2025-11-06 21:38:02
Siri sucks. You know it. I know it. You'd think Apple would know it given that it has been the butt of jokes for nearly 15 years running. But their actions (and marketing) have always suggested otherwise. Siri leads to fun moments of Zooey Deschanel whimsically dancing around her home, you see – not Larry David swearing at his phone in his car. You're simply holding it wrong, or something.
But in the past 18 months, something finally woke Apple up from the drunken slumber, dreaming of Steve Jobs' Siri promises. That something was the company completely and utterly shitting the bed when it came to new promises for Siri in the Age of AI. Granted, given the track-record, we had no reason to believe them, but many did, because they showed the new functionality on stage at WWDC! Well, sort of. Virtually. Maybe. Maybe not. Probably not – at least not anything that was actually close to shipping.
A complete and utter embarrassment. Commercials had to be pulled back. Heads rolled. That's what it seemingly took to wake up Apple to the reality we've all been living with for over a decade. Again, Siri sucks.
And now, at last, we may have an actual solution. It's still a very much "I'll believe it when I see it" situation, but there is one key difference this time: Apple is finally giving Siri a brain transplant. Some of us have been calling for this for a while – again, we're living in the Age of AI, so Siri sucking this hard is all the more unacceptable – and now it finally seems on the verge of happening.
Here's Mark Gurman reporting for Bloomberg:
Apple Inc. is planning to pay about $1 billion a year for an ultrapowerful 1.2 trillion parameter artificial intelligence model developed by Alphabet Inc.’s Google that would help run its long-promised overhaul of the Siri voice assistant, according to people with knowledge of the matter.
Following an extensive evaluation period, the two companies are now finalizing an agreement that would give Apple access to Google’s technology, according to the people, who asked not to be identified because the deliberations are private.
While this news isn't exactly new – it has been known for a while that Apple was doing a sort of "bake off" internally to potentially find a third-party partner to help fix their AI efforts – and we even knew that Google was likely in pole position, it's still reassuring to read a report with actual numbers and potential timetables. That suggests a deal that is indeed at the finish line, if not already over it. And it makes a new Siri – an actually working Siri – possible in the Spring of 2026.
Halle-fucking-lujah.
I know, I know, I really shouldn't get ahead of myself here. But I put a lot of faith in Google – and not because I worked there for a decade-plus, I swear. I'm still an Apple guy through-and-through – and was during my entire tenure within Google! They simply still make the best devices. And I want to use the best devices. But what they don't make the best of is AI, as I concluded by post on the possibility of this news a couple months ago:
I sort of love this for them. Both of them. Imagine an iPhone largely powered by Gemini. The Pixel team can’t love this notion, but Jimmy Fallon will be totally stoked regardless. And it’s the right move for Google. The iPhone is still the iPhone. The Pixel is not the iPhone. And for Apple. Siri is still Siri. Siri is not Gemini.
We are so back. They are so back.
I kicked off that piece noting the long, illustrious-turned-contentious (to say the least) history of Google and Apple. From the best of friends to "thermonuclear" war and back again. The only constant being the Google Search deal. Once the courts kept that intact despite Google losing an antitrust case, the stage was set for this new deal.
Apple may not have wanted to pay Anthropic $1.5B a year to use Claude but $1B a year to a partner that is paying you $20B+ for that Search deal? That can be just an in-kind deal! "Google, that $25B you own us this year? Make it $24B, but we'll take a custom build of Gemini. Deal?"
Deal.
Speaking of that model, back to Gurman with a few more details:
Under the arrangement, Google’s Gemini model will handle Siri’s summarizer and planner functions — the components that help the voice assistant synthesize information and decide how to execute complex tasks. Some Siri features will continue to use Apple’s in-house models.
The model will run on Apple’s own Private Cloud Compute servers, ensuring that user data remains walled off from Google’s infrastructure. Apple has already allocated AI server hardware to help power the model.
