Apple and Google are both at their biggest risk of disruption in over a decade

Apple and Google are both at their biggest risk of disruption in over a decade
Tim Cook and Sundar Pichai.Reuters
  • This year, Apple and Google will both face their first real tests in a very long time.
  • Apple could finally open its walled garden, potentially disrupting the App Store juggernaut.

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

Each innovation — folding screens, 5G, even the blockchain and cryptocurrency — failed to shake a sense that the future of tech is moving forward incrementally rather than exponentially. Google has spent the last decade-plus guarding its advertising business; Apple has built as many moats around its all-important iPhone business as possible, happily collecting App Store fees and Apple Music subscriptions.

Now, though, both businesses are about to face what are arguably their most existential threats to date. And while it's far too soon to write a eulogy for either company, you will see Apple and Google swiftly move to play defense in a way neither has had to in recent memory.

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For Apple, regulatory pressure worldwide seems to have finally cracked its infamous walled garden, as new rules threaten to undermine its App Store hegemony. The timing is especially interesting, as Apple is said to be preparing to launch a new set of smart glasses poised to extend the App Store's hold over consumers and developers alike for a new generation of computing.

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


Let's look at how this is finally the year that Apple and Google will face their most meaningful competition yet.

The walls fall for Apple

After years of saber-rattling, political scrutiny, international investigations, and one very closely-watched court battle with Epic Games (of "Fortnite" fame), regulators have finally gotten what they want. Apple is reportedly preparing an update to the iOS operating system this year that would, for the first time, allow outside parties to offer their own app stores for iPhone and iPad.

Apple has long argued that the App Store model, which vets every iPhone and iPad app in-house to ensure it meets specific security and content standards before it appears on the App Store, is key to its devices' appeal to customers.

The company justifies its 30% cut from most App Store transactions as a fair price to protect users from scams, malware, and shoddy apps. Presumably, Apple will bring the App Store to its forthcoming augmented reality goggles, which Bloomberg recently reported could finally be showcased as soon as the first half of this year.

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


Still, we're about to get our first real-world test on whether Apple was right that a crack in its walled garden would cause the whole thing to tumble down. If the App Store opens up and the iPhone doesn't become a toxic hellstew, perhaps Apple will reconsider its approach. Or, it may open the floodgates, and the iOS ecosystem will become a lawless wasteland. Either way, at least we'll know.

Google gets some real competition

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

It's clear that Google is taking the threat seriously: The company's leadership declared a "code red" over the rise of ChatGPT. Investors and analysts are praising Microsoft for its reported strategy of integrating the technology with the Bing search engine and Office productivity suite. Microsoft is also said to be planning a $10 billion investment in OpenAI itself.

ChatGPT is wildly versatile. It can answer simple queries like the population of Paris or the definition of "parliamentarian." But you can also ask it to write a sonnet in the style of William Shakespeare about the Burger King menu or a snippet of code ready to be added to your app-in-progress. While it isn't 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 hammers right into a weak spot for Google. Over the last several years, critics complained Google gives too much priority to ads and sponsored results, burying the real information you need under a mound of useless (but lucrative) links. Why deal with all of that when ChatGPT can give you a quick, useful, hopefully correct answer to the very specific question you asked?


This puts Google in a bind. If ChatGPT and its ilk take off, more people will use it to search the internet, meaning that users will see fewer of Google's all-important search ads. On the other hand, if Google tries to imitate the concept — which it certainly has the brainpower and talent on board to do — it would mean disrupting its own business model, reducing the reach of those same search ads.

It's unclear when or even if the new wave of AI will start making meaningful inroads into Google's search domination. As analyst Ben Thompson noted in an edition of his Stratechery newsletter this week, it's usually folly to underestimate how deeply Google is embedded in the larger tech ecosystem, from browsers to smartphones. And ChatGPT is incredibly expensive to run and limited in its capabilities, at least for the time being.

No matter how you slice it, though, it's probably a good thing for the industry overall that ChatGPT is putting the tech titan in the rare position of playing defense. Competition in the market helps everybody. And at least it won't be boring.