The AI Daily Brief: Artificial Intelligence News and Analysis - Can Buying Perplexity Save Apple on AI?

Starting point is 00:00:00 Today on the AI Daily Brief, is Apple buying perplexity even a big enough move? Speaking of moves, apparently Mark Zuckerberg is trying to just buy everyone. The AI Daily Brief is a daily podcast and video about the most important news and discussions in AI. Quick announcements before we dive in. First, thank you to today's sponsors, Blitzy VantaAgency.org and Superintelligent. To get an ad-free version of the show, go to patreon.com. And if you are interested in sponsoring the show, shoot me a note at NLW at Breakdown. network we are currently selling for the fall and even into next spring. But with that, let's get

Starting point is 00:00:40 into the headlines. We'll go back to the AI Daily Brief Headlines edition, all the daily AI news you need in around five minutes. There apparently is no one good and technical in AI that Mark Zuckerberg has not tried to buy. The latest news is a rumored acquisition of Nat Friedman and Daniel Gross's investment fund. The information reports that talks are underway to partially buy out the fund, which has just an absolute murderer's row of investments. These guys are some of the absolute most prolific investors in all of AI, and were early in Perplexity, 11 labs, as well as Ilius Sutskhaver's safe superintelligence. It's not exactly clear how much of the fund would be bought out versus just them coming,

Starting point is 00:01:22 but whatever combination it is, it looks like the price tag would be over a billion dollars. Now, just like in previous cases, there is clearly a big focus on the people here themselves. If the deal goes through, both partners would join meta to work under Alexander Wang in this new star-studded superintelligence division. Prior to forming the fund, Gross-led machine learning efforts at Apple, including as part of the early development of Siri. The product was based on technology that Apple acquired from his startup Q. As well as investing in safe superintelligence, Gross is also listed as a co-founder alongside Sutskever and serves as the company's CEO. Nat Friedman is a serial founder who made his way to Microsoft in 2016 via acquisition. In 2018, when he was a vice president at the company, he was appointed CEO of the newly acquired GitHub.

Starting point is 00:02:06 He parted ways with Microsoft in 2021 to focus on venture investing. And apparently, Friedman has been involved with Meta's AI efforts for a little while now. The information writes, In May 2024, Friedman joined an advisory group to consult with Metas leaders about the company's AI technology and products. Earlier this year, Zuckerberg asked Friedman to lead Metas AI efforts altogether. Friedman declined but helped brainstorm other candidates, including Wang. And apparently Zuckerberg had been skeptical that Alexander Wang would leave scale, but it was Friedman who convinced him that a deal was possible.

Starting point is 00:02:36 Now, frankly, the numbers are not adding up here for me. Friedman and Gross's investments are incredibly valuable. And it seems like sources say that Zuckerberg doesn't really care about the assets and is just looking to acquire the talent. But in addition to that, Save Super Intelligence just raised $2 billion at a $32 billion valuation just a few months ago. Now, you have to think that that is largely based on Ilya's reputation, but the still you also have to think that Gross leaving for Meta would materially impact those investments.

Starting point is 00:03:05 Interestingly, and this gets back to Zuckerberg trying to buy everyone, apparently he also tried to buy Safe Super Intelligence earlier in the year as well. The sourcing is very light on that particular deal, just saying that Ilya rebuffed Zuckerberg's attempt, but we don't even really have the exact timing. Omar Kanji of Dragonfly Capital wrote that the deal would be a big one. He writes, If Zuckett and Meta acquire Nat Freeman and Daniel Gross's venture fund, it'd be mind-boggling. Through the fund or stake, he'd get a piece of safe superintelligence and household names like perplexity, character, 11 labs, and more. It also gives him world-class talent that are founder-employee magnets to build up meta-a-I, a toll-hold with some of the most promising next-gen

Starting point is 00:03:44 gen companies whom he can acquire or partner with, a range of seed bets, runway to a vertical stack, and info rights across the landscape. Mix his strategic investment and brand-building and business development and talent acquisition and strategy all into one deal. Now, one more piece of news on Zuckerberg's acquisition efforts. Over the weekend, the Verge reported that he had also made offers to buy perplexity and Miramaradi's thinking machines as well. Writing in the Command Line newsletter, Alex Heath commented, At this point, it's becoming easier to say which AI startups Mark Zuckerberg hasn't looked at acquiring.