There are probably a few other interesting wrinkles in there – one of which may be Apple's willingness to do this because a lot of their cloud infrastructure is already running on Google Cloud. So this may not be as heavy of a lift and as big of an ask as it may seem on the surface. And while the "walled off" aspect is clearly a must for Apple here, you could also imagine that the company may be willing to share some data – fully anonymized, of course – back to help constantly improve the model. And that may speak to why Google would want to do this deal (well, that and the money). Apple has devices in the wild at a scale that basically no one can match. Maybe Samsung, but this unlocks a totally new user base.
While the partnership is substantial, it’s unlikely to be promoted publicly. Apple will treat Google as a behind-the-scenes technology supplier instead. That would make the pact different than the companies’ Safari browser deal, which made Google the default search engine.
You could see why Apple might request this – it would be an embarrassing admission that they can't fix Siri themselves, that they need Google – but given this news already circulating, I also wouldn't be shocked if they do talk about it more than Gurman is suggesting. If nothing else, it would help assure those of us who have lost faith in Siri that she really may be "fixed" now. My advice to Apple would be to suck it up and own it. They always tout wanting to give their user base the best services – long an explanation for continuing to use Google Search – and Gemini is, if not the best, damn close.1
Speaking of, this might also be slightly awkward because Apple was last seen on stage (well, on video) at WWDC a couple years ago touting OpenAI as having the best AI tech and product with ChatGPT. It's a bit odd they're not partnering with them here given that partnership already in place, but everyone knows the scaling issues OpenAI faces – and moving over a billion potential Siri users would seemingly be a big problem, for both sides. Not to mention the whole Private Cloud Compute element. This is an operation that Google is just uniquely qualified to handle.
The agreement is also separate from earlier talks about integrating Gemini directly into Siri as a chatbot. Those discussions came close to fruition in both 2024 and earlier this year but ultimately didn’t materialize into a feature. The partnership also doesn’t weave Google AI search into Apple’s operating systems.
This is causing quite a bit of confusion, at least in my social media feeds. This new deal with Google to help power Siri would be different from the aforementioned OpenAI deal where Siri "falls back" to ChatGPT if it doesn't know an answer. (And how Apple had previously been talking – in public! – about using Gemini as another option here.) Presumably that functionality will remain intact, but it will probably be used even less given that Gemini-powered Siri should be more than capable for most requests!
There's also seemingly some confusion around the 1.2T parameter model cited above. While such a model would be far ahead of Apple's current best-of-breed models for Siri – perhaps by an order of magnitude! – it's not some magical new threshold that Apple will get access to first. Google doesn't disclose how large their current Gemini models are, but there's some thought that Gemini 2.5 is already this large, or close to it. Ditto with GPT-5. Perhaps even larger.
Further, it's widely known that Google's next model, Gemini 3, is right around the corner. You can bet that will be at least 1.5T when it comes to parameters – in fact, that may be what this bespoke model for Apple is based on. That's just a guess, but it seems like a reasonable one.
At the same time, per the report, Apple is working on their own 1T+ models internally with the notion of eventually taking over more of the Siri workload again one day. Google will be going into this partnership eyes wide open this time, but they also must know that Apple – in the midst of a very real, and very problematic brain drain on their models team – may struggle to match the state of the art from the current leaders in AI. Which is to say, this might still be a "many year" proposition for Google to help Apple here.
And I think I like the hybrid approach – where Gemini can handle complex queries while Apple can maintain their current AI systems for, say, setting timers in iOS – more than Amazon's early attempts to totally rebuild Alexa on the fly. In a way, it seems like they eventually ended up at the same place, with Amazon using their deep partnership with Anthropic to help get Alexa+ up to snuff (sort of).
One unknown here remains the promised personalized features of Siri from back at WWDC 2024. Is Apple going to be able to use Gemini for the always important getting-grandma-home-from-the-airport task? Given that Google itself touted such functionality at their own I/O conference, perhaps. Or maybe Apple is still working on their own models for this work. Seemingly we'll see soon enough!
