“WHEN LAURENE POWELL JOBS during a recent interview asked Sam Altman and Sir Jony Ive about the artificial-intelligence “thing” they were working on, both men were coy. But Mr Altman, OpenAI’s boss, did suggest that using the new device would feel different to the all-consuming iPhone created by Sir Jony and Ms Powell Jobs’s late husband. He likened the experience of a smartphone to walking through Times Square, with its flashing lights and loud noises. Mr Altman and Sir Jony are not alone in working on an alternative. The race to unseat the smartphone is on.
Over the past two decades the iPhone and its imitators have come to dominate how consumers interact with the digital world. The result has been one of the most lucrative duopolies in business history, comprising Apple, with its iPhone, and Google, with its Android operating system, which powers nearly every other smartphone, including its own Pixel devices. Neither has had much incentive to rock the boat, with Google handing bags of cash to Apple each year to make its search engine the iPhone’s default. Indeed, the Lennon and McCartney of the smartphone era are only deepening their collaboration in the age of ai. This month they announced that Apple will use Google’s Gemini large language models to power an upgraded Siri voice assistant planned for this year, alongside other new features.
That is not stopping the challengers, which hope to disrupt the duopoly. On January 19th OpenAI said it was “on track” to unveil its device in the second half of the year.
Two days later it was reported that Apple was working on a wearable pin aimed at heading off whatever Mr Altman and Sir Jony are cooking up.
Meta, the world’s biggest social-media company and another model-maker, has been developing AI-powered smart glasses and is shifting resources away from virtual-reality (VR) headsets to speed the effort.
Amazon, the planet’s largest e-retailer, has rolled out Alexa+, its own AI assistant, to its Echo smart speakers and will soon do so to its Echo smart glasses and earbuds.
The next few years already look tough for smartphones. Yang Wang of Counterpoint Research, a firm of analysts, expects global shipments to fall by 6% this year, even worse than his previous forecast of a 2% decline, and does not see a rebound in 2027. In 2025 shipments grew by 2%.
Part of the reason is that prices for memory chips have risen sharply as investment in data centres has gobbled up supply. In the past 15 months the cost of the 12 gigabytes of DRAM commonly incorporated into a smartphone has risen by $70, reckons Mr Wang. Makers of cheaper phones will probably have to raise prices, weighing on volumes. But even Apple, whose iPhones are sold at a handsome profit, will feel the squeeze on margins.
That is compounded by another problem which Mr Wang calls the “foundry war”. Smartphone-makers such as Apple and Samsung have long been the biggest customers of semiconductor foundries like TSMC. But ground is now being ceded to Nvidia and other designers of AI chips, whose silicon is far more valuable—and thus more profitable for foundries to produce. As smartphone-makers become less important as customers, they may find it harder to secure the chips they need.
Apple’s and Google’s would-be disrupters are adding to the pressure. A potentially lucrative source of revenue is not the only thing the challengers stand to gain. Some have long-standing grievances with the smartphone tribute system.
Developers pay Apple a commission of up to 30% on purchases made through apps running on its operating system.
OpenAI, which currently earns the majority of its revenue from consumer subscriptions, must hand over a slice of any that are bought on an iPhone or Android device. Meta, which instead makes its money from ads, is spared this ignominy. But it has been looking for ways to reduce its dependence on the smartphone duopoly ever since Apple introduced a new feature in 2021 allowing users to opt out of having their activity tracked by developers across other apps and websites. This made it harder for the social-media giant to hoover up data.
Then there is the prospect of shifting consumers over to device forms that are better suited to the rivals’ business models. It is no accident that Meta is interested in smart glasses. With built-in cameras, lenses that can display WhatsApp messages and speakers that direct sound straight to the ear, the devices only make it easier for users to share what they are up to on social media and follow what others are doing. For Meta, more time spent on its platforms means more ad revenue. Amazon would likewise be delighted to have its Echo speakers in every home and its glasses on every face to gather more data for its ad business and make it even easier to buy from its marketplace. And OpenAI would be well served if people ditched their screens and relied on a chatbot to handle their interactions with the digital world.
For now, at least, the threat to Apple and Google remains Lilliputian. HSBC, a bank, estimates there are 15m users of smart glasses worldwide; Apple, which reported its latest quarterly results after we published this, is thought to have sold 250m iPhones last year alone. If its recent deal with Google helps Siri become less of an annoying clod, it could encourage even more people to buy an iPhone.
Meanwhile, makers of alternative devices have plenty of problems to overcome. Google’s smart glasses, released in 2014, were halted a year later partly owing to concerns that their built-in cameras meant users were violating the privacy of others. Those worries remain. There are technical difficulties, too. Whereas a smartphone can get reasonably warm without causing trouble for a user, glasses cannot. To be comfortable, they must also be lightweight, leaving little room for batteries. Overheating and a limited battery life were also among the reasons why an AI pin launched to much fanfare in November 2023 by a startup called Humane was a flop (the company folded last year).
Alex Katouzian of Qualcomm, a chipmaker, expects such “edge” gadgets to proliferate, but only with a supplementary “puck” or even a smartphone in the pocket doing much of the computational heavy lifting. Indeed, Meta’s Mark Zuckerberg has said he reckons that people who adopt smart glasses will not throw away their smartphones, but simply stare at them less. After all, the advent of smartphones did not stop consumers buying PCs.
Moreover, Apple and Google are hardly standing still. Besides its rumoured pin, Apple is also reportedly working on its own smart glasses, building on technology developed for its Vision Pro VR headset from 2024.
In October Google launched Android XR, a software platform designed to power VR headsets and smart glasses manufactured by Samsung and others. It also recently launched a new version of its smart speaker, powered by Gemini.
Perhaps the biggest consequence of AI for the device business may be to shift the distribution of spoils within the duopoly. By embedding Gemini across both the Apple and Android ecosystems, Google has the potential to access vast amounts of data to make its models cleverer still. The market value of Alphabet, Google’s parent company, recently shot past that of Apple (see chart). The iPhone-maker may come to regret handing it so much power.” [1]
1. The next big “thing”. The Economist; London Vol. 458, Iss. 9484, (Jan 31, 2026): 57, 58.
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