Starting point is 00:04:16 Speaking of Miramirati, the former CTO of OpenAI has apparently closed $2 billion in funding at a $10 billion valuation. This is one of the largest early stage funding deals in venture history. The six-month-old startup is still pre-product and hasn't even made it clear what they're working on. Bugo Capital was one of about a billion tweets like this one. I need $2 billion. No, you may not know about the product. No, I will not share anything about the financials.

Starting point is 00:04:42 No, your voting rights won't matter. You have 24 hours. He shared a pull quote from that Financial Times piece that reads, Because of its highly clandestine nature, a number of funds that Maradi pitched to passed on the deal. One of those people added Maradi's Pitch offered no information about a product or financial plans. So what does she have? Well, of course, the answer is talent. They now have a roster of more than 30 leading researchers drawn from the big AI labs, which at Zuckerberg's $100 million a head offer is at least $3 billion worth right there, right?

Starting point is 00:05:12 Reporting states that Indrisen Horowitz led the round with participation from Saragro's conviction partners. It confirmed that Muradi will hold majority voting rights, ensuring she retains complete control over decision-making at the company. Lastly, speaking of OpenAI, there was quite a bit of hullabaloo over the weekend when people started to notice that all of the information around their deal with Johnny Ive had suddenly been scrubbed from the website. People ran to speculate that somehow the bromance between Johnny and Sam Altman had come apart, but it turns out it has to do with a lawsuit. OpenAI later clarified writing that this page is temporarily down due to a court order following a trademark complaint about our use of the name I.O. We don't agree with the complaint and are reviewing our options. Bloomberg's Mark German writes,

Starting point is 00:05:57 The Johnny Ive in opening I deal is on track and has not dissolved or anything of the sort. They were sued over the name I-O, and there was a restraining order issued by the judge. They had to pull all materials with the name. The legal threat has some echoes of what Johnny Ive went through over a decade ago in bringing the phone to market. At the time of launch, Cisco owned the trademarks to iPhone and iOS, and apocryphly, Steve's job steamrolled them by claiming that they had no legitimate intention to use the iPhone trademark. and yet Apple still pays a licensing fee to use the iOS brand. Menlo Ventures Didi Das, though, thinks that this is a lot bigger than just a trademark.

Starting point is 00:06:30 He tweeted portions of the lawsuit and wrote Breaking. Google X spin out IYO, or IO, which makes smart earbuds from 2018, alleges Sam Altman and OpenAI heard their pitch, got Johnny Ive to try it before copying it, buying his company for $6.5 billion, and calling it I.O. Most dramatic must-read tech lawsuit this year. I'm sure that story will continue to evolve and we will keep an eye on it, but for now, that is going to do it for today's AID Daily Brief Headlines edition. Next up, the main episode.

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Starting point is 00:09:59 Today's episode is brought to you by superintelligence, specifically agent readiness audits. Everyone is trying to figure out what agent use cases are going to be most impactful for their business, and the agent readiness audit is the fastest and best way to do that. We use voice agents to interview your leadership and team and process all of that information,

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Starting point is 00:10:57 By way of background, Apple had been conspicuously absent from the AI conversation since ChatGBT GPT launched. While Microsoft was investing tens of billions into OpenAI and Google and Amazon were investing in rival Anthropic as well as investing in their own models, Apple was sort of just sitting back on its heels, not quite sure what it wanted to do. Now, for a little while, this wasn't all that surprising. Apple historically has not been the first mover. They always try to be the best mover. They try to innovate by skating to where the puck is going, but will often let people bumble around with nascent half-formed experiences before they bring it all together and really get it right for consumers. And so when in 2024, at their worldwide developer conference event,

Starting point is 00:11:39 Apple announced their Apple intelligence platform, the way that they were describing it made a lot of sense. This was basically going to be AI for Normies. Rather than selling a whole bunch of advanced features, it was really simple, clear integrations into daily life that Apple was betting would actually be useful for the average consumer who didn't care what AI stood for. The problem was that none of it was really ready. The features that were released were underwhelming, and many of the features that were promised were just never released. Most notably, Siri has not gotten anything resembling an upgrade, making it just embarrassingly far behind at this point. And while one might be tempted to say, this is even matter to Apple, or is this just the type of thing that all of us who are deep inside the AI space think about, it definitely matters to Apple.