Regardless, I'm just excited to have a Siri that knows who won which Super Bowl.
M.G. Siegler
M.G. Siegler
M.G. Siegler
1 One other wrinkle per the reporting is that Apple may have actually thought Anthropic's models were the best –better than both OpenAI's and Google's – but simply couldn't figure out the right kind of deal to make it work... ↩
2025-11-06 03:44:58
With Google on the clock in their last-ditch attempt to be heard (or not) by the Supreme Court, we have a last minute trade!
Google is agreeing to reduce its standard fee to 20 percent or 9 percent, depending on the kind of transaction. It’s agreeing to create a new program in the very next version of Android where alternative app stores can register with Google and (theoretically) become first-class citizens that users can easily install. And it appears to be agreeing to offer “Registered App Stores” and lower fees around the world, not just in the US, lasting through June 2032 — six and a half years instead of just three.
Essentially, it seems like Epic is agreeing to let Google retain some control over the Play Store (and, notably, the fee structure) in exchange for Google agreeing to roll out changes worldwide (not just in the US as was required) and for a longer timespan. I'm not sure it's a win/win but it's a win/less-loss. It's an Epic-was-going-to-win-so-they-take-less-of-a-win-to-expand-the-scope-of-the-win, win.
I've long been on record saying that this case was potentially more troublesome to Google than their actual antitrust case (well, the Search one, as yes, there are two). And sure enough, while the antitrust remedies ended being in some ways the best possible outcome, Google kept getting hammered on this ruling. And it was going to fundamentally alter the business model for the Play Store.
That is still happening with this proposal, but Google is reducing the damage somewhat thanks to the joint proposal with Epic – if the judge agrees to it (which presumably he will given how happy Epic clearly is with this "awesome proposal".).
It's a bit convoluted, but assuming I'm reading it right, essentially, the old 30% commission is gone – as is the newer, lower 15% fee for certain types of smaller developers. Instead:
The details of how, when, and where Google would charge its fees are complicated, and they seem to be somewhat tailored to the needs of a game developer like Epic Games. Google can charge 20 percent for an in-app purchase provides “more than a de minimis gameplay advantage,” for example, or 9 percent if the purchase does not. And while 9 percent sounds like it’s also the cap for apps and in-app subscriptions sold through Google Play, period, the proposal notes that that amount doesn’t include Google’s cut for Play Billing if you buy it through that payment system.
That cut will be 5 percent, Google spokesperson Dan Jackson tells The Verge, confirming that “ This new proposed model introduces a new, lower fee structure for developers in the US and separates the service fee from fees for using Google Play Billing.” (For reference, Google currently charges 15 percent for subscriptions, 15 percent of the first $1M of developer revenue each year and 30 percent after that, though it also cuts special deals with some big developers.)
There's clearly quite a bit of gray area that still needs to be sorted out here, but my read is that if developers choose to mainly use Google's Play Store rails for in-app purchases, they'll pay 20%. If they don't, they'll pay 9%, plus 5% if they use Play Billing. So it sounds like it's a new 80/20 (86/14 or 91/9) model, depending on how developers choose to use the Google's services. If they use their own payment methods, they should just have to pay a 9% "service fee" on sales. That's not nothing, but it's also not 30%. And it's a nice discount over the 15% for smaller developers too. Though if they choose to use Play Billing, it may just be a 1% discount to the current model.
But because the ruling also makes it so that Google has to allow for third-party services billing options in-app – not just linking out on the web – you have to imagine that developers are going to offer their own direct pay options alongside Google Play billing (which yes, is still required to be an option now with this proposal – and I think is fair, let Google compete for the customer!). And clearly third-parties will pop-up to make such options easy – it seems like Stripe already is doing that.
And again, this is all in play around the world, not just the US. That's the big trade Epic is making. Because they know that the third-party app store options are not going to be viable if their only piecemeal options available in just some countries. That's too much work for a developers to do for limited potential upside. Now there's a lot more upside.
