Mark Gurman:

Apple is not specifically planning to launch an iOS 5 application that relies on their face detection technology, but plans to do something much more important. Open up facial recognition as a public developer API for iOS 5 applications.

I bet Apple does use face detection in one of their most prominent apps on the iPhone: the camera. Not so you can tag friends, but so you get that fancy ‘focus on faces’ mode that is popular in point and shoots.

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