Both Apple and Google are at their greatest risk of collapse in more than a decade

Tim Cook and Sundar Pichai. Reuters

• This year, Apple and Google will face their first real tests in a very long time.

• Apple may finally be opening up its walled garden, potentially disrupting the App Store.

• The rise of ChatGPT threatens Google’s grip on search — and its ad business.

Over the past few years, it often felt like the tech industry was on cruise control.

Every innovation—folding screens, 5G, even blockchain and cryptocurrency—has failed to shake the feeling that the future of technology is moving forward incrementally, not 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 collecting fees for the App Store and Apple Music subscriptions.

Now, however, both businesses are about to face what may be their most existential threats yet. And while it’s too early to write a eulogy for either company, you’ll see Apple and Google quickly start playing defense in a way they haven’t had to in recent times.

For Apple, global regulatory pressure appears to have finally broken through its infamous walled garden, as new rules threaten to undermine its App Store hegemony. The timing is particularly interesting as Apple is said to be preparing to release a new set of smart glasses poised to expand the App Store’s influence on users and developers for a new generation of computers.

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

Let’s see how this is finally the year Apple and Google face their most significant competition yet.

The walls are falling on Apple

After years of gun rattling, political scrutiny, international investigations and one highly watched legal battle with Epic Games (of “Fortnite” fame), regulators finally got what they wanted. Apple is reportedly preparing an update to the iOS operating system this year that will for the first time allow third parties to offer their own app stores for the iPhone and iPad.

The story continues

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

The company justifies its 30% cut from most App Store transactions as a fair price to protect users from fraud, malware and shoddy apps. Apple is expected to bring the App Store to its upcoming augmented reality glasses, which Bloomberg recently reported could finally be unveiled in the first half of this year.

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

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

Google is getting some real competition

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

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

ChatGPT is extremely flexible. It can answer simple queries like the population of Paris or the definition of a “parliamentarian”. But you can also ask him to write a William Shakespeare-style sonnet for the Burger King menu or a piece of code ready to be added to your application in development. While it’s not always perfect, it’s absolutely wild 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 hits right at a weak spot for Google. Over the past few years, critics have complained that Google prioritizes ads and sponsored results too much, burying the real information you need under a bunch of useless (but profitable) links. Why bother with all that when ChatGPT can give you a quick, helpful, hopefully correct answer to the very specific question you’ve asked?

This puts Google in a difficult position. If ChatGPT and its ilk take off, more people will use it to search the web, meaning users will see fewer of Google’s top search ads. On the other hand, if Google tried to imitate the concept — which it certainly has the brainpower and talent to do — it would be disrupting its own business model, reducing the reach of those same search ads.

It’s unclear when, or even if, the new wave of artificial intelligence will begin to make a significant dent in Google’s search dominance. As analyst Ben Thompson noted in an edition of his Stratechery newsletter this week, it’s usually foolish to underestimate how deeply embedded Google is in the larger technology ecosystem, from browsers to smartphones. And ChatGPT is incredibly expensive to operate and has limited capabilities, at least for now.

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

Read the original article on Business Insider