Alibaba, Baidu spark AI price war

Hey, this is Zheping in Hong Kong. China’s intensifying competition in AI is reminding me of the good old days when I could get free coffees [View in browser]( [Bloomberg]( Hey, this is Zheping in Hong Kong. China’s intensifying competition in AI is reminding me of the good old days when I could get free coffees. But first... Three things you need to know today: • Samsung Electronics faces [first worker strike in its history]( • Activist investor Elliott takes a [$2.5 billion stake in Texas Instruments]( • Nobel laureate Paul Romer [cautions against AI hype bubble]( Here we go again There was a time when it was literally free for Chinese consumers to order a coffee, hail a taxi, or rent a dockless bike on their smartphone. It was our version of the Silicon Valley mania that lets startups use venture capital cash to become the Uber of pet food deliveries or whatever else they can dream up. A take-no-prisoners, spare-no-expense subsidy frenzy to get the most users. Well, those vibes are back, and the target demographic now are artificial intelligence developers. In what looked like a Black Friday for AI startups, Alibaba Group Holding Ltd., Tencent Holdings Ltd. and Baidu Inc. [announced]( a string of hefty discounts and deals on their cloud AI services last week. They’re selling their equivalents to OpenAI’s GPT models for enterprise clients — and doing it at rock-bottom prices to entice the largest number of users. Spending aggressively to grab market share was the go-to method for triumphing in China’s internet sphere over the past two decades, laying the foundation for gig-economy giants like [Meituan]( and [Didi Global Inc.]( (It also gave us the disastrous Ofo). But AI isn’t all about flash sales or marketing stunts. There’s little doubt about the commitment of China’s biggest tech firms to AI. They’re not only racing to create their own state-of-art AI models tailored for the country, we’re witnessing them also seeding the biggest possible startup scene by doling out billions of dollars of investments and cloud subsidies. Now that the incumbents are stoking the frenzy by drastically cutting the cost to access their AI models, startups are passing those cost savings on to end-users in a similar chase for market share. One example: you can earn a cash prize for creating an AI agent on Zhipu (a hot startup backed by Alibaba) to [write a love letter]( on your behalf. Others are offering free credits for using their AI models to build novel apps or tools. It’s the way these waves of tech tend to go, and in China in particular, pricing is a lever that company leaders are not shy about pulling, whether you are talking about the cutthroat smartphone market or the heavily subsidized electric vehicle arena. One voice of caution came this week from former World Bank chief economist Paul Romer, who cautioned companies and governments are at risk of overestimating how revolutionary AI truly will be, finding echoes of the crypto hype bubble of only two years ago. It’s not enough to just have a lot of computing power, the data and information required to train truly smart AI agents is simply not there, he said. Baidu’s billionaire founder Robin Li has argued, not dissimilarly, that there are too many AI models but too few AI applications in China. The focus is still on producing high-capacity tools and systems and not on how to create compelling products for people and businesses. He has a point. The flurry of investments into Chinese AI model builders can’t go on forever, especially when venture investors seek more assurances about payoffs given macroeconomic difficulties. In Silicon Valley, most AI startups are not trying to compete with OpenAI and its GPT. They’re working to build on top of it. China could use more of that mindset. We should also be mindful that all these aggressive cloud and AI giveaways from the big players make for a very precarious business model for anyone relying on them. The benevolence of the Alibabas of this world is finite, and though it may seem otherwise today, the hype for AI has its limits too. We know these things ebb and flow.—[Zheping Huang](mailto:zhuang245@bloomberg.net) One to watch [Watch Aya Kantorovich, co-CEO of August, interviewed on Bloomberg Television about the anticipation for Ether ETFs.]( Get fully charged Tencent’s DnF Mobile got off to a scorching start with [$140 million in its first week in China.]( Apple is opening its first store in Malaysia as it expands [operations and sales in Southeast Asia.]( France’s Mistral AI is taking aim at the US market as it [expands into OpenAI’s home turf.]( More from Bloomberg Get Bloomberg Tech weeklies in your inbox: - [Cyber Bulletin]( for coverage of the shadow world of hackers and cyber-espionage - [Game On]( for reporting on the video game business - [Power On]( for Apple scoops, consumer tech news and more - [Screentime]( for a front-row seat to the collision of Hollywood and Silicon Valley - [Soundbite]( for reporting on podcasting, the music industry and audio trends - [Q&AI]( for answers to all your questions about AI Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Want to sponsor this newsletter? [Get in touch here](. You received this message because you are subscribed to Bloomberg's Tech Daily newsletter. If a friend forwarded you this message, [sign up here]( to get it in your inbox. [Unsubscribe]( [Bloomberg.com]( [Contact Us]( Bloomberg L.P. 731 Lexington Avenue, New York, NY 10022 [Ads Powered By Liveintent]( [Ad Choices](