Apple's Acquisition of AI Startup Silk Labs Demonstrates the Company's Philosophy of Privacy First

Apple’s Preference for Artificial Intelligence Powered Devices and Services That Respect Your Privacy

Apple’s Approach to AI: Privacy-First

According to a Tuesday report shared by The Information, Apple has quietly acquired privacy-focused AI startup, Silk Labs. While Silk Labs is a relatively small acquisition as the company’s round of prior funding had raised $4 million only and had 12 employees, the purchase demonstrates a growing divide between Apple and other tech giants hotly pursuing artificial intelligence growth.

While companies like Google focus on providing the most accessible AI services with the hope that providing ease of use will overcome privacy concerns, Apple takes the opposite approach, insisting upon privacy. From taking photos to asking Siri questions or getting directions, users can be confident using Apple’s platform that their data remains private and that Apple does not gather their personal information to sell to advertisers or other organizations.

The Sense smart-home assistant launched on Kickstarter was the first AI product of Silk Labs and ran completely on local user devices. While Sense was never brought to market, the product reflected the same privacy-focused philosophy that Apple has taken regarding the use of artificial intelligence.

Google Focuses on Scale and Ease of Use at the Cost of Privacy

On the other hand, Google’s recent AI acquisitions, Onward and Dialogflow, are cloud-based services that employ natural language processing to communicate with customers at scale. Scale and ease of use are the dominant factors affecting Google’s approach to AI to work with its existing business strategy.

To Share or Not to Share?

A 2017 study by Deloitte discovered that a majority of Americans are not comfortable sharing their browsing and social media activity with companies. Nonetheless, the number of Americans who are willing to do so has still doubled from 2014 to 2016.

How will consumers respond as the race for AI dominance continues? Will the decision be based on technology performance, ease of use and scalability? Will consumers be more concerned about their personal freedom and privacy? Perhaps then, the popularity of AI platforms in the future will be determined more by philosophy than technology. Apple seems to think so.

Apple’s Patent for New Smart Headphones Can Detect How They Are Worn

Just by listening to a user’s voice, technology in Apple’s new headphones can help you ensure that you never put on your headphones the wrong way again.

Beats headphones on the Apple Store

The new headphone technology will be able to detect how the headphones are being worn, solving the problem that some users have of wearing the headphones the wrong way. Using an array of new microphones, the audio accessory will be capable of switching channels automatically.

Image via Apple

Addressing a Common Problem: Putting on Headphones the Wrong Way

In the patent application published on November 8th of this year at the United States Patent and Trademark Office, Apple’s team clearly describes the new technology’s purpose: "System and method for automatic right-left ear detection for headphones." The new headphones can thus detect how the person is wearing the headset, automatically readjusting so that the left-channel audio will play out of the left-hand ear cup and the right-channel audio out of the right-hand ear cup. At the same time, the headphones themselves are not labeled with left and right designations in the design or direct labeling like other manufacturers have chosen to do.

The new technology consists of a set of five microphones placed strategically around each earcup - front, back, top, below to the left of the earcup and one inside towards the user’s ear. The technology listens to the user’s voice, checking the volume and thus figuring out which edge is closest to the person’s mouth and thus determines the orientation of the headphones. After the orientation is determined, the audio signal is then fed into each of the ear cups appropriately.

Image via Apple

Another benefit of having multiple microphones is eliminating external noise when a person wearing the headset, makes calls or voice commands. Having five microphones in each ear cup of a pair of headphones would make it easier to isolate a person’s voice from background noise. In addition to making clearer phone calls, the technology would also help Siri better understand voice commands in varying surroundings. Apple has also filed a prior patent in October, "Electronic Devices with Configurable Capacitive Proximity Sensors," for proximity sensor electrodes in the earcup to hep determine the ear’s presence and shape to figure out if it is the left or right ear. Interestingly enough, the new technology can be used in a pillow to help figure out the way a person is sleeping.

