Alibaba's AI Strategy: Massive Ad Spend to Dominate Crowded Market

Chinese artificial intelligence (AI) companies, including tech giants Alibaba Group Holding BABA and ByteDance, are investing heavily in advertising to gain a foothold in the competitive AI market.

In the third quarter alone, these companies spent over 500 million yuan ($70.2 million) on promotional campaigns for various AI applications, SCMP reports.

Among the big spenders, Alibaba allocated nearly 200 million yuan to promote Quark, a cloud storage and online search platform enhanced with generative AI features.

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Spending on its ChatGPT-like service, Tongyi Qianwen, was notably lower at 4.5 million yuan. A Tongyi Qianwen spokesperson disputed this figure, SCMP says.

The significant marketing budgets have sparked concerns within China about the sustainability of such high spending.

Chinese AI startup Moonshot AI, backed by Alibaba and Tencent Holdings TCEHY, is among the top ad spenders, with approximately 150 million yuan devoted to promoting its chatbot.

The company's substantial ad budget reflects the increasingly crowded AI market, where hundreds of chatbots are vying for user attention. However, a source close to Moonshot told the SCMP that AppGrowing's data on the company's ad spending is exaggerated.

Yan Junjie, CEO of Shanghai-based AI firm MiniMax, highlighted a fundamental difference in strategy between Chinese and U.S. AI companies.

While American companies rely on product capabilities to attract users, Chinese companies heavily invest in online marketing to differentiate their offerings.

Chinese tech giants Alibaba, Tencent, and Baidu Inc BIDU spent $7 billion on AI-focused infrastructure and processors in the first half of this year, a significant rise from last year.

Despite increased spending, China's AI capital investments lag behind U.S. firms like Alphabet Inc GOOG GOOGL, Amazon.Com Inc AMZN, Meta Platforms Inc META, and Microsoft Corp MSFT, which spent $106 billion. Wedbush analyst Dan Ives projected $1 trillion in AI capital spending by U.S. tech giants, with Nvidia Corp NVDA a key beneficiary.

Price Action: BABA stock traded lower by 2.93% at $96.31 at the last check on Wednesday.

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