Alibaba is expected to highlight its AI strategy with its quarterly results on August 29. However, like peers Tencent and Baidu, it may struggle to show that its heavy AI investments are delivering strong returns.

Revenue is forecast at 252.9 billion yuan (US$34.7 billion), up 4% year-on-year, while its cloud business is projected to grow 4.3% quarter-on-quarter to 31.4 billion yuan (US$4.4 billion), reflecting slowing momentum.

Chinese tech firms have poured billions into AI since 2022, but monetization remains difficult.

Consumers are resistant to subscription-based models, and intense competition has forced steep cuts in API fees.

Some firms, including Alibaba, have even open-sourced their models, adding further pressure on potential enterprise revenue.

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🔗 Source: Reuters

🧠 Food for thought

1️⃣ Cultural resistance to subscriptions creates monetization challenges for Chinese AI companies

Chinese tech giants face a fundamental challenge that their Western counterparts don’t encounter: user resistance to paid subscription models.

Unlike Western markets where consumers readily pay for AI services like ChatGPT Plus, Chinese users have shown strong resistance to subscription fees, forcing companies to reconsider this revenue model1.

Baidu’s experience illustrates this—the company launched its Ernie chatbot with a 59.9 yuan monthly subscription fee in late 2023, but discontinued the paid service just four months later in April due to poor user adoption1.

This cultural difference has led Chinese AI companies to focus more on enterprise customers through API services, creating a much more competitive and price-sensitive market.

The challenge is particularly notable because subscription models have proven highly profitable for Western AI companies, but this revenue stream is significantly limited in the Chinese market.

2️⃣ Extreme price competition is reshaping China’s AI industry economics

The API pricing war among Chinese AI companies has reached intense levels, with some companies significantly reducing prices within a short period.

Alibaba cut its Qwen-Long model API pricing by 97% to just 0.0005 yuan per thousand tokens in May, followed by ByteDance reducing its Doubao model prices by 63% to as low as 2.6 yuan per million tokens1.

DeepSeek’s pricing of 1 RMB per million input tokens highlights costs that are much lower than Western competitors, creating a highly competitive and deflationary market environment2.

This price war intensified when multiple Chinese companies committed to open-sourcing their AI models, reducing enterprises’ incentive to purchase similar commercial models from cloud platforms1.

The result is a market where companies are prioritizing user acquisition and market share over immediate profitability, contrasting with the Western AI market’s focus on premium pricing and margins.

Recent Alibaba developments

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