Why Apple Passed on OpenAI’s Funding?

Apple integrating with OpenAI could have been a significant deal for both companies. OpenAI would have gained access to over 70 million iPhone 15 users, and eventually, their products could have reached over 1 billion iPhone users globally. With OpenAI already boasting more than 10 million users, this partnership could have added substantial revenue to OpenAI, which already generates over $2 billion annually from ChatGPT alone.

These consumers, once introduced to ChatGPT through their iPhones, might naturally want to use the service in other parts of their lives — like on their MacBooks — driving them to OpenAI’s website to subscribe to ChatGPT Plus.

Initially, I thought Apple would pay OpenAI for every ChatGPT interaction made by iPhone users. After all, API calls involve significant server costs, maintenance, and ongoing AI training expenses. But then I realized this model doesn’t align with how Apple typically operates. Think about Google: they pay Apple $18 billion a year just to keep Google Search as the default browser on iPhones. Google not only covers that massive fee but also absorbs the costs of building and maintaining an iOS-compatible app, ensuring bug fixes, server management, and delivering new features — all to maintain their presence on iPhone’s default browser.

Now, as OpenAI’s GPT models get exposure to millions, if not billions, of users through iPhones in the future, it stands to reason that OpenAI might need to either pay or share it’s revenue % with Apple for that exposure or, at the very least, build a free-to-use API that’s fully compatible with iPhones.

Here’s where the brilliance of Apple’s strategy shines: they don’t need to be first to develop the world’s leading general AI models themselves. Instead, Apple can partner with the best companies, providing superior services to their users. And in return, companies like OpenAI may have to compensate Apple, because Apple ultimately controls the platform for distribution. This dominance in distribution has even led to rumors that OpenAI might develop its own mobile device, possibly with design help from Jony Ive.

Recently, Apple decided not to invest in OpenAI, and I believe there are a few key reasons for this. First, OpenAI’s rumored plans to develop their own mobile phone could be seen as fostering future competition, which Apple would rather avoid. Second, OpenAI has been dealing with internal challenges — ongoing executive departures and reported organizational turbulence suggest the company isn’t running at peak efficiency. Meanwhile, Google and Anthropic’s recent AI model releases are closing the performance gap with OpenAI’s technology, making the competition even tougher.

In terms of integration, Apple seems to be building a wrapper around its own AI capabilities, potentially powered by ChatGPT, Google Gemini, or another generative AI model. OpenAI’s edge comes from offering the best-in-class APIs, but even as competing models catch up, Apple may prefer to stick with long-standing partners like Google or others. These companies have the stability and large-scale infrastructure that align with Apple’s priorities.