It will be fascinating to see – again, if this deal is accepted by the judge – what this does to Google's bottom line. Their services business is clearly going to take a hit, but how big of one?
One more thing: the next obvious question is what this means for Apple. Short term, nothing. While Apple is battling their own various fights tangential to this one, they largely won their Epic battle, while Google largely lost their's. Ironically, it came down to Google's promise of "open" – a promise which Apple never made.
Still, this will clearly put yet more pressure on Apple to change their own App Store rules. And it potentially sets a new standard for what "acceptable" app store cuts might look like. One could imagine the judge that is so clearly annoyed with Apple over their own funny business with such numbers, might want to know these terms that Google and Epic just agreed to...
That plus 29 – 29! – countries and counting now forcing Apple to open up their platform to third party app stores, paints a picture of Apple being painted into a corner. They should probably be proactive here and make some changes before the courts keep making them do so and try to earn back some goodwill with developers. But it's Apple.
But also, this certainly won't settle down you-know-who...
M.G. Siegler
M.G. Siegler
M.G. Siegler
2025-11-05 21:45:21
A funny thing happened on the way to AI web browsers taking over the world: they're now getting blocked left and right from doing the things that would make them useful. This is, to say the least, a problem.
I first noticed it when OpenAI rolled out their 'ChatGPT Atlas' browser a couple weeks ago. In testing it out, I was trying to do one of the most obvious and straightforward use-cases: asking the embedded AI chatbot questions about the page I was visiting. The problem was that if the information happened to be on The New York Times you got an error message noting that "ChatGPT is unable to access the contents of this website". Um, okay. This is obviously one of the largest sources of news and information in the world so yeah, that's not great.
Even more problematic is that they don't tell you why you can't access the content – even if, like myself, you're a paying subscriber to NYT. You'd have to be up to date on your AI news – or read any number of recent NYT stories about AI where the disclaimer is repeated over and over again:
(The New York Times has sued OpenAI and Microsoft, claiming copyright infringement of news content related to A.I. systems. The two companies have denied the suit’s claims.)
There we go. Because these two sides can't come to an agreement on terms (which NYT has done with other AI players, notably Amazon), the users are screwed. If you try to ignore the yellow warning label and ask to say, summarize the page anyway, you get this:
I’m sorry, but I can’t access the full article from the link you provided to summarise it accurately.
Would you like me to pull together a summary from other news-coverage of Zohran Mamdani’s mayoral race instead?
I'm sorry Dave, I'm afraid I can't do that, anyone?
The workaround to let ChatGPT go and find other sources on the same story is easy enough for something like the NYC election where there are thousands of outlets covering it, but what if it's a legitimate scoop by the NYT? You're out of luck. Well, unless you use your eyes to actually read the page itself, like an animal.
But actually, there's another, sort of humorous work-around: simply copying and pasting the entire text of the article into your ChatGPT chat box works just fine to produce a summary, of course. NYT undoubtedly won't like that either, but can they really stop you from doing it? Maybe if they try to claim it's also a misuse of their copyrighted information, but that feels like an awfully slippery slope, to stop a user with legitimate access to information from using a tool to summarize it...
So instead, they just won't make it so easy to do with the agents built in to these browsers. But actually, the above workflow works just fine on Dia, the AI browser from The Browser Company. And that's true even though that browser is using ChatGPT's APIs! Awkward!
How long until NYT starts demanding that OpenAI also blocks their APIs from accessing their content? Probably not long...1 And it points to a world in which the web is less open and more about which players have the right business development deals in place for the user. And that's going to be a muddled mess, fast. As I wrote in May around the news of the NYT/Amazon deal:
One tidbit included at the end of the post (which is breaking news, so it's still noted as a "developing story") is that this deal will allow Amazon to use NYT content with Alexa. That's only interesting if it means such content will explicitly be banned/limited from other such services – namely, ChatGPT, Gemini, and yes, even Siri. Presumably, each of those services gets around it using web search as a sort of "backdoor" to get at such information, but what if Amazon devices/services start getting access to NYT information and scoops early? Almost like a Bloomberg Terminal for the AI era!
