Google and Amazon are spearheading a quiet gadget revolution, and it's going to put pressure on Apple most of all

Hollis Johnson/Business Insider

The Google Pixel 2 smartphone relies on artificial intelligence, not cutting-edge specs, to make its sales pitch to customers.

• Gadgets are going through a major change
• AI and cloud computing are more important than "speeds and feeds"
• The shift benefits Google and Amazon and poses a big risk for Apple

Way back in 1965, Intel cofounder Gordon Moore predicted that computers would get twice as powerful every two years - a prediction which has mostly come true, and is now enshrined as "Moore's Law." However, many, including Moore himself, now believe Moore's Law is screeching to a halt.

It's going to mean a huge shift for the technology industry.

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"To be honest, it's going to be tougher and tougher for people to develop new and exciting products every year," said Google hardware boss Rich Osterloh, on stage at the company's recent Pixel 2 phone launch event.

The iPhone you own today is many millions of times more powerful than NASA's state of the art computers when Moore posited his famous law. But whichever smartphone you own ten years from now may not be that much more powerful than the iPhone X you might be getting in November, if only in terms of processing power.

So, yes, change is in the air. It's going to require a new way of thinking about hardware. And, so far, it's Google and Amazon leading the charge, even as this shift stands to hit hardware-centric companies like Apple hardest.

Artificial intelligence squeezes out more performance

At the most basic level, the idea is that if processors aren't going to get much faster, then the burden is to make better use of the ones we've got. This is a big piece of why artificial intelligence is suddenly such a popular idea across Silicon Valley - it means that processors are working smarter, not harder, to borrow an old chestnut.

Take, for example, the Google Pixel 2 smartphones, released earlier in October. When they were announced, Google implicitly acknowledged that, in terms of tech specs, the Pixel 2 is nothing special. However, Google baked all kinds of artificial intelligence goodness into the Pixel 2.

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Intel co-founder Gordon Moore, who posited the famous law about the rate at which technology improves.

The Google Assistant is very good - so good, that Apple should be embarrassed about how far behind Siri is. With the Pixel Buds headphones, the Pixel 2 becomes a universal translator, like something out of "Star Trek." And the Pixel 2's already-excellent camera is only going to get better, with the surprise revelation that Google custom-designed a processor just for photos...and that it hasn't even been activated yet.

Suddenly, by applying its considerable edge in artificial intelligence, Google has transformed an unremarkable little machine into a flagship. If the phone has a weakness, its on that hardware side, as users report major discoloration and burn-in on their Pixel 2 devices.

Cloud computing makes anything with internet access smarter

Here's another example, this time from Amazon, which has barged into the hardware market thanks to its line-up Echo devices and the Alexa smart agent that powers them. In terms of raw capabilities, a $50 Amazon Echo Dot is just as smart as a $229 Amazon Echo Show, because Alexa actually "lives" in Amazon's massive data centers.

"Because Alexa's brain is in the [Amazon Web Services] cloud, her new abilities are available to all Echo customers, not just those who buy a new device," as Amazon CEO Jeff Bezos put it on the company's latest earnings call.

Amazon

Because Amazon Alexa's "brains" live in the cloud, every single Amazon Echo and other Alexa device get new features at the exact same time -- no matter how long ago you bought them.

When you ask Amazon Alexa (or Google Assistant, or Apple's Siri, etc.) a question, it gets shunted up to the cloud to slice, dice, and analyze what you said, to make sure it gives you the best answer. A pleasant side effect of this principle is that you don't need the latest, greatest hardware to take full advantage.

With those tech titans doing the heavy lifting, processing-wise, even old devices can learn great new tricks. It makes upgrading to the latest gadget less important.

And remember that for Google and Amazon, especially, their fortunes aren't tied to getting people to upgrade their devices, anyway - the ultimate goal is to get people to look at more ads and shop more, respectively. Whether or not you upgrade your Pixel or buy a shiny new Echo is, ultimately, irrelevant to these companies.

The heat is on for Apple

The ultimate side-effect of all of this is that it's going to get harder and harder to get people to upgrade their phones, computers, and other gadgetry. Once technological progress starts flattening out, there's only so much incremental improvement you can use to sell a new phone.

For Apple, this is an existential threat. So much of its revenue comes from sales of each successive version of the iPhone, so any trend that gets people to keep their devices longer poses a threat to its business model.

We're already getting a little taste of how Apple is faring under this pressure. We're seeing early signs that a surprising number of Apple fans skipped the iPhone 8 and are going instead to the older, cheaper iPhone 7, apparently because the differences are so slight that it wasn't worth the additional cost.

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Apple's latest iPhones show how difficult it is to make a new device that'

While Apple has been investing heavily in R&D, it still can't match the progress made by Amazon, Google, or Microsoft in AI and cloud computing - you only need to look at the vast difference between what Alexa and Google Assistant can do, versus the limitations of Apple's Siri. A lot of the smartest apps for iPhone come from Google itself, including the popular Google Photos app.

And it's no coincidence that Amazon and Google operate their own cloud computing platforms for outside app developers to use.

This doesn't mean Apple is doomed. If nothing else, the sellout of the new iPhone X proves that Apple fans will still line up, figuratively and literally, to buy an expensive, powerful, shiny new gadget.

But with the move to hardware that becomes smarter over time, selling products on the basis of processing power and screen resolution alone will become much more difficult. The thought process and conversations that we have around buying new devices will be completely different - Apple better make sure it knows how to talk to us.

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