“New AI Battle Adopts Old Price War Strategy As Chinese Tech Giants Keep Start-Ups at Bay behind the Great Firewall”, 2024-06-01 ():
The price of AI services in China plummeted in May after ByteDance kicked off a price war by pricing access to its LLMs at 99.8% below GPT-4
Industry insiders fear the harm could be fatal for many start-ups, but app developers are enjoying cheaper access to the tech powering their services
…The results have been mixed, with some tech giants claiming to have better results than GPT-4, OpenAI’s most advanced model, with Chinese queries. But with a deluge of more than 200 Chinese large language models (LLMs)—the tech powering these chatbots—from a slew of companies all jostling for market share, China’s AI firms can claim at least one other clear, albeit less boastworthy, advantage over their US counterparts: price.
In recent weeks, TikTok owner ByteDance, internet search giant Baidu, e-commerce conglomerate Alibaba Group Holding and social media behemoth Tencent Holdings have all drastically slashed prices on their LLM services, with some offering a variety of services for free. One premium offering from ByteDance’s Doubao Pro costs as low as 0.0008 yuan (0.011 US cents) per 1,000-token prompt, 99.8% less than what OpenAI charges for GPT-4 access…Other Chinese tech heavyweights were quick to respond. Alibaba, owner of the Post, was the first to react, dropping the price of its Tongyi Qianwen (Qwen) service by as much as 97 per cent, from 0.02 yuan per 1,000-token prompt to 0.0005 yuan, or 0.0003 yuan cheaper than ByteDance.
Several companies including Baidu, Tencent and iFlytek, an AI specialist known for its audio recognition technology, followed with even more drastic price cuts, some offering access to their less powerful LLMs for free.
“It’s like the bad money is driving out good money”, said You Yang, a computer science professor at the National University of Singapore (NUS). The price war indicates a lack of competitiveness based on the merits of the models themselves, according to You, making them incapable of attracting customers at previous market prices.
Cost of LLMs as of May 2024. Provider Model Type Cost (yuan/1,000 tokens) ByteDance Doubao-pro-32k Input 0.0008 Output 0.002 Alibaba Qwen-Long Input 0.0005 Output 0.002 Baidu Ernie 4.0 Input 0.12 Output 0.12 Ernie Speed Free Ernie Lite Free Tencent Hunyuan Standard Input 0.0045 Output 0.005 Hunyuan Lite Free OpenAI gpt-4-turbo[?]Input 0.22 Output 0.43 gpt-4oInput 0.036 Output 0.11 …“The price reduction [for Chinese AI services] mainly aims to attract more clients and is more like a branding practice”, Xu Li, CEO and co-founder of Hong Kong-listed AI company Sensetime, told the South China Morning Post in an interview this week.
…Wang Sheng, an investor with Beijing-based InnoAngel Fund, said this kind of “vicious” price competition is hurting local AI start-ups. “When it comes to developing LLMs, Big Tech companies are not necessarily better than start-ups”, Wang said. “But their practice of subsidization to grab a bigger market share is detrimental to these firms.”
Alain Le Couedic, senior partner at AI investment house Artificial Intelligence Quartermaster (AIQ), suggested that the price competition will pay off for some over time. “The race for dominance in the market is a sign that many players see attractive opportunities down the road, even if this requires some pain in the short-to-mid-term”, he said. …“It’s not far-fetched to imagine that we’ll see over a 3-year horizon … maybe a 10× improvement in inference efficiency broadly across AI”, he said.
…Robin Li Yanhong, founder and CEO of Baidu, said in April that the efficiency of training its flagship Ernie LLM improved 5.1× within a year. The model’s inferencing performance increased 105×, reducing inferencing costs by 99 per cent.
ByteDance also said it cut prices because it is confident in being able to reduce its costs through technical improvements.
Wherever profits stand, tech companies have been quick to attribute rising revenues to the AI boom. Alibaba Cloud said its 3% growth in the March quarter was buttressed in part by AI-related income that accelerated growth. Baidu Cloud reported 12% revenue growth in the same quarter, with generative AI and foundation model services accounting for 6.9% of total AI cloud revenue…Alibaba declined to provide data on the growth in usage of its LLMs after its recent price cut, but the company said that the number of calls to its Qwen application programming interface (API) from a top Chinese recruiting firm spiked 100× within a week.
…Meanwhile, start-ups that are in a position to do so are trying to sit out the price war. Beijing-based Baichuan and 01.AI—a company established by Lee Kai-fu, a Taiwanese computer scientist who previously headed Google China—have dismissed the idea of cutting prices.
The NUS computer scientist, You, noted the benefits of low prices for app developers, but he cautioned that these applications might not perform well if built on subpar foundation models. Despite this, the price war has emerged because companies have limited options. Competing on price is always easier than endless improvement to model capabilities, according to Yan Lijie, founder and CEO of Shanghai-based MiniMax, one of China’s 4 “AI Tigers”. “[Reaching] the upper limit of a technology is less certain and requires more exploration”, Yan said in a fireside chat published by Chinese technology news site Geekpark on May 23. “Whereas there is always a way to cut price.”
Counterpoint’s Lam said that price competition may be inevitable for companies looking to maintain dominance in AI services as the market becomes increasingly crowded.