We're now one step away from this reality.
You could argue much of this isn't exactly new since browser extensions – services like Honey – have long run into issues with terms of service on certain sites. But again, with these newfangled AI browsers, we're talking about functionality that is built-in, and is often the very point of these browsers. Sure, we could decide that they shouldn't be allowed to have such functionality, but in such a world there's simply no way that Chrome (and to a lesser extent, Safari on the iPhone) ever get unseated. That would be the definition of anti-competitive behavior.
Especially when Google and Microsoft and everyone else is playing in the same game...
It feels like this is all going to culminate with agents. That's the other shoe dropping this week: Amazon threatening legal action against Perplexity because of the agentic shopping capabilities baked into their own Comet browser.
Granted, Perplexity is no stranger to stepping in it when it comes to seemingly shady activity that has so far run afoul of Reddit, Cloudflare, and a range of publishers, but still, that doesn't mean they're wrong to push back against Amazon here. While Amazon may have some points about the technical implementations, the high level of such tools is clearly what we're fighting about here: Amazon does not want AI agents to be able to shop for users.
Sorry, I should clarify: Amazon doesn't want AI agents made by anyone other than Amazon to shop for users. This is self-serving, quite literally. And while they can say that the concern is about degrading the experience of using Amazon, it also sounds suspiciously like the experience they'd prefer the end-user have involves seeing ads for products they think you'll like. Again, Amazon stance would be that's a good thing as the ads can be helpful to give a user more choices, but come on.
Amazon should care first and foremost about making a sale, but it's not that black and white. Such ads are now a huge and still-growing part of their business. If an agent is shopping on behalf of a user and doesn't see an ad... I mean, technically the agent may "see" (read) the ad, but certainly it won't count as an impression (and shouldn't – unless the agent is trained to be wooed by ads!). As such, Amazon's business is pretty fundamentally altered.
Again, they'll say all of this is in the name of the best user experience, but shouldn't the user be able to determine that?
That's the tricky thing about agents. They're tasked by users to work on their behalf. But they also break a fundamental tenet on which the web was built: that a person is the one browsing. And because the monetary engine that mostly powers the web has grown to be advertising-based around this very notion of human attention (and intent), this matters to a lot of people, and companies too! From Google on down...
At the same time, in no small part because of this reliance on ads, the web has become a bloated mess in many corners. And so these AI tools are coming in like Ozempic to cut out some of the fat.2 I worry less about the web dying because of these tools creating better user experiences (that yes, will often require business models to be altered) and more so because these AI tools are going to cause the web to fragment into a thousand proprietary pieces. So to access NYT content, you'll need to use Alexa. To shop on Amazon, you'll need to use Rufus. Etc.
As Casey Newton pointed out in his Platformer newsletter yesterday, a lot of these arguments are kind of moot right now because these agents still largely suck and so after people try some of them as a novelty they go back to doing things themselves. But given the pace of advancement in AI, they're unlikely to suck forever, or even for very long when it comes to certain use cases. I mean, in a way, even the summarize-the-page action is agentic in that an AI bot is reading a page for you and doing an action: summarizing it. And this already works very well.
Well, assuming your browser doesn't block you from doing it.
M.G. Siegler
M.G. Siegler
M.G. Siegler
1 Sorry for potentially blowing up your spot, Dia. ↩
2 Has anyone coined "ChatGLP" yet? ↩
2025-11-05 07:57:00
Back in June, rumors first surfaced that Apple would be going downstream with a cheaper (or in Apple's preferred parlance "more affordable") MacBook. While you obviously always have to be wary of any reports about Apple doing anything revolving around price, this seemingly made sense for a few reasons. First and foremost, while we currently have a 'MacBook Air' and 'MacBook Pro' in Apple's lineup, there's a glaring marketing hole for the good old, simple 'MacBook'. And while there's no word on the branding of the device here, the name is right there for the taking with this:
Apple Inc. is preparing to enter the low-cost laptop market for the first time, developing a budget Mac aimed at luring away customers from Chromebooks and entry-level Windows PCs.
