Consumers are going to gravitate toward applications powered by the buzzy new technology, analyst Michael Wolf predicts
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People seeking information online will increasingly go first to TikTok, ChatGPT and other applications powered by generative artificial intelligence, instead of using traditional search engines, said Michael Wolf, co-founder and chief executive of consulting firm Activate.
Today, about 13 million U.S. adults begin their web searches by using generative AI, Activate data show. Wolf predicts that will grow to more than 90 million by 2027 because generative AI is capable of providing results with far greater precision and customisation.
“Generative AI fundamentally changes the model for search because the results are no longer links,” said Wolf, who gave a presentation of Activate’s findings at The Wall Street Journal’s Tech Live conference on Tuesday. “It serves up your information totally packaged and ready to use.”
Applications rife with customer data will benefit the most from this shift, Wolf said, as they will be better equipped to serve their users with personalised information. He expects TikTok to lead in this area because Activate estimates that its users already spend an average of more than 54 minutes a day on it, compared with 49 minutes daily on YouTube, 33 on Instagram and 31 on Facebook.
Amazon and other major e-commerce platforms have also embraced generative AI to better recommend products for users based on their past behaviour, along with many music- and video-streaming apps, Wolf said.
For example, Spotify earlier this year introduced AI DJ, a feature that offers a curated lineup of music alongside commentary around the tracks and artists that the app thinks users will like. “Choices are being made for you,” Wolf said.
Google and other search engines are also taking advantage of generative AI, yet Wolf said they might not remain the first stop or default option for most people. People are devoting more of their time to social media, entertainment platforms, online videogames and other utility apps that are also embracing the technology.
According to Wolf, domination within the $100 billion search industry is “up for grabs” and large, established companies aren’t necessarily going to outmuscle startups. The rise of open-source AI models is paving a pathway for smaller entrants to potentially make a big impact, he said.
Adoption of generative AI is being driven by a significant increase in the amount of time people spend online—behavior boosted by the pandemic, Activate data show. With people spending more time online, they are becoming adept at using multiple applications at once, enabling them to accomplish more in a single day than would otherwise be possible. Today, the average U.S. adult spends 13 hours daily multitasking among video, audio, games, social media and various technology and media activities.
“AI is making everybody into a metaverse creator,” Wolf said, referring to extensive online worlds where people interact via digital avatars.
Generative AI is poised to disrupt the internet in other ways besides search, such as content creation, Wolf said. By typing simple text prompts into applications featuring the technology, anyone—not just tech-savvy folks who know how to write code—will be able to make videogames, artwork, music and even entire virtual worlds on their own.
More predictions from Wolf’s presentation:
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Apple’s growth engine is showing signs of slowing, as rising costs, weaker services growth and AI competition challenge its profitability. With John Ternus taking the helm, the pressure is on to reignite innovation and sustain investor confidence.
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The Apple growth and profit machine is wavering, and the boost from price increases might not be enough to keep it going at historic rates. That dials up the pressure on Apple’s new chief executive, John Ternus.
The company saved the bad news for its earnings call, an hour after it posted its results for the September quarter, projecting that for the current quarter its high-margin services business will continue to slow and that its widely watched gross profit margin will continue to fall.
Apple AAPL -1.83%decrease; down pointing triangle shares had been flat in post-close trading but declined as much as 4% after the company made the projections, which fell short of Wall Street estimates.
The impact of high memory costs are weighing even more heavily on the company, Ternus and Apple Chief Financial Officer Kevan Parekh said on the company’s earnings call. Apple has stockpiled cheaper components purchased earlier, but those inventories are dwindling.
When Ternus took over as Apple’s third chief executive of the past 29 years on Sept. 1, he inherited sky-high expectations. The men he followed were among the most successful company leaders in American business history. Steve Jobs revolutionized consumer devices multiple times. Tim Cook expanded Jobs’s creation to spectacular heights.
The expectations are reflected in Apple’s huge valuation. Oppenheimer analyst Martin Yang noted that Apple stock trades at 36 times next year’s expected earnings, a premium to the overall market, even though its earnings are only expected to grow 1%, which is slower than its tech peers.
“We see insufficient upside to justify the premium,” Yang wrote in an investor note, adding that Apple needs to boost iPhone sales growth and turn around its slowing services business to make him more bullish.
Investors have bid up Apple shares because it has been a port in the AI storm—a reliable and capital-efficient business that stands apart from rivals which are spending hundreds of billions of dollars racing to the AI frontier.
While others invest in data centers, Apple has been pouring its own cash into buybacks and dividends. But that safety may be challenged if Ternus can’t speed up Apple’s innovation engine.
Apple’s lagging performance in AI was evident when its new “Siri AI” chatbot arrived this past quarter. Its long-maligned assistant was already stale the day it arrived, surpassed by agents such as Instinct and Muse that can complete multistep tasks for consumers, while Siri still sets kitchen timers.
Apple needs to give people reasons to buy its devices as they get more expensive. The company raised prices across the board last quarter to help offset higher costs. Without compelling new features, a big question is whether consumers will slow the frequency of iPhone upgrades.
The new iPhone Duo appears to be a bright spot. Consumers are scooping up the $1,999 foldable smartphone despite mixed reviews—so many that Apple can’t keep up with demand. Shipping dates jumped out to January soon after the device went on sale, a disappointment for the normally reliable Apple supply chain.
Apple said its revenue grew 12% in the September quarter, slightly ahead of Wall Street’s expectations. Its widely tracked gross profit margin, at 47.9%, also came in just ahead of analyst estimates.
Apple will need to find new growth avenues because a reliable engine during the Cook era—the services business—is slowing. Courts and regulators worldwide have limited Apple’s ability to charge developers big fees to distribute apps through its App Store, the biggest component of the company’s services segment.
One of its most lucrative App Store fee generators has been the ChatGPT app from OpenAI. Around the time Apple accused OpenAI of trade-secret theft this past summer, OpenAI began redirecting potential subscribers to pay via its website instead of the App Store, skirting Apple’s tollbooth.
Apple’s valuation has bumped up against a ceiling in recent weeks. Six times it traded above a $5 trillion market capitalization intraday before finally closing above the threshold, which it has already fallen back below.
News Corp, owner of The Wall Street Journal, has a commercial agreement to supply news through Apple services.
