Integrating generative artificial intelligence into the smart device ecosystem

Generative artificial intelligence (GenAI) reshapes the competitiveness landscape of the smart-device industry. However, the consequences of GenAI integration into smartphones, laptops, and intelligent systems remain unclear. We develop a game-theoretical model to analyze the strategic decision of GenAI integration in the associated ecosystem. We consider the ecosystem includes a smart-device manufacturer, a GenAI developer, and consumers. The GenAI developer offers a free basic version with usage limits and a premium subscription with unlimited access and enhanced service quality. The manufacturer may choose to seamlessly integrate the basic version into the smart device, thereby providing consumers with more convenient access to GenAI. Our findings indicate that when the technical cost of integration is low, GenAI integration enhances the consumer experience, reduces the subscription fee, and increases overall demand. Conversely, when the technical cost is high, these benefits are diminished, potentially cutting profits for the manufacturer or developer. We identify the feasible ranges within which integration is profitable for each stakeholder, thereby enabling a triple-win outcome for the manufacturer, the developer, and consumers. Notably, our analysis reveals a “GenAI integration trap”: despite improving the consumer experience, integration may harm all stakeholders when the technical cost is high. Overall, our findings suggest that GenAI integration is not always a dominant strategy. The manufacturer should carefully evaluate it based on the technical cost and the incentive contract. Our study offers new theoretical perspectives on AI deployment for the smart device ecosystem.