[SAN FRANCISCO] Apple executives have held internal discussions about potentially bidding for artificial intelligence (AI) startup Perplexity AI, seeking to address the need for more AI talent and technology.

Adrian Perica, the company’s head of mergers and acquisitions, has weighed the idea with services chief Eddy Cue and top AI decision-makers, according to sources with knowledge of the matter. The discussions are at an early stage and may not lead to an offer, said the sources, who asked not to be identified because the matter is private.

Such a deal would help Apple develop an AI-based search engine, part of efforts to cope with the potential loss of a longstanding arrangement with Google. That partnership, which involves making Google the default browser on devices, generates roughly US$20 billion a year for Apple, and is now under threat from US antitrust enforcers.

To date, Apple executives have not discussed a bid with Perplexity management. Bloomberg News reported earlier Friday that Meta Platforms tried to buy Perplexity earlier this year.

“We have no knowledge of any current or future M&A discussions involving Perplexity,” the AI startup said. Apple declined to comment.

The Perplexity service provides real-time answers to questions using the latest information from the web. If Apple were to engage in talks to buy the startup, such a move likely would not happen until a decision is made in the Google antitrust trial. That’s when Apple would know whether its lucrative Google agreement may have to be unwound.

Google shares reversed gains and fell nearly 1 per cent in late trading after Bloomberg reported on Apple’s Perplexity discussions.

Perplexity recently completed an investment round that valued it at US$14 billion. A deal anywhere near that level would be the largest acquisition in Apple’s history. The company’s biggest transaction until now remains the US$3 billion takeover of Beats in 2014 – though Apple made more recent billion US dollar deals for Intel’s modem unit and a stake in Chinese ride-sharing company DiDi.

After Meta failed to reach an agreement with Perplexity, it bought a 49 per cent slice of Scale AI for US$14.3 billion. That deal is part of Meta’s attempts to create a so-called superintelligence AI team, which will now include Scale co-founder Alexandr Wang.

Perica and Cue, who both report to Apple chief executive officer Tim Cook, are leading the AI acquisition and recruiting efforts.

The hunt for talent is part of a bid to catch up in generative AI. The company was slow to deliver its Apple Intelligence platform and still lags rivals in key features. A revamped Siri was delayed indefinitely this year, with the company now aiming to have it ready by next spring.

Apple unveiled a relatively meagre slate of new AI enhancements at its Worldwide Developers Conference earlier this month. The latest features include live translation capabilities and a deeper partnership with OpenAI on ChatGPT-based image generation.

Buying Perplexity would give Apple an infusion of AI talent, a known brand in the AI space and a consumer product. A deal could also potentially assist with future recruiting efforts.

Apple has also discussed an alternative plan: teaming up with Perplexity instead of buying it. A partnership would involve adding Perplexity as an AI search engine option in Apple’s Safari web browser and integrating it into Siri.

Apple has met multiple times in recent months with Perplexity, and its AI team has been actively evaluating the technology – a sign that it’s at least considering a close relationship with the company.

One major snag in the process could be an in-the-works deal between Perplexity and Samsung Electronics, which plans to announce a deep partnership with the startup. Samsung is Apple’s biggest competitor in smartphones, and AI features have become a critical new arena for the two rivals.

In its statement, Perplexity said it should not be surprising that top manufacturers want to offer the “best search and more accurate AI for their users”.

“That’s Perplexity,” the startup said.

Cue, whose department includes Apple’s streaming services and iCloud, previously expressed an interest in Perplexity. While testifying at the Google antitrust trial in May, he told jurors that the industry is shifting away from standard Internet searches to AI tools. He outlined a scenario in which AI search engines could quickly supersede Google’s current offering.

“We have been pretty impressed with what Perplexity has done, so we have started some discussions with them about what they are doing,” he said. BLOOMBERG