The new device — designed for students, businesses and casual users — will target people who primarily browse the web, work on documents or conduct light media editing, according to people familiar with the matter. Apple is also targeting would-be iPad buyers who might prefer a traditional laptop experience instead.
Code-named J700, the machine is currently in active testing at Apple and in early production with overseas suppliers. The Cupertino, California-based company plans to launch it in the first half of next year, said the people, who asked not to be identified because the product hasn’t been announced.
The student angle is interesting – and something I've long thought about. When I was a kid, Apple dominated education – my entire school was filled at first with Apple IIs then later with Macs. This was true all the way through college, when even the computer labs at Michigan were filled with more than half Macs. But for whatever reason, Apple decided to cede that market. Well, the reason was most likely low-cost PCs and later Chromebooks rushing in, which Apple chose not to compete with, price-wise, in the Mac lineup, but clearly thought the already lower-cost iPad could fill that void.
Certainly it has to some extent, but as Apple itself has made abundantly clear in their own positioning, the iPad is not a PC – as in, a personal computer. And often times to get "real" work done, including in school, you still need that full-on computer. So now, finally, Apple seems set on giving schools a real option for such a machine again.
So how is Apple going to do such a machine without squeezing their famously protected margins to death? Ming-Chi Kuo also seemed to nail this aspect back in June – an iPhone chip:
Apple plans to sell the new machine for well under $1,000 by using less-advanced components. The laptop will rely on an iPhone processor and a lower-end LCD display. The screen will also be the smallest of any current Mac, coming in at slightly below the 13.6-inch one used in the MacBook Air.
This would mark the first time that Apple has used an iPhone processor in a Mac, rather than a chip designed specifically for a computer. But internal tests have shown that the smartphone chip can perform better than the Mac-optimized M1 used in laptops as recently as a few years ago.
This chip news was the most surprising aspect of the rumor back then – it's a chip designed for the iPhone when Apple already has chips designed for the Mac – but it also seemingly made some sense, as I wrote at the time:
It's less clear how reliable Kuo's information would be about what is powering such machines. But it seems reasonable enough to think that Apple could use the 'A' series chips found in iPhones, as Mayo points out, they're certainly powerful enough, with similar performance to their 'M' series cousins which have been used in MacBooks since they switched to Apple Silicon (the iPad switches between the two series, with the 'Pro' models now getting the 'M' chips).
One big benefit of using the 'A' series chips: Apple produces them at a much higher quantity thanks to the iPhone (and to a lesser extent, the lower-end iPads). So presumably they carry a lower cost and as such, could lead to price savings for an actual MacBook device. But would it be better than, say, using the last generation of the 'M' series chip? Hard to say...
It seems easier to say now. While it's again not clear how Apple would brand such a chip, it does sound like it will be a chip more akin to the 'A' series than the 'M' series. And that branding could be key for making this seem more like a new device and not just "yesterday's model" of MacBook – a strategy Apple has been trying out with Walmart around their OG M1 MacBook Airs. Perhaps Apple got enough compelling data at the $699 price point for these machines that they felt the need to dive deeper with their own new SKU...
While no specific price is given in this report aside from "well under $1,000", the big question is how low Apple will go here. They have a lot of room below the current $999 M4 MacBook Air – which is $899 with a student discount. Is $799 low enough for this product? Do they have to meet the $699 price of the Walmart MacBooks? Could they do $599 to get it in line with the iPad + Keyboards? Do they dare do $499 to get their machines actually competitive with Chromebooks?
Let's not get carried away.
I guessed the $799 price point back in June and I'm sticking to that. Perhaps $699 with that student discount. And Apple would frame it, as they always do, as "not the cheapest, but the best" (in that general segment).