Starting point is 00:12:23 Apple intelligence was a big part of the logic for getting people to upgrade their iPhones, and getting people to upgrade their iPhones is pretty much the way that Apple makes its money. iPhone sales are by far its biggest source of revenue, and so if people decide that each incremental update is not enough to get a new phone or a new device, that actually hits their bottom line. Now, recently there have been indications that Apple is taking this seriously. They've been moving executives around, and it seems like trying to potentially rethink their strategy here. But another WWC came and went, and this time they basically self-consciously did not engage with AI almost at all. There were no major AI announcements, nothing about a better Siri.

Starting point is 00:13:00 The only thing that AI folks were tracking that was somewhat exciting was Apple potentially opening some of their models to developers in a bid to get them to build more AI-related things for iOS and Macro. OS. All of this has left the discourse for some time focused on what Apple can do to actually get back in this game. I did a show a few months ago, for example, called six Hail Marys for Apple's AI comeback, and right at the top of my list was a big M&A move. Specifically, I thought that they should buy Anthropic, and I am far from the only person to suggest this. On May 22nd, Parker Orchalani tweeted, fastest way for Apple to solve its problems is to buy Anthropic and let them rip. But who

Starting point is 00:13:38 knows how realistic that is. Probably not. Now, the tweet generated a lot of discussion, most of which was people articulating why Anthropic just wouldn't be interested. Most people pointed out that it doesn't seem like Anthropic has any real interest in that, even if theoretically Apple has enough money, but that still hasn't stopped people from speculating. A couple weeks later, Josh Avant wrote, Apple should just buy Anthropic. Anthropic is doing well in the developer market, their aesthetics are so good, and they have pretty righteous ideals. Apple could buy them in cash at par for their $61 billion valuation and still have $100 billion left. Again, everyone popped in to say that Anthropic wouldn't be interested, blah, blah, blah, blah, blah,

Starting point is 00:14:11 but you get the idea. This is where the state of the discourse has been. Now, interestingly, Apple has had some interaction with Anthropic. Back in May, Bloomberg's Apple Whisperer, Mark Gurman, reported that they were teaming up to build something akin to a vibe coding platform. The summary was this. Apple is partnering with Anthropic to develop a new vibe coding software platform that uses AI to write, edit, and test code on behalf of programmers.

Starting point is 00:14:35 The system is a new version of Xcode, Apple's programming software, and, and that will integrate Anthropics Claude Sonnet model, and Apple will roll out the software internally before deciding whether to launch it publicly. The partnership reflects Apple's greater willingness to partner with others after struggling to develop homegrown technology, and the company is expected to add Google Gemini as an alternative to chat Shipit later this year. Still, it is a far cry from collaborating with someone on a next-generation coding platform to actually acquiring them, and outside of the speculation of podcasters and Twitter denizens, there's been nothing to suggest that Apple was actually looking in that direction.

Starting point is 00:15:08 And yet, we did get an interesting little nugget at the beginning of this month. This report is from Dear Drubosa. In a very rare disclosure during the Google antitrust trial, one of them, Apple's Eddie Q revealed that the company had begun talks with perplexity, saying they were impressed with the product and exploring integration. And I spoke to Dimitri Shevolenko, that's a startup's business lead. And he told me that they were just as surprised to see QGO public because if there's one rule when dealing with Apple, it's this. You don't talk about doing business with Apple. Yet, here was

Starting point is 00:15:42 Q breaking protocol and signaling serious interest. That's a big deal. There was clearly some interaction happening between Apple and perplexity. Although at the time, it seemed like it was just about some sort of integration. Although based on the reporting, it was a pretty serious integration. Some even suggested that they were looking to adopt perplexity as an alternative to Google on the iPhone. So lots of people took notice, but mostly just went on with their lives, until the very understanding. of last week. When Bloomberg published this piece, Apple executives have held internal talks about buying AI startup perplexity. Once again, this comes from Mark German, who is the best-sourced person inside Apple at this point, of all the major media outlets. German writes, according to people

Starting point is 00:16:23 with knowledge of the matter, Adrian Perica, the company's head of M&A, has weighed the idea with services cheap at EQ, who you might remember from that Dear Deerbosa clip as the one who was talking about perplexity during the Google antitrust trial, and other top AI decision makers. What would be included in this deal? Well, part of it looks to be, indeed, as we discussed, a way to fill the gap of a potential breakup with Google. Now, at this stage, Apple's partnership with Google, which makes them the default browser on their devices, makes Apple about $20 billion a year, but could be cut off because of these antitrust cases. Another reason to potentially bring in perplexity is, of course, to get a big dose of AI talent. As you're well aware,

