China 2020: Rise of the AI driven Services
Over the last two decades we have witnessed the rapid rise of tech in China, which is now considered a world leader with technology giants such as Tencent, Alibaba and Bytedance. Now there are more than 200 unicorns in China, second only to the US.
Historically, Chinese technology companies were largely known for imitating successful business models in the US (such as Alibaba compared to Amazon or Baidu and Google) in the first part of the century or the Internet 1.0 era. But today, during Internet 2.0 or the platform era, Chinese tech companies have started to truly innovate and, in some cases, even surpass their US peers. For instance, take Tencent’s evolution of the WeChat platform into the world’s first super-app.
As a country, China has huge advantages in the platform era, particularly with AI-powered services, due to having the largest population in the world that embraces digital life coupled with an enormous pool of engineers with a strong work ethic. Those engineers have access to a treasure trove of user data which can train more efficiently than elsewhere the AI models. In fact, China has the highest internet population in the world with approximately 802 million active internet users compared to around 300 million internet users in the US.
Bytedance’s Tik Tok phenomenon — which surpassed the 1B downloads milestone in early 2019 and is used in more than 100 markets worldwide — perfectly illustrates the rise of services powered by AI in China, and by consequence the capabilities of this nation in the domain. We believe that Tik Tok is just the first example of a major wave where new kinds of AI-powered services will completely revolutionize industries while developing also internationally. As we celebrate the Chinese New Year, here’s a look at a few of the areas we’re excited about the most in what has become one of the leading tech-centers in the world.
The Next BtoC AI Revolution in China: Education
As more and more industries join the AI revolution in China, one we’re particularly interested in is education. For instance, we invested in Dingdong Class, which is using AI to teach English to Chinese children between 4 to 12 years old. Dingdong has created 200,000 clips featuring interactive classes led by teacher avatars guided by AI. The company has provided 2 million courses, reached a community of 1,200,000 students, and in some days has even taught 30,000 English lessons under the supervision of only 2 teachers.
Given the lessons can be done with no variable costs, services like Dingdong can completely change the business model of the education sector and have a tremendous social impact by lowering the barrier and enhancing the equality of education in the country. In fact, over half of the students actually come from Chinese tier-3 or tier-4 cities, who otherwise wouldn’t have the chance to learn English. And similar to Tik Tok, Dingdong has the potential to reach a global audience and improve education all over the world, especially in emerging countries.
The “Factory of the World”: China’s advantage in AI and IoT
We also believe that China will begin to better leverage AI in everyday life due its current advantage in manufacturing connected devices. After being the “factory of the world,” China developed a leadership in its capacity to create connected devices with the best quality to price ratio. As there will be 60 billion connected devices worldwide soon, this advantage coupled with strong AI capabilities will enable the country to revolutionize “real life” just as it has done on the virtual web. And if the algorithms leveraging IoT devices can only be trained in local regions, China has again an advantage through the size of its population.
For instance, we invested in Lumi — Aqara (upward a pic of their Shenzen hardware laboratory), which is the leading home automation company in China, expanding now globally with partners as LG. With the vision to provide the smart home experience to common households as a utility service, Lumi has developed a portfolio of hardware devices and software to realize continuous connection among devices and humans. They now have over 10 million devices sold, from smart door locks, smart curtain controllers, human sensors and more. Based on its AI+IoT capability, Lumi is now able to transform an entire house into a smart home that is exceptionally adaptive to its residents. For example, they also offer a service that helps people or companies better manage their energy use in a building by automatically reducing consumption where it’s not necessary.
The Rise of AI-Driven Enterprise Software Continues
The example of Lumi energy management also demonstrates the continuous rise of AI-driven software in the corporate world. The adoption of AI technologies has been aggressive among the Chinese government and the enterprise, surpassing that of other countries. According to the 2019 Gartner CIO Survey, 59% of respondents from China have already adopted or will deploy AI in the next 12 months compared to the worldwide average of 37%.
At Cathay Innovation, we have been long believers in this massive trend being early investors in Ifchange, which is now considered the first real AI-driven SAAS company that has managed to scale in China. Ifchange is the leading platform for hiring, managing and digitizing human capital for the enterprise ; it provides a suite of SaaS tools to help recruit, evaluate, retain and empower human ressources. It now has more than 100,000 enterprises (of which about 6,000 are paying ones) on their HR platform, with about 35% of the large Chinese companies using it. On the people side ifchange maintains over 150 million resumes in China. Each day, Ifchange collects more than 500,000 HR actions and data on its platform to train its Natural Language Processing (NLP) and AI recommendation model. In Q4 2019, the company entered the blue-collar labor market as well, providing the tools to help small businesses attract employees more efficiently, while people benefit through the platform of a potential access to the potential jobs (permanent or temporary) offered by those companies (infields for instance as restaurants or delivery).
Another example of the acceleration of this trend within our own portfolio is Laiye Technology. Laiye, which was initially an NLP chatbot company, combined forces with Awesome Technology’s UiBot to power robotic process automation (RPA) and AI in over 200 companies. The company experienced significant customer acquisitions of 100 enterprise clients in just a few months and amassed one of the largest RPA communities in China with 220k users and 4k certified developers that continuously use and improve the platform. Laiye’s early success not only demonstrates the high adoption speed of these SaaS services but also the potential of such a vibrant community of Chinese engineers to revolutionize industries, similar to what we saw with e-commerce, making those companies some of the most innovative in the world. We believe that, by coupling efficiently AI driven chatbots with process automation software, Laiye has currently the most incredible vertical RPA offer in the world, also embraced by the most vibrant community ever seen in the field
Parting Thoughts
In conclusion, we have been amazed to see the rise of technology in China as the country has become the most digitized nation in the last 20 years, even leading in innovation in industries such as e-commerce. The speed of development of Chinese companies is especially impressive. Taking Pinduoduo as an example, the company has become the second largest player in e-commerce only 3 years after our investment and launching its social buying service on WeChat.
We now believe that a second wave of AI-driven services and software is coming, and it will change the lives of people — both in the digital and real world — and quickly revolutionize and modernize businesses in the coming decade. China is clearly moving towards a 21st century economy with high speed and the potential for massive scale, at the speed our invested Unicorn Momenta develops its self-driving car platform with as company mission to save one million lives on roads in the future