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Beats headphones on the Apple Store

Dual Mode Technology: Speaker on the Fly

Apple has been working on several headphone improvements, ranging from its patent on “Spatial Headphone Transparency” which adjusts an audio feed to sound like it is coming from a person’s surroundings instead of headphones. Another idea for a headphone that can function as a speaker has also been proposed called a “dual-mode” headphone as well as headphones that have sensors useful for healthcare and sports fitness monitoring. This next-generation headphone design can transform a stereo loudspeaker automatically, offering new technology integrations for potential EarPods, AirPods or Beats models in the future.

Image via Apple

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Image via Apple

While Apple proactively files patents for many technology ideas, the company does not always necessarily develop these ideas into full-fledged products. However, headphones are potentially different given Apple’s keen interest in audio from iTunes to Apple Music, HomePod, Apple TV and now Apple’s own movie and TV shows. Well known industry analyst Ming-Chi Kuo also estimated in 2017 that Apple would sell 28 million AirPods or more this year.

Apple Has Record-Breaking September Quarter with $62.9 Billion in Revenue

Apple reported $62.9 billion earlier this month, with $37.2 billion in revenue from the sales of 46.9 million iPhones

Image via Apple

“We’re thrilled to report another record-breaking quarter that caps a tremendous fiscal 2018, the year in which we shipped our 2 billionth iOS device, celebrated the 10th anniversary of the App Store and achieved the strongest revenue and earnings in Apple’s history,”

— Tim Cook, Apple CEO

Apple’s sales results beat records and forecasts for the past three-month period for the last quarter of 2018, the highest growth rate in three years with earnings-per-share of $2.91 growing per year. All-time quarterly records were made with $62.9 billion is a year-on-year increase from $52.6 billion last year. Apple shipped out 46.9 million iPhones during the September quarter, with revenue up to $37.2 billion, increasing year after year.

The average selling price or ASP of the iPhone is $793, going up from the $617.99 ASP from just one year ago in 2017. Premium pricing for the Phone X, iPhone XS, and iPhone XS Max has been driving the ASP increase. Analysts estimate that Apple would sell 47.5 million iPhones in the fourth quarter within the range of 46.7-48.1 million.

Apple provided live streaming for its Q4 2018 financial results conference call on November 1, 2018. The webcast is available for replay for up to two weeks after.

“We concluded a record year with our best September quarter ever, growing double digits in every geographic segment. We set September quarter revenue records for iPhone and Wearables and all-time quarterly records for Services and Mac.”

— Luca Maestri, Apple’s CFO

iPad, Mac and Services Revenue

The iPad raked in $4.1 billion in revenue with 9.7 million units sold, lower than analyst expectations of 10.5 million for the quarter. Mac revenue was $7.4 billion, higher than a year ago. Apple services has grown to $10 billion, up from $8.5 billion in 2017 for the same quarter. The Services arm keeps growing fast with analysts expecting ongoing growth in the future.

Consolidated Financial Statements

Data Summary

Changes in Reporting for 2019

Apple surprised many when the company also announced that they would no longer be reporting iPhone, iPad and Mac unit sales in earnings reports. This surprised many analysts given that this data was used as an indicator of growth and ASP calculations. However, the decision makes sense when iPhone sales are slowing down, while ASPs keep going up.

Apple will report revenue, sales growth, and guidance as before. However, given that a unit of sale is very different today than it was eleven years ago, sales of Apple products do not represent completely the product’s business health.

“A unit of sale is less relevant today than it was in our past.”

— Luca Maestri, Apple CFO

Pricing varies by a larger range today such as the iPhone ranging from $449 (iPhone 7) to $1,449 (iPhone XS). Maestri also pointed out that segment competitors do not provide unit sales.  

For First Quarter of 2019

Analysts expect the first quarter of 2019 to also best records, with Apple predicting revenues of $89-$93 billion with gross margin between 38-38.5 percent. Operating expenses are expected at $8.7-$8.8 billion, while a tax rate of approximately 16.5 percent is expected.

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