Starting point is 00:17:02 at this point, if you are a regular listener, the extreme length that big tech is going to to get premium AI talent has reached a new level with Mark Zuckerberg running around with $100 million offers, completely resetting the compensation base for top engineers. Now, what's clear at this stage is that Apple is serious about a potential deal of some kind with perplexity. Apple's AI team has been actively evaluating perplexity's tech, but at this stage, to the extent that the Apple executives have held internal conversations about an acquisition, they haven't apparently discussed it with perplexity. Said perplexity, we have no knowledge of current or future M&A discussions involving perplexity.

Starting point is 00:17:36 In fact, on perplexity side, it just raised another round at a $14 billion valuation, and it also appears to be very close to a large deal with Samsung as well. Given that Samsung is basically Apple's biggest rival in the phone market, this could be something of a challenge for any sort of M&A. So what do people think about this deal? Well, after the reporting came out, German took some time to get editorial and wrote a piece called Apple will need to leave its M&A comfort zone to succeed in AI.

Starting point is 00:18:04 German points out that whereas big acquisitions have long been a part of Google and Meta's playbook, think the massive WhatsApp acquisition, or maybe the best acquisition of all time, Instagram and the case of meta, and of course Google buying assets like YouTube, Apple's biggest acquisition ever was only $3 billion, and that was for Beats back in 2014. In fact, Apple has only made three M&A deals over a billion dollars in its entire history, and other deals they've done, they haven't exactly gone well. Or at least they haven't been easy. Because of this, Apple's team is default skeptical of big M&A.

Starting point is 00:18:38 And yet, as German points out, Apple is facing a very different set of circumstances these days and may have no choice but to do a deal. The stakes of the AI race are just too high. He goes on, developing the next generation of products from glasses to robotics to new wearable devices will hinge on AI. The technology will be as foundational to those products as the multi-touch interface was to the iPhone. And that notably came via Apple's 2005 acquisition of Fingerworks.

Starting point is 00:19:02 Apple's in-house AI work has floundered. Sure, the company has its talking points. Apple intelligence is smoothly integrated and rivals don't protect privacy the way it does. But the truth is clear. Apple has missed the AI moment, and it should accept that instead of making excuses. If Apple had built something as groundbreaking as chat GPT, it would be celebrating it from every rooftop. Instead, the company is downplaying the competition and branding its offering as AI for the rest of us, because that's really all it can say. Apple is doing its best with what it has and will continue to shrug off any concerns until it can offer something better. However, as Gervin points out, the good thing is that Apple has more than $130 billion in cash.

Starting point is 00:19:38 So then, with that huge stock, who could be the targets? Open AI is definitely out, given that it's at a $300 billion valuation, to say nothing of its weird corporate structure that is a boondoggle with its existing relationship with Microsoft. Anthropic is valued at a range that theoretically they could afford, but given its relationships with Amazon and Google and just its general size, there's a concern that an anthropic deal would bring serious regulatory scrutiny. And so that brings German back to perplexity. He gives five reasons that he likes the deal. While the company doesn't have its own foundation models, what it does have is, one, a proven consumer-ready product. Two, a clear need it fills in the context of Apple, i.e. a strong search layer and a

Starting point is 00:20:19 conversational interface for everyday tasks. Number three, a decent-sized team. 250 employees with deep AI talent means it wouldn't be too big for Apple to integrate, but they'd get some real stars. A reasonable valuation, considering what Apple has in the bank, and good timing because of the potential of this forced breakup with Google search on the iPhone. Others wrote about this as well. Alex Cantowitz came out stronger with a post, why Apple must buy Perplexity, a bona fide AI partner in a moment of need. It's time for Tim Cook

Starting point is 00:20:49 to make Apple's biggest acquisition in history. Cantorowitz writes, Tim Cook ought to call Perplexity CEO Arvon Shrinibas and offer him $30 billion for his AI search engine, and he should do it right away. Apple buying Perplexity is such an obviously good deal for both companies that I feel silly even writing it down. Apple would get a bona fide AI service that could plug right into Safari and Siri that would revamp its disappointing AI offering. Perplexity would get access to the 2 billion-plus Apple devices in circulation and become an AI force on par with chat GPT. When Kantrowitz asked Perplexity Chief Business Officer Dmitri Shevelenko about a potential deal with Apple, he said not likely, but the meta-scale deal is so unlikely that I feel like we aren't living in a world of

