The landscape of China’s AIindustry took a dramatic turn in 2024, with the rise ofKimi, a large language model (LLM) that ignited a new era of competition. Kimi’s success, driven by aggressive marketing and user acquisition strategies, hasled to a surge in traffic for other AI products, creating a short-lived boom in the market.
From March onwards, the top 10AI applications in China witnessed a significant increase in user traffic, with nine of them experiencing growth rates exceeding 40%. This trend, however, has raised concerns about the sustainability of this burn money for growth approach.
TheKimi Effect: A Shift in Competitive Logic
Kimi’s sudden popularity in February, with its user base doubling from January, served as a wake-up call for the industry. While everyone was focused on OpenAI, the path tosuccessful localization within the Chinese market remained unclear. Kimi’s success provided a blueprint: aggressive marketing and user acquisition through paid advertising.
This strategy, known as buying traffic, quickly became the norm, with companies like Baidu, Alibaba, and ByteDance joining the race to acquire users. This shift in focus, however,has tilted the playing field in favor of larger companies with deep pockets and established user bases.
The Rise of Big Players and the Cost of Acquisition
The influx of capital from large tech giants has led to a noticeable shift in the market. While startups initially dominated the top 10 AI applications, by July, onlytwo startups remained, with the rest being occupied by established players.
The success of Doubao, a large language model developed by ByteDance, exemplifies this trend. Doubao’s aggressive marketing campaign, with an estimated spending of over 1.24 billion yuan in June alone, propelled it to the topof the app store charts. This aggressive approach, however, has come at a cost.
The increasing competition for user attention has driven up acquisition costs. While Kimi’s average cost per acquisition was around 12-13 yuan in March 2023, it has now risen to 30 yuan in August, indicating a near-doubling of costs.
Beyond User Growth: The Importance of Paid Conversion
The focus on user growth, however, may be diverting attention from the true north star metric for AI products: paid conversion. Unlike mobile internet products, which rely on advertising revenue, AI productsare primarily driven by subscription models.
The value of AI lies in its ability to improve efficiency and productivity, offering new experiences and automating tasks. In this context, user retention rates are significantly lower than those seen in mobile internet applications.
While data on user retention is still emerging, early estimates suggest that retention rates for AIproducts are significantly lower than those for mobile internet products. This highlights the need to focus on metrics that reflect the actual value of AI products, such as paid conversion rates and subscription renewals.
The Future of AI: Beyond the Hype
The current burn money for growth strategy, while effective in attracting users, may not be sustainable in the long run. As acquisition costs rise and the market becomes increasingly competitive, the focus needs to shift towards building products that deliver real value and drive paid conversion.
The success of AI in China will ultimately depend on its ability to solve real-world problems and generate revenue through sustainable business models. Thecurrent focus on user growth, while important, should not overshadow the need to build products that are truly valuable and capable of driving long-term success.
Views: 0