That would give us a lineup that looks like:
Nice and clean. And as much as I might love a return of the old school 12" MacBook, given the target market here, focusing on a still robust (though apparently slightly smaller than the 13.6" of the current MacBook Air) 13" screen probably makes sense.
And this device overall would be yet another move by Apple to flex their true muscle. Not AI, but machines. A MacBook for students. A MacBook with a modem? A MacBook with a touchscreen...
One more thing: the real wild card here could be color. Kuo's original report mentioned color options (though one could see how his "pink" and "yellow" options could actually be "rose gold" and "gold"), but imagine if Apple really brought the fun back to the lineup with iMac-like colors? With the glowing Apple logo long dimmed, might this be the new status symbol for students?
M.G. Siegler
M.G. Siegler
M.G. Siegler
M.G. Siegler
M.G. Siegler
2025-11-01 06:42:27
Business is booming in Big Tech, and that's now showing up in big (and unique) ways on profit and loss statements, in part driven by their own investments in Big AI:
Alphabet and Amazon were rewarded by investors for reporting better-than-expected third-quarter profits. At both companies, earnings were boosted by the increased value of their stakes in Anthropic PBC, maker of the popular Claude chatbot.
Alphabet said profit included “net gains on equity securities of $10.7 billion,” in part from a private company. That company is Anthropic, according to people familiar with the matter, who declined to be named disclosing non-public information. Meanwhile, Amazon’s third-quarter profit climbed 38%, helped by a $9.5 billion pretax gain from its investment in Anthropic. The higher value was reflected in Amazon’s nonoperating income for the period, the company said in its Thursday earnings report.
This is nothing new – see also: Google's recent rise in "profit" thanks to a mark-up that was seemingly tied to SpaceX – but the scale and speed at which the Big AI companies are raising (and just how intertwined Big Tech is in these deals) are causing these reports to happen in even more pronounced ways, more frequently.
The surge of investment in private-company generative AI is beginning to show up in public-company metrics. Once seen mainly as strategic bets on a fast-moving frontier, stakes in AI startups are now contributing sizable, if still paper, profits to some of the world’s biggest businesses — even as the technology itself is only starting to pay commercial dividends.
The "paper" part is key here. While this is being reported as income per GAAP guidelines, there's no actual profit here. At least not yet. Google doesn't see $10.7B more in cash coming in, nor does Amazon see $9.5B more in their bank account. These are simply on paper markups of their holdings. Yes, it's a little silly, but the alternative is also silly:
Microsoft, meanwhile, said in reporting its own quarterly earnings this week that its net income was reduced by $3.1 billion to account for losses suffered by OpenAI. The software company has backed the ChatGPT maker with $13.75 billion, and holds a 27% stake.
Wait, Microsoft is reporting billions in "losses" while Google and Amazon are reporting billions in "gains"? Even though both are tied to investments being marked up by billions? Yes, it's because Microsoft is using a different accounting guideline – the "equity method" – which states that they should take the pro rata portion of the profits or losses (so, losses) that OpenAI has each quarter.
This is how Matt Rosoff was able to back into the losses OpenAI likely saw last quarter for The Register, even though, as a private company, they don't have to report them. It's just math. (Though complicated somewhat by Microsoft's humorously disclosed 32.5% stake before it was diluted by the most recent OpenAI equity raises – and, of course, taxes. Big companies, they're just like us, getting screwed by taxes.)
Anyway, Google and Amazon are using the fair market value (FMV) rules for their investment, which means they have to show the mark up (or mark down) when something changes the value of their holdings. That's even more complicated if there's no financing event but simply those companies deciding the value of their holdings should be worth less (or more – though it's almost always less if they're determining it themselves, sometimes for tax reasons). This is more common with banks (which is why you see reports around the big ones marking down their holdings in various startups), but certainly can happen with these Big Tech shareholders too.
