Alibaba sparks China AI price war with spate of steep discounts

Alibaba Group Holding Ltd slashed prices for a clutch of artificial intelligence services by as much as 97%, spurring an immediate response from Baidu Inc in potentially the start of a price war in China’s nascent AI market.

Baidu Cloud said it would offer free services based on its Ernie AI models on Tuesday, hours after Alibaba offered deals on nine products built atop its own Tongyi Qianwen. ByteDance Ltd last week announced pricing for AI services that it said were 99% lower than Chinese industry norms, using Ernie and Alibaba’s Qwen as benchmarks.

The tit-for-tat manoeuvres mark the opening salvos of a price-based battle within AI, a field that’s attracting billions of dollars of investment from startups and internet leaders including Tencent Holdings Ltd. The flurry of investment has created scores of AI models and spawned many more consumer and enterprise products in turn, all fighting for the critical mass of users needed to speed AI development.

China’s tech companies have for years relied heavily on discounts across markets from ecommerce to food delivery and ride-hailing. Alibaba this year spurred a cascade of price reductions in cloud computing, after it offered discounts as much as 55% on more than 100 domestic services in March. That was followed that same day by rounds of discounts from rival JD.com Inc.

“Alibaba’s decision to cut pricing on its Large Language Models (LLM) by up to 97% will likely further disrupt China’s AI market, pushing the sector into a price war. The move is probably in response to ByteDance’s recently launched Doubao LLMs, which were priced at a deep discount to the market. We expect Baidu, Tencent and JD.com to respond in due course,” said Bloomberg Intelligence analyst Robert Lea.

Shares in Alibaba slid 1% while Baidu dived close to 4% in Hong Kong.

Chinese tech pioneers have joined Silicon Valley peers like Microsoft Corp in placing big bets on generative AI. Beside developing their own in-house foundation models, they’re pouring hundreds of millions of dollars into up-and-coming outfits like Baichuan and Zhipu AI.

Alibaba has gone through a year of tumultuous restructuring to try and claw back users for its cloud business, which also hosts its main AI effort. It stunned investors by calling off a planned spinoff of the arm into an independent, publicly traded unit.

The Hangzhou-based company – now under the helm of chief executive officer Eddie Wu – has focused on growing its public cloud, the domestic services arm aimed at enterprise customers. It’s gone through a major revamp to stem market share losses to traditional rivals like Baidu and Tencent as well as state-backed entrants and relative newcomers like Huawei Technologies Co. – Bloomberg