Voice Battle: China vs US in a Conversational AI Race

Businesses and governments are turning to AI to make cities safer, shopping experience greater, data more efficient, and health care more valid. It was natural, that dispute raged and still rages today, about who’s going to lead in the new AI Tech Era.

Although the latest forecasts on Artificial Intelligence and the market leadership didn’t look good for the US, no one really expected that the situation would escalate so quickly. This May Canalys published research saying the US no longer leads the smart speaker market. According to this data, China’s smart speaker shipments grew by 500% in Q1 2019 to overtake the USA and achieve a 51% market share. So now there are more Chinese smart speakers and assistants? Does it mean American tech giants are losing first place? Who’s going to win in the conversational AI race after all? To answer those questions correctly, the whole situation should be examined very carefully.

How did that happen?

Amazon brought its full weight to corner the conversational AI market, and companies worldwide responded to Amazon’s market dominance in different ways. For example, Apple (usually not given to bring down the price for its products) dropped the price of HomePod.

Google conversely put its stake on the huge global base of Android smartphone owners and started the aggressive development of its multilingual Google Assistant in all key countries. Also, by presenting Interactive Canvas at Google i/o 2019, it became the first to give developers full access to managing full-screen visual content on their smart displays. Besides, the company released a cost-effective Home Mini to win new customers, willing to try out voice interfaces. Also, the company forged a partnership with Spotify, so that Spotify Premium customers could get Home Mini as a free promotion. That’s a smart move, for Premium user-base accounts for almost 90 million users. So even if a pocket of it would take advantage of an offer, a sheer number of Google smart speakers will enter the market.


And now there’s Mainland China with a host of smart speakers of all kinds. How did China get out in front so fast and so sudden? There are many reasons. One of them — China reached its 10.6 million units shipments due to the intense festive promotions — and Baidu contributed most significantly to it. The company had a deal with a national TV channel on the biggest TV show happened to be the Chinese New Year’s Eve. And Alibaba had the biggest selling on a shopping holiday Singles’ Day — a perfect date to buy a virtual friend, isn’t it?

Despite the Chinese disconnect from the rest of the digital world, China’s tech companies, especially the great BAT (Baidu, Alibaba, and Tencent), are pushing their limits and looking for new profitable spheres constantly. They are heavily investing in cloud services and entertainment and they are positioning themselves to become the AI platforms of the future. Well, perhaps this future is not so far away — the growth of the China market is expected to lead the world at 166% in 2019.

Besides, Baidu is the country’s largest provider, Alibaba is the biggest e-commerce platform, and Tencent created WeChat, so it has access to personal data of over 1 billion users. BAT’s capabilities are quite similar to those of FAMGA (Facebook, Amazon, Microsoft, Google, Apple), and all the tech giants are trying to get the best advantage of the data they have.

When it comes to smart speaker manufacturers in China, the big three comprises Xiaomi, Alibaba, and Baidu. They are driving the super-fast development and they do it pretty smart: they know very well how to get the traffic and they spend triumphant budgets to reach critical installed base fast.

Just like American tech leaders, China’s are also expanding into other countries, Asian mostly. But what’s more important — these companies are heavily investing in US AI startups, apply for voice patents in the surrounding nation, and recruit US and European talents, offering much higher salaries in the AI and machine learning fields.

What do they do?

China’s major advantage is a wide variety of voice-enabled devices. That means anyone can create their own assistant if they have the brains for it — finding a covering won’t be a problem. That’s why the smart toys market is so vast there, the brain of a toy may be the same, but the coverage may be of any kind — a doll, a robot or a plushie.

Since China’s tech leaders turn their focus mostly on the home market, smart speaker vendors resolve to develop niche products. Some of them, like Libratone, sell smart speakers with high audio quality; while some other vendors sell children toy robots, like Cheetah Mobile. Yet some vendors sell devices targeting a small segment, case in point: Holoera sells a hologram display smart speaker targeting teenage girls. And high-profile NLP startup Mobvoi sells a mobile smart speaker.

Talking of smart speakers, in particular, Chinese manufacturers are targeting different price points. The price ranges from sub-100 RMB (≈$13) for simple speakers to around 500 RMB (≈$72) for high-ends. Market leaders are always looking for a new application. For example, Alibaba takes its speakers far beyond smart homes, quipping 100,000 Marriott International hotel rooms to provide concierge services.Baidu’s Xiao Du At Home

Special attention is given to the assistants with smart screens. In March 2018 Baidu released the first model with a screen, jointly developed with XiaoYuAtHome. Then all the other models from major competitors followed suit within the space of a few months. These include Ali’s TMallGenie CC, Baidu’s XiaoDu At Home 1S and 1C, and Xiaomi’s Xiao-I Touchscreen Smart Speaker. Smart displays are a big hit in China too and they help to drive some of the increased sales volumes.

