Apple and Baidu Collaborate: Challenges and Opportunities for Apple Intelligence in China

Apple and Baidu Collaborate: Challenges and Opportunities for Apple Intelligence in ChinaOn December 5th, The Information reported that Apple plans to partner with Baidu to bring its AI service, Apple Intelligence, to the Chinese market. This collaboration would leverage Baidu's Ernie 4

Apple and Baidu Collaborate: Challenges and Opportunities for Apple Intelligence in China

On December 5th, The Information reported that Apple plans to partner with Baidu to bring its AI service, Apple Intelligence, to the Chinese market. This collaboration would leverage Baidu's Ernie 4.0 large language model to power generative AI services on Apple devices like iPhones, Macs, and iPads. While the news has been partially confirmed, specific details remain unsettled, sparking considerable controversy among Apple users.

Apple has long held a premium position in the high-end smartphone market due to its brand reputation and high-end positioning. Baidu, while a leader in AI, enjoys a more mixed brand reputation and has faced criticism from official media regarding search and traffic generation practices. Social media polls reveal significant negative sentiment among Apple users towards using "Ernie," suggesting considerable uncertainty behind this seemingly powerful partnership. With plans to launch a Chinese version of Apple Intelligence next year, time is of the essence for both companies.

Rumors of this collaboration have circulated since June 2024, when Apple officially launched Apple Intelligence at its Worldwide Developers Conference (WWDC). Apple announced that the service would utilize its own technology and partnerships with third parties such as OpenAI, employing a hybrid cloud-edge architecture. The initial partnership was with OpenAI's ChatGPT, integrated into Siri and writing tools, offered free to users. Apple also indicated plans to incorporate more third-party AI models in the future. Given OpenAI's unavailability in mainland China, speculation arose regarding the use of a domestic AI model for the Chinese version of Apple Intelligence.

China boasts numerous powerful AI models, including Baidu's Ernie, Alibaba's Tongyi Qianwen, ByteDance's Doubao, and Kimi, among others. However, selecting a partner proved challenging. While Kimi is strong, its developer, Moonlit Darkside, is a relatively new startup ill-equipped to handle the demands of hundreds of millions of Apple users. ByteDance, meanwhile, faces significant challenges in the US, with its TikTok app repeatedly facing Congressional scrutiny; partnering with them presents potential risks for Apple. Thus, Baidu and Alibaba emerged as the most likely candidates.

Baidu, a pioneer in China's AI sector, possesses extensive experience and resources in natural language processing, speech recognition, and image recognition. Ernie 4.0, built upon Baidu's search engine, boasts a vast database and has received regulatory approval, making it well-suited to the Chinese market and cultural context aligning with Apple's need for a local generative AI solution. Furthermore, Apple and Baidu share a long-standing partnership in the search engine field, with Baidu serving as the default search engine for Apple devices in mainland China since 2012 and for Siri since 2015. Baidu also has a successful track record of collaborating with mobile manufacturers on AI services, as exemplified by its integration with Samsung's Galaxy S24 series in China earlier this year, enabling features like text summarization and translation.

However, the partnership hasn't been without its hurdles. The Information reported that both companies encountered roadblocks in project development, potentially impacting Apple's plans to boost iPhone sales in China.

Profit sharing and data security are critical issues. China's strict security, privacy, and content censorship regulations present significant technical and privacy challenges. Both parties are striving to overcome these obstacles to launch Apple Intelligence in China next year. One key challenge is enhancing AI capabilities. Reports indicate that engineers are working to adapt Baidu's large language model for optimal iPhone user experience. However, sources suggest that the models still struggle with understanding user prompts and accurately responding to common scenarios. One major challenge for Baidu is providing more relevant query responses. For instance, while a Chinese user might ask Apple Intelligence for restaurant recommendations, the Baidu model might provide answers solely based on training data, whereas Apple aims for personalized recommendations based on user data from apps, messages, and other activities, requiring further development efforts from Baidu.

However, given both companies' technical capabilities, resolving such technical problems shouldn't be insurmountable; rather, non-technical issues might require more negotiation and compromise. Apple previously stated that users of its OpenAI collaboration would not incur extra charges. This doesn't imply a completely free, mutually beneficial model. Reports from June suggested that Apple initially wouldn't pay OpenAI, instead employing a novel partnership model potentially involving future revenue sharing for mutual gain. Apple hopes to enhance iPhone competitiveness through OpenAI's technology, while OpenAI seeks to leverage Apple's vast user base to increase market share and commercial value.

Baidu is reportedly allocating more cloud computing infrastructure and planning increased chip expenditure for Apple Intelligence to handle increased user requests. A similar revenue-sharing model may be adopted with Apple.

Disagreements also exist regarding data security, a high priority for Apple. Baidu reportedly wishes to retain and analyze data from iPhone users' AI queries, but Apple's privacy policy prohibits such data collection. Indeed, OpenAI was reportedly barred from accessing iPhone user and local data, highlighting the challenges of accessing Apple data.

Apple AI's impact may be limited. IDC data indicates that Apple's smartphone shipments in China fell 0.3% year-on-year in Q3 2024 one of only two top-five vendors to experience a decline. AI, a major upgrade point for iPhones in recent years, carries the responsibility of revitalizing Apple's sales. However, even with a successful partnership, AI's sales boost might be insignificant. For instance, despite Samsung's launch of Baidu AI-powered Galaxy S24 phones early this year, Counterpoint Research indicates that these features didn't improve Samsung's market performance in China; its market share even decreased.

Furthermore, domestic Chinese smartphone manufacturers have already surpassed Apple. Huawei's Pangu model, Xiaomi's XiaoAI, Honor's Magic model, Vivo's Blue Heart model, and OPPO's Andes model are already fully integrated into their latest flagship phones. For Apple to regain growth, AI alone might be insufficient. The success of Apple Intelligence in the Chinese market faces numerous challenges, extending beyond technical aspects to encompass business models, data security, and market competition. The ability of both companies to effectively overcome these obstacles will determine the partnership's success and Apple's future trajectory in the Chinese market.