It’s a story that has played out many times in the history of China’s tech sector. Notoriously fierce competition means that whenever a new craze comes along, scores of rivals emerge ready to pounce.
Firms are then locked in a race to the bottom when it comes to pricing. The food delivery wars forced out smaller players over the years and led bubble tea — another consumer fad fallen prey — to be sold this month for as little as 1.68 yuan (less than 25 cents). A similar cutthroat market has left behind a trail of zombie cars in the electric-vehicle sector. Now the same forces are in full swing in the booming artificial intelligence industry.
The stakes could not be higher. The government is betting that the technology will uplift swaths of the economy. Eager to not be left behind, AI startups, including the so-called Little Dragons, are awash with funding, and even the Big Tech companies like Alibaba Group Holding Ltd. are going all-in.
For now, AI firms in China are focused on the tech industry’s classic playbook: scaling up userbases and racing for market share. But a key difference this time around is that nobody has actually cracked the key to getting consumers to pay. DeepSeek and open-sourcing breakthroughs have made some headway in cutting down on costs, but eventually something will have to give.
It has all undoubtedly spurred a vibrant innovation ecosystem and the widespread adoption of AI applications. But it has also forced players to slash prices and even offer services for free, making the industry’s path to monetization uncertain. The intense competition means the biggest risk for Chinese AI firms may not be Washington’s chip curbs or other external factors, but each other.
It represents a stark contrast to the dominance of a few large players in Silicon Valley. For example, China’s top 10 global AI chatbots generated just $1 million in revenue from Apple’s iOS app store in the last 12 months ending in May, Bloomberg Intelligence analysts wrote in a note last week. Most of this came from Baidu Inc.’s Ernie Bot, which stopped charging consumers in March. By contrast, OpenAI’s ChatGPT bot alone garnered iOS revenue of $669 million in the same period.
