The digital devil you know.

Apple is in discussions with Google about integrating Google’s generative AI software Gemini into its hardware offerings, sources told Bloomberg. That might initially seem counterintuitive: Google is Apple’s only competitor when it comes to operating systems on phones. However, it wouldn’t be their first deal — in fact, the way Apple has previously baked Google products into its iPhones has been the subject of intense antitrust scrutiny.

Strange Bedfellows

Apple has been characteristically tight-lipped about how it plans to hop on the generative AI hype train. But it feels like the company was caught off guard as the AI boom started to blossom. Apple’s secrecy around its generative AI strategy managed to cheese off both investors worried about its safety, and investors jonesing for the company to keep pace with other Big Tech companies.

Apple CEO Tim Cook said last month that generative AI features would come to its devices sometime this year, and Bloomberg’s reporting suggests it’s looking to outsource the endeavor rather than build the software in-house. Sources told Bloomberg that Apple had also held talks with OpenAI, the company behind ChatGPT. If Apple does end up striking a deal with Google, however, that could be a red flag to antitrust regulators:

• During the Department of Justice’s antitrust lawsuit against Google last year, a key area of focus was a deal that Google had struck in 2003 with Apple which set Google’s search engine as the default search engine on Apple’s Safari browser. It emerged during the trial that Google pays Apple as much as $26 billion per year to keep that deal in place.
• This deal, prosecutors argued, helped cement Google’s considerable dominance in the search engine market. The trial wrapped up in November and the judge set closing arguments for May this year, so we have a couple of months before we find out how well the DOJ made its case.

A new generative AI deal would presumably cut in the other direction, with Apple licensing out Google’s tech, but bear in mind that Microsoft recently paid news organization Semafor to integrate ChatGPT into its output. 

Regulatory Gravitational Pull: Apple is in the process of beating a fairly tactical regulatory retreat in the EU. Last week, the iPhone maker announced it would scrap a long-standing policy that prevented people from using its devices to download apps off the web, meaning they had to use its bespoke App Store. That came just a week after the EU slapped Apple with a $2 billion fine over how the company dictates terms to music streaming apps. You just gotta keep walkin’ it off, Apple.

Restructuring a company with 455,000 employees worldwide is a head-spinning task. Thankfully, these are accountants we’re talking about. 

Deloitte, the biggest of the world’s Big Four accounting firms, is undergoing a massive organizational restructuring, the Financial Times reported on Monday. The group, presumably, did some good note-taking during rival Ernst & Young’s failed restructure-and-split-off last year.

Account to Four

What those versed in corporate-speak call reorganizations is what the rest of us simply call “cost-cutting.” And at Deloitte, the motivation behind the restructuring is no different. Not that it seems completely necessary either: In 2023, it reported revenue of $65 billion, a 15% jump from 2022. However, that was a slower growth rate than the 22% top-line spike from 2021. 

Translation: Deloitte is at the tail end of a massive growth spurt that saw it firmly cement itself as the industry’s biggest player. And with likely headwinds in the year to come, the company is looking to simplify: 

• According to an internal email seen by the FT, the new-look Deloitte will center around four business units, down from five previously: audit and assurance; tax and legal; strategy, risk and transactions, which will house its M&A business; and technology and transformation. 
• The changes will save costs, but how much has yet to be calculated, according to a source who spoke with the FT. In the email to staff, Global CEO Joe Ucuzoglu, who is leading the reorg, said the moves are intended to allow partners to spend more time with clients and less time managing internal staff.

The Ernst, The Young & The Restless: Change is hard for anyone, and the planned restructuring is apparently “a fairly divisive topic internally,” one former partner told the FT. Still, Ucuzoglu is deliberately choosing not to repeat the mistakes of EY’s blundered restructuring, when plans to split its audit and consulting firms into two separate businesses fell apart as leaders couldn’t agree on how to split up the tax business. ​“While some others in the market are looking to break this function apart, we believe that our fully integrated suite of tax and legal capabilities is a significant source of strength and differentiation and aligns with the needs of our clients,” Ucuzoglu wrote in his email to partners. In the world of the Big Four, “stay together for the tax accountants” seems reason enough to avoid divorce.

Everything’s bigger in Texas — even housing bubbles.

Once the poster child for pandemic-era migration, home prices and apartment rents in Austin, Texas, are now falling faster than anywhere else in the US, according to a Wall Street Journal analysis published Monday.

Keep Austin Relatively Affordable

Austin’s housing market truly exploded. Between the start of 2020 and the spring of 2022, home prices leaped by 60% as startups and massive tech companies alike flocked to the quirky Texas capital, dramatically raising the city’s per capita income in the process. Investors rushed in, too, dropping nearly $10 billion to snap up apartment space in 2021, according to MSCI Real Assets.

But there’s also been a building boom, and a major slowdown in population growth — two key ingredients for bursting the housing bubble:

• Home prices have fallen 11% since a peak in 2022, according to the Freddie Mac House Price Index. That’s a bigger dropoff than any other US city.
• Rents have similarly fallen around 7% in the past 12 months, also more than any other city, according to data estimates from listings website Apartment List. Some landlords, according to the WSJ, are offering weeks of free rent. 

Ashes to Ashes: Just as Austin proved a bellwether for covid-era migration trends that sent home prices in many Sun Belt cities soaring, it could prove to be a trendsetter in the other direction as well. Fellow pandemic boomtowns Phoenix and Nashville have also seen prices begin to dip. Meanwhile, homebuilder sentiment on the National Association of Home Builders/Wells Fargo Housing Market Index hit its rosiest level on Monday since July, signaling that demand for new homes may be starting to return. Now, if only Jerome Powell could finally lower those interest rates…