Smart displays such as Google’s Home Hub, Amazon’s Echo Show and Baidu’s Xiaodu Zaijia are proving popular with consumers who are attracted by the combination of audio and visual stimulus and the wider range of use cases compared to the speaker only devices. Smart displays made up more than 10% of total shipment demand in Q4 2018 and they are expected to be a significant driver of growth in the market through 2019

David Watkins, Strategy Analytics Director

What strategies do they follow?

US big tech companies apply different strategies to gain new customers: open ecosystems, competitive incitements for third-party developers, encouragement to build engaging skills, and sacrifice sales. The situation in China is close enough. Tech giants engage in heavy discount promotion in order to move millions of their speakers. For instance, top-selling TMall Genie is probably selling at cost price, because for approximately $72 you get a smart speaker with 7” inch IPS display, two bands WiFi, one 8 megapixel camera, and a 5000 mAh battery. This merciless play has been very effective in staving off all other players, and allegedly wiped out tens of non-branded manufacturers.

There was at a time the market was in a state of “Hundred Boxes War” — tens up to a hundred vendors were selling so-called smart speakers, attempting to emulate oversea vendors’ success. But now, that has ended.

Even China’s heavy-weight Tencent has recently lowered the price for its smart speaker with a display from RMB 899 ($130) to RMB 699 ($100), which is still $15 above the top of the lines from Ali and Baidu. And the rumor that Tencent is discontinuing its smart speaker without a display is rampant starting this February. The rumor went like Tencent could not figure out how to align smart speakers with their bread-and-butter gaming products. Too bad — smart speaker doesn’t bring Tencent the same success as WeChat did.

The top three also compete in their contents offering. While Baidu is claiming an audio content of 30 million programming items, Alibaba is bolstering an archive of 10 million songs and 100 million audio/video contents strong. XiaoMi claims of (just children contents alone) an arsenal of 30 thousand video contents, 2.2 million photos, and 220 thousand of animation video. We at Just AI believe, that content providers may likely be the first one to find profits from this market, either through subscription fees or embedded advertisements in the near future.

For anyone who grew up with the China Internet industry, it is clear that the smart speaker industry is in its early stage, where big players shell out cash to build up the industry, squeeze out small players, and only after that, they’ll start harvesting profits.

What China is missing though?

Today China’s really missing brainy scientists, engineers, and mathematicians, that’s why county’s tech giants are tapping talents from the US, Europe, and Russia. According to China AI Development Report 2018, released by the Tsinghua University by the end of 2017 China was home to 18,232 AI talents accounting for 8,9 % of the world’s total talent, well behind the US (13,9 %). Besides, the same report pointed out the country’s shortage of top-level AI researchers. To solve this problem the State Council’s launched an extensive 5 years plan to outline a two-pronged gathering and training approach. On a domestic level, 500 professors and 5,000 students will be trained in the best universities, while China’s tech giants have set up their own overseas AI institutes to recruit foreign talent.

Another challenge for China’s market leaders — lack of foreign language user data that could help them to train their algorithms. But the solution had now been found — Chinese companies are working on international expansion and conclude partnerships with big data companies. It’s a safe bet, more international partnerships, investments, and acquisitions will change everything.

If everyone is moving forward together, then success takes care of itself

China is the world’s largest market with nearly 1,4 billion consumers. Nation’s strategy to build up a digital-first economy had led to a large amount of available user data that tech companies have access to. Most people are fine with that, these days they are embracing AI technologies since childhood and feel completely fine with it.

The Chinese market is very promising and US companies are keen to break into it — American research labs and patent agreements are a testament to that. All the major brands got global ambitions. We believe, that this competition shouldn’t be taken as a technology war. This is a great chance to work together, combining technological efforts for the purpose of a better world. This is a great opportunity to make big money too, e.g., China’s manufacturers offer a massive number of smart speakers, smart displays and other smart devices where your own digital assistant may be embodied. You can create a customized assistant or develop skills for existing assistants. You can start improving the infrastructure of a young market or use new technologies to communicate with existing customers. And you can find your own way, which builds up to the global rise of Conversational AI.

All Rights Reserved for Hayden Hong

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