Apple has been wildly successful in the smartphone market for the past ten years, ever since late co-founder Steve Jobs introduced the original iPhone. With everything set for the new iPhone 8 event in September, there is one thing analysts expect to see past hardware improvements and additional innovations: Apple’s strategy regarding Artificial Intelligence.

“Apple is at least three to four years behind Google, Amazon, and Microsoft in AI in the cloud,” says Neil Shah, an analyst with Counterpoint Research. He argues that the company is still doing well with artificial intelligence at the edge, but there’s a lot to catch up when it comes to the cloud.

The analyst was pleased with what he saw at last month’s WWDC (Worldwide Developer Conference) where iOS 11 was previewed, and ARKit was introduced.

The race is on

CEO Tim Cook has recently confirmed Apple is working on autonomous systems, which is a massive AI undertaking.

“They know they are being left behind,” Neil Shah tells me. “They’re trying to do much more machine learning, and added support to VR and AR.” iOS users will benefit from these enhancements in the coming months but this is nothing new to Android users. “If they don’t get that right in the next two years, AI and AR/VR implemented well, I think Apple could be in trouble,” he warns. “Those are the three technologies right now which Facebook, Google, Microsoft are racing ahead of and creating new experiences.”

While the analyst recognizes Android has a security problem, Google’s mobile operating system has “the best artificial intelligence embedded in it,” as well as customization features and openness.

Apple has done well improving its hardware “but the services side has always been a challenge.” That is where Google has surpassed it.

Leveraging the iPhone brand

As the iPhone 8 reveal event approaches, rumors are running wild. The next iteration of the smartphone is said to have a super-sized screen, up to 5.8 inches, and a design overhaul that should keep things interesting for Apple’s installed base.

“They always want to make a really great device that their customers are going to love,” says Brian Blau, research VP at Gartner. “The features that are going to come forward are going to be usability features, ones that make the device more valuable to the user and come forward as easy to use but very sophisticated.” Even if Apple goes ahead and replaces the lightning connector with USB-C, as rumored, fans will accept the changes.

“Apple has a lot of brand loyalty with the customers,” says the analyst.

iOS vs Android

However, this might not be enough to break new ground in fast-growing markets. The iPhone was the best-selling smartphone in the fourth quarter of 2016, but Samsung regained the number one position in 2017. “With the iPhone 8, Apple is just following the trend set by dominant Android players,” says Neil Shah. He stresses that iPhone loyalty stands strong in key regions, such as the U.S. and Japan, but not in emerging markets. “In China, the iPhone hasn’t been growing for the last six quarters. Everyone is choosing hardware from Chinese players.”

This means that Apple’s ecosystem will not grow significantly in the next few quarters, whereas Android is fast expanding.

The iPhone remains strong in the premium market, while Android is taking up the bottom of the pyramid. “In the Indian market, just 4% to 5% of phones sold are above $600, and the best iPhone starts at $800,” Shah notes.

Brian Blau is a bit more optimistic. “Apple is bold in some of their choices, sometimes it seems an odd decision around different hardware features but after some time those decisions become de facto standards,” he argues. “That’s the power that Apple has.”