The new AI battle adopts the old price war strategy

After OpenAI launched GPT Chat, Chinese technology companies large and small rallied with one goal: to outdo the San Francisco startup by launching Chinese-language chatbots, according to the South China Morning Post.
The results were mixed. Some Chinese tech giants have claimed to have achieved better results than GPT4 chat, the most advanced form of OpenAI, by asking questions in Chinese.
But with more than 200 models from a plethora of companies all vying for market share, Chinese AI companies can claim at least one other clear advantage: price.
In recent weeks, ByteDance, search engine giant Baidu, Alibaba Group and social media giant Tencent have all offered significant price cuts to their models, with some offering a variety of services for free.
The price war indicates a lack of competitiveness based on the merits of the models themselves, making them unable to attract customers at previous market prices, said Yu Yang, a computer science professor at the National University of Singapore.
In the United States, technology giants, such as Alphabet, Meta, Amazon and Microsoft, are also competing in the field of artificial intelligence by following the “lightning scale” guide that has become popular in Silicon Valley, which is to snap up users as quickly as possible, at the expense of revenue, to monopolize the market.
But even as they enjoy a “closed software system” that censors foreign internet services, Chinese companies face restrictions due to US restrictions on exporting advanced chips from Nvidia, whose graphics processing units have become essential for developing artificial intelligence models. Its spending capacity is also lower at the corporate level, compared to its peers in the liquidity-rich American market.
“Reducing prices for Chinese AI services is mainly aimed at attracting more customers and is more like a marketing exercise,” Xu Lei, CEO and co-founder of AI company SenseTime, told the South China Morning Post in an interview this week.
For his part, Wang Sheng, an investor at Inno Angel Fund in Beijing, said that this kind of “fierce” price competition is harmful to local AI startups. He added: “In terms of developing large language models, big tech companies are not necessarily better than startups. But what they are doing to gain a greater share of the market is hurting these companies.” Price wars arise because companies have limited options. It is always easier to compete on price than endless improvements to a model’s capabilities, according to Yan Lijie, founder and CEO of Shanghai-based MiniMax, one of China’s four AI “tigers.”