Earlier this week, Apple (NASDAQ:AAPL) unveiled its much-anticipated AI strategy and product lineup at the WWDC event, including a blend of its own models and a partnership with OpenAI.
However, this doesn’t mean much for the Chinese market, where Apple will need to establish a different set of partnerships, with Baidu (NASDAQ:BIDU) likely being the primary partner initially given its strong presence in AI and Search.
Yet, Bernstein analysts caution that the role of Baidu might be more limited than initially expected. This is because Apple appears to be taking greater control of the AI models within its devices, potentially using a mix of its own models and Baidu's for advanced functionalities such as private cloud applications.
In terms of integration with Search, it appears that Apple prefers the path of creating its own Siri engine “rather than directing traffic to Baidu,” Bernstein noted.
“This limits how much ad revenue Baidu could potentially get from this traffic,” analysts said in a note.
Moreover, there is a risk that Apple might incorporate other local AI models into its ecosystem, given the competitive landscape in China, where companies like Alibaba (NYSE:BABA) with its Tongyi model are also vying for dominance.
For Baidu, Bernstein says, the base case scenario involves capturing value through token-based payments for queries, with the possibility of CPS-based payments representing a more optimistic but uncertain outcome.
“It doesn't look like Apple will act as a direct Search traffic feeder, resulting in value capture seeming more like to be based on queries/token for now,” analysts wrote. “The larger opportunity is if the Search interface can drive bottom of the funnel transactions, but this is still unproven as a business model.”