Starting point is 00:21:27 likelihoods. Kentruits also points out that although the Samsung deal is emerging, that only puts a finer point on Apple's need to move quickly before it gets totally locked in. Parker Ortulani, who we heard from earlier in the show, also wrote about this in a piece called the curious case of Apple in perplexity. Do they need each other? Parker says that when he read German's piece, his initial reaction was that wouldn't work. He writes, the core reason that I thought perplexity might not be a good fit was simple. They may be culturally incompatible. Both companies have very unique cultures. Apple is much older, deeply set in its ways, led by a group of seasoned executives, and serves an audience so big that the stakes are astronomically higher.

Starting point is 00:22:04 Power is concentrated to say the least. They also move, shall I say, more slowly. Perplexity, on the other hand, is nimble, fast-moving, extremely daring, and can be the young startup that can take the kind of risks that Apple can't. To say that you can probably have a lot more fun working at perplexity right now is likely an understatement. And yet, after he thought about it a little bit more, he started to see the logic.

Starting point is 00:22:23 Now, from Apple's side, like Cantoritz, he finds it pretty obvious how perplexity could slot in, especially in a world where Google Search is forced off the iPhones by antitrust regulators. He also points out that, of course, what Apple brings to perplexity is just this massive set of larger users. However, he also makes the point that I think is a really salient one, that perplexity in Apple, while very different in terms of where they are in their life, might actually be too close. He writes, at the end of the day, Apple needs a technology company, not another product company. Perplexity is really good at, for lack of a better word,

Starting point is 00:22:55 forking models, but their true specialty is in making great products. They're amazing at packaging this technology. The reality is, though, that Apple already knows how to do that. Of course, only if they can get out of their own way. A company like Anthropic, a foundational AI lab that develops models from scratch, is what Apple could stand to benefit from. That's something that doesn't just put them on equal footing with Google. It's something that also puts them on equal footing with OpenAI, which is arguably the real threat. He concludes, at the end of the day, I suppose that I've made the case both for acquiring perplexity and against it. Ultimately, either path is likely good for users and I'll be happy no matter what happens. The whole situation is great for perplexity. It helps

Starting point is 00:23:31 further legitimize them. But as a fervent observer, I keep coming back to the same two questions. Is perplexity really what Apple needs? And is perplexity better off without Apple. To wrap up here, let's answer the second question first. Is perplexity better off without Apple? On the one hand, it is absolutely the case that unless Apple is extraordinarily hands-off, which almost structurally they really can't be, perplexity is going to be able to innovate faster without them. At the same time, Proplexity has already done, honestly, majestic work to carve out as much mind and market share as they have, given that their feature set is largely overlapping with core functionality of all the foundation models. Chad GPD, Claude, and Gemini are all going to munch closer and closer to Perplexity's core

Starting point is 00:24:16 business, and it is a very real possibility that they just get squeezed out. An Apple deal, which puts them directly on 2 billion devices is obviously very beneficial there. So the tradeoff is potentially ability to continue to innovate versus bulwark against increased competition. When it comes to the question of is perplexity really what Apple needs, I understand what Parker is arguing about them both being product DNA companies and Apple not having that technology DNA. However, for as much as Apple has historically been a product company, they have not done a good job of that when it comes to AI. Their vision for how to think about AI is very tepidly something that seems compelling, but they haven't executed it at all in any meaningful way. And so I don't know how much we can

Starting point is 00:25:00 actually argue that they're great product makers, at least in this new space. I think that the big question is if they did do an acquisition like this, how much they let perplexity actually lead their product strategy versus just be something off to the side. The team that's running the show at Apple at this point has shown themselves to be incapable of competing in the right way. If an acquisition doesn't involve actual leadership integration, I don't know that I think it's going to work. Still, like Parker said, as a consumer, I don't think we can possibly lose in this. Either perplexity gets the muscle to do even bigger and better things, or they get to stay independent and keep innovating incredibly fast. Either way, all of us win. Still a super interesting

Starting point is 00:25:40 moment and a story that is worth following for sure, but for now, that is going to do it for today's AID Daily Brief. Until next time, peace.

The AI Daily Brief: Artificial Intelligence News and Analysis - Can Buying Perplexity Save Apple on AI?

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