ChatGPT is the most famous language model, but not the only one. Chinese tech giants like Alibaba, Baidu, and ByteDance have their own artificial intelligence (AI) assistants and are in a full price war to attract users. It seems that their ambitions have no limits, as the discounts they have offered to companies to choose them have reached 99%. These companies want to secure clients in the booming AI business. Not only for its growth in itself, but for the revenue it can generate for other services of these companies, like the cloud.
Chinese firms are dropping prices. It is their aggressive strategy to gain market share. Alibaba has lowered the price for corporate clients of Tongyi, its ChatGPT, by 97%. ByteDance has carried out discounts of 99% in its language models compared to the industry average, and Baidu, directly, has started offering it for free to companies. These tools set a price per token (the unit of measurement), similar to setting a price per processed word, although tokens can be smaller, such as syllables or punctuation marks. In English, each of them is equivalent to four characters. For example, Alibaba has gone from charging 0.02 yuan for every 1,000 tokens to 0.0005 yuan.
“AI language models have become the latest battleground between Chinese tech giants,” says Luca Menozzi, an analyst at Julius Baer. According to the latest figures from the company itself, Alibaba’s Tongyi has 90,000 corporate clients. Ernie, Baidu’s assistant, has been hired by 85,000 companies. ByteDance has not broken down the figures for Doubao, its version of ChatGPT.
In China, regulators have to approve the language models of these companies and, for now, there are around 40 authorized. This number reflects that there is competition in the market, which will continue to grow as authorities keep reviewing and approving more proposals. ByteDance or Baidu got the green light last summer, so these products have been on the market for a short time.
AI assistants are the latest protagonists of the price war among Chinese tech giants, as previously they have launched aggressive discounts in other categories, such as computing services. Although this rivalry may be good in the short term for the end user, it poses a risk for the companies’ long-term margins, if they maintain these practices over time, as the necessary infrastructure for these services implies a huge investment, Menozzi clarifies.
But this is not the only risk, as the popularity of AI can end up turning it into a commodity, leaving little room for such large discounts. “There is a risk that large language models become commodities, leaving developers with little pricing power,” explains the same analyst.
Beyond this particular practice to attract clients, what the Chinese giants are really looking for is to position themselves in AI and all that it implies. Besides the fact that it is a booming business, this fattens up other key services of tech companies, like the cloud.
Alibaba’s CEO, Eddie Wu, explained this at the company’s latest earnings presentation. “We have seen a rapid increase in demand for AI among our customers since the beginning of 2024. This also has boosted demand for more traditional cloud services, such as general computing, storage, and big data. That’s why we are actively investing in all of our cloud products and, especially, in AI infrastructure. We want to capture the immense opportunities this offers,” he stated.
In addition, Wu detailed that revenues from AI are growing at triple digits in the current quarter. If one of their clients, for example Xiaomi, hires their language model, it is very likely – if not certain – that, in the short term, they will have to hire more cloud capacity. But Alibaba’s strategy is also the opposite, offering Tongyi to corporates and then having them contract their cloud.
Baidu is following the same path. Its CEO, Robin Li, also said during the last earnings presentation that AI was what had driven revenue for the cloud division as a whole. He explained that the company was focusing its efforts on developing Ernie, since they believe these tools are going to be fully integrated into people’s lives. “That should provide Baidu with even greater opportunities in the future,” he anticipated.
ByteDance, Tiktok’s parent company, is a private company, so not many details are known about the company’s strategy or intentions. In any case, they are all competing to win over corporate customers with their language models and also to win favor with individuals.