But wait, why can Microsoft use one method and Google/Amazon another? I'm no accountant, but it seems tied to the relationship the companies have with their investments. While Microsoft obviously doesn't have a controlling stake, they perhaps are deemed to have significant sway over the company given the cloud relationship and the revenue (and profit) sharing arrangements. So even though Microsoft has "just" a 27% stake in OpenAI while my own math puts Amazon at a roughly 22% stake in Anthropic (though this was before a recent funding round, so that's probably been diluted), and Google has/had a 14% stake in Anthropic, they view them as different types of investments from an accounting perspective.
Again, I'm not sure either is particularly useful when it comes to reporting profits and losses – Microsoft didn't actually lose any of their money due to OpenAI's losses just as Google and Amazon didn't make any actual money due to Anthropic's mark up in valuation – but it is what it is. Just be mindful when you see these massive profit gains (or hits) in the quarterly reports.
One more thing: You may have also noticed Meta's massive one-time profit hit this quarter, which they attributed to a change in future tax liability due to the "Big Beautiful Bill", and were wondering why the rest of Big Tech didn't fall victim to this change and charge as well – I know I was! That, it seems, stems from the fact that Meta's peers are better insulated from such changes because they all operate (at least with footprints in different countries and where IP is held) more globally, and have taken steps in advance to dampen such effects...
2025-10-31 22:59:07
Earlier this week, ahead of Apple's earnings:
Apple is set to top $100bn in annual revenues from its services business for the first time this year, despite mounting legal and regulatory pressure on its App Store.
The services unit — which includes iCloud, Apple Pay and AppleCare insurance — is expected to deliver annual revenues of $108.6bn in the year to last month, according to analysts’ consensus estimates from Visible Alpha, up around 13 per cent from the year before.
If Apple hits those numbers when it reports its fiscal fourth-quarter results this week, that would make its services division alone larger than the entire annual sales of Walt Disney, Tesla or Tencent this year.
Well, they surpassed the expectations on Services, coming in at $28.8B for the quarter. So yes, they're well ahead of the $100B run rate. And so yes, that business – again, just Services – is now set to be bigger than Disney, Tesla, and all but around 40 companies in the Fortune 500, which is wild.
Services are forecast to make up more than 30 per cent of Apple’s revenues by the end of the decade, when the unit’s sales could be as much as $175bn, according to Visible Alpha estimates.
By comparison, the iPhone makes up around half of Apple’s expected $415bn in total annual sales in its 2025 fiscal year, with smartphone growth expected to be around 4 per cent.
The segment should be way over 30% of revenues by then – probably past 40% if current trends hold. In fact, the division is on pace to surpass the iPhone business around a decade from now, in the mid-2030s. There's a lot that can and will change by then, but that includes a lot that could change even more in Services favor, including if Apple moves further into advertising, which is already in the works. And AI will be a big wildcard there, of course. It could supercharge Apple Services, or it could hurt the company if they can't get their act together. It could, of course, also boost hardware sales if it's used more as a device upsell and not a Services upsell (it will undoubtedly be used as both).
Of course, it's likely that Services is already ahead of the iPhone in one key metric: profitability:
Digital goods and subscriptions command a high profit margin — even more than Apple’s premium-priced hardware. Gross margins for services are expected to hit 75 per cent in the most recent financial year, Visible Alpha data suggests, compared to 40 per cent for the iPhone. That has helped Apple to steadily improve its overall gross margin from 38 per cent in 2020 to around 47 per cent this year.
In fact, Services remain close to surpassing the profit of all of Apple's devices, combined, as Jason Snell has been tracking over at Six Colors for some time now. That could happen at some point next year – likely in Q3.
Yes, a change to the App Store model, which is under ever-increasing pressure around the world, could change all of these equations. But arguably more important was the saving of the Google Search payments.
And we'll see if/how those change in the Age of AI...
Regardless, it's inevitable that Apple becomes a Services company, at least from a bottom-line perspective. And one day from a top-line perspective too. They'll always tout the importance of the hardware (and broader software), but they'll also need to keep growing the business and that will continue to mainly come from the growth of Services.
M.G. Siegler
M.G. Siegler
M.G. Siegler
M.G. Siegler
M.G. Siegler
