Apple Reinforces Measured Approach to GenAI In Consumer Services With 16E

Apple launched its smartphone portfolio's latest device (16E) on February 19, 2025. As an analyst, I’ve covered Apple for nearly 20 years - predating the first iPhone. Here is what I found interesting (and not interesting - scroll down) in this release. Apple is:

1. Integrating genAI capabilities in an entry-level phone. Apple has long leveraged the family of AI technologies to roll out rich features and reduce friction as needed. They are tapping genAI to summarize conversations, give superpowers to creators, and allow consumers to engage with Siri with more natural language and memory (i.e., context, longer prompts.) Relying on the computing power on the phone offers consumers the privacy Apple promises and demands a lot from a smaller package.

2. Apple’s efforts to market intangibles. Smartphone manufacturers have long leaned into hardware (e.g., battery life, cameras, screens)  in their marketing of new phones. Leaning into the incremental convenience of writing tools or emojis is just harder. About one-quarter of US (and UK) consumers like to create content for social media and/or value doing so. Summarizing text message chains creates parity with other leading-edge smartphones, but convincing consumers of the value - is not easy.

3. Staying open to competition from third-party genAI app contenders. GenAI is one of the first (if only?) transformational technology that does not require consumers to buy new devices or spend more money. Apple is pursuing an approach of embedding it systematically throughout its ecosystem, devices, and apps. They are allowing third-party apps for their smartphones and Macs. They need to allow third parties - how they enable them or what permissions they give them is more negotiable.

4. Pursuing an incremental approach to genAI abilities. Despite the hype around agentic AI, most use cases still center on coding, math, and science - disciplines with clear right and wrong answers where researchers can train models with reasoning capabilities. These are not consumer use cases. Consumers are not in a productivity race.GenAI is enhancing consumers’ existing activities by helping them write, create content, find answers, or do analysis.  We have yet to see the killer app for genAI in consumer services. I appreciate the incremental approach here that allows consumers to build trust and get used to how interfaces, experiences, and services can be enhanced before genAI ultimately displaces so much they know today.

5. Being patient as they evolve into a trusted virtual assistant. When consumers seek convenience, they lean into low-friction experiences. Hence the rise of services like Uber, Lyft, and Doordash. When virtual assistants or eventually agents begin to do the heavy lifting for consumers (Auto-ordering online groceries doesn’t count. Neither does a better voice assistant.), the switching costs will become very high. Becoming THE virtual assistant for consumers or at least one of the contenders depends on many factors including depth and breadth of knowledge and understanding about a consumer; technology (i.e., genAI and more), an ability to understand the consumer’s environment, an intuitive and ubiquitous interface, and more. The 

What continues to impress me is Apple’s ability to:

• Design and build an increasingly integrated hardware stack. Doing so gives the device better performance while maintaining battery life + privacy + security and keeping the packaging right-sized. 

• Combine a high-quality camera, screen, connectivity, SOS, and more in such a small package. I studied electrical engineering in college with a focus on telecom. Comparing the physical size of electronics then and now - mind explosion. 

• Generate excitement with a so-called entry-level device. Many consumers prefer the smaller form factor - it isn’t just about a lower price point. 

A lot of historical analysis applies here that is less interesting:

• Apple launches its new consumer hardware devices in the fall ahead of the holiday season. They often preview new software or operating system features at their WWDC in June. Afterward, they allow a trickle-down of these features into entry-level or more affordable devices. 

• With nearly 100% of global consumers owning a smartphone, new customers are either 1) those who switch or 2) those who are buying a smartphone for the first time (e.g., teens and tweens). 

• Smartphone growth has slowed because consumers are holding on to their devices longer. On one hand, these devices are so amazing that few of us can consume them to their potential. On the other, despite government allocations, the economy has been especially tough for many since the onset of the pandemic in 2020. 

• Each additional device or service that a consumer purchases within the Apple ecosystem creates value for the consumer - and Apple. If you subscribe to Apple TV or Music (or all of their services), you can access those services seamlessly on any device or (depending on the plan) share with family members. Apple Services are a higher margin business as are their accessories. 

• The phone is marketed as affordable - not cheap. Apple has never been in a race to the bottom. They have always punched above their weight in smartphone profits despite lacking the majority of product share globally. Apple has a relatively affluent customer base.