. Either way, at least we’ll know.

Google gets real competition

The threat to Google is a little more forthright. ChatGPT, the popular chatbot created by OpenAI has already won acclaim from leading figures in Silicon Valley. Investor Chamath Palihapitiya hailed it as the first major internet search innovation in a long time.

It’s clear that Google is taking the threat seriously: the company’s leadership has declared a “code red” for the rise of ChatGPT. Investors and analysts are lauding Microsoft for its reported strategy of integrating technology with the Bing search engine and Office productivity suite. Microsoft is also rumored to be planning a $10 billion investment in OpenAI itself.

ChatGPT is extremely versatile. It can answer simple questions such as the population of Paris or the definition of “MP”. But you can also ask him to write a William Shakespeare-style sonnet about the Burger King menu or a snippet of code ready to be added to your app-in-progress. While it’s not always perfect, it’s utterly absurd to use a system that will find what you’re looking for if it exists, or create something for you on the spot if it doesn’t.

It hammers right into a sweet spot for Google. In recent years, critics have complained that Google places too much priority on ads and sponsored results, burying the real information you need under a bunch of useless (but lucrative) links. Why go through all that when ChatGPT can give you a quick, helpful and hopefully correct answer to the very specific question you asked?

This puts Google in a bind. If ChatGPT and the like take off, more people will use it to search the internet, meaning users will see fewer of Google’s all-important search ads. On the other hand, if Google tries to mimic the concept for which it certainly has the brainpower and talent to do so, it would be distorting its business model, reducing the reach of those same search ads.

It’s unclear when or even if the new wave of AI will start making significant inroads into Google’s search domain. As analyst Ben Thompson noted in an edition of his Stratechery newsletter this week, it’s usually folly to underestimate how deeply integrated Google is into the broader tech ecosystem, from browsers to smartphones. And ChatGPT is incredibly expensive to run and limited in its capabilities, at least for now.

No matter how you slice it, though, it’s probably a good thing for the industry at large that ChatGPT is putting the tech titan in the rare position of playing defense. Competition in the market helps everyone. And at least it won’t be boring.

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