10 Big Lessons in Chinese AI – From Kai-Fu Lee’s Book AI Superpowers (Pt 2 of 2)

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This is Part 2 of the 10 things I learned for Kai-Fu Lee’s new book AI Superpowers. My first five are in Part 1. Here are the rest.

Lesson 6: AI is a competition between batteries and grids.

Dr. Lee had some particularly interesting comments on how AI companies are competing. He says the big AI giants (Google, Amazon, Facebook, Alibaba, Tencent, Baidu) are mostly focusing on creating “AI grids”. These will be similar to electricity grids in that everyone will get access to general and likely commoditized AI capabilities. Machine learning will be a standardized service that can purchased by any company – or can even be given away for free for academic or personal use. He says “these platforms – Google Alibaba, and Amazon – act as the utility companies, managing the grid and collecting the fees”

However, start-ups are focused on creating “AI batteries”. He says “instead of waiting for this grid to take shape, startups are building highly specific “battery-powered” AI products for each use-case.” These companies are focused on depth and specialization. Think medical diagnosis, mortgage lending and autonomous drones.

The analogy being made is with electricity (batteries vs. grids). AI is the new electricity and it will power virtually everything. It also raises the important question of whether AI will become a “winner take all” competition.

Lessons 7: Optimizations and data network effects are going to get a lot more complicated.

In software and platform businesses, people like to talk about data (and other) network effects. For data network effects, the idea is that better products get you more users. And more users mean more data. And more data means better products. So it’s a virtuous cycle.

Thus far, data network effects have mostly been about recommendations and curation. The more videos you watch, the more data Netflix and Youku have on you. And they are able to give you better recommendations for videos, which means you watch more. Amazon and Alibaba do the same with recommended products in e-commerce. And there is some real power in that. Your experience gets personalized and you buy and watch more and more. Sales and viewership per person do generally go up over time on sites like JD, Amazon and Netflix.

However, AI-centric companies like Toutiao are taking such data network effects beyond just recommendations and curation. Toutiao is a news aggregator in which the AI that can also create and police content. The AI is the curator but it can also be the reporter and editor. We may be soon have AI writing articles based on what it thinks you want to read. So these data network effects are getting a lot more complicated.

Another fascinating aspect of this is that AI systems are increasingly making correlations in “weak features”. Humans see correlations between “strong features”, such as when it rains, people buy more umbrellas. AI can see lots of other correlations, such as when it rains, people buy more beer (made that one up but I think it’s true). AI increasingly sees performance enhancements and optiminizations based on factors that humans cannot see or understand.

Lesson 8: Online-merge-offline (OMO) is next. And it’s awesome.

O2O is pretty great in China. If you live in a Chinese city, you can order food, rent a bike, schedule a masseuse and pay for anything anywhere – all on your phone.

But Dr. Lee says this is just the beginning and OMO (online-merge-offline) is next. This is when the online and physical worlds really become combined. He gives an example of going into supermarkets where you talk with your shopping cart. It would know your shopping list already and what you are going to cook. It can tell you about sales on relevant items and would suggest other things you might want. It would know about your family, their diets, their allergies and what they like and don’t like. It would likely know what foods you currently have in your home.

And it can now see what you are looking at as you walk around the store. It can understand when you answer its questions. He cites “Perception AI” as the big driver of OMO (the merging of online and offline worlds). Computers are increasingly able to see and hear the world on their own. And are no longer entirely dependent on humans to give them information.

Perception AI means software can see the traffic and streets. It can see the weather. It can watch people walking around stores and hospitals. And it can understand questions people ask. Perception AI combined with Internet AI should get you OMO in the next several years.

As you leave the supermarket, you process payment by your phone or facial recognition. You arrange delivery or pick-up. Grocery stores should be first in this. But we should see similar new futuristic experiences in retail stores, on the streets, in schools and in our homes very quickly.

Lesson 9: Government support could really accelerate AI in China.

China is state capitalism and the government has a lot tools it can deploy in a coordinated manner to advance specific industries. This includes credit from State-owned banks, tax breaks, SOE contracts and actions, public-private partnerships, land development plans and so on. There is a real ability for coordinated State action. We call this Team China.

We have seen Team China done very effectively in infrastructure, solar, outbound investment (particularly natural resources) and even in the sports industry. But probably the most significant coordinated government action in recent years has been the One Belt One Road initiative. Electric cars are also happening right now.

Dr. Lee cites such government support as being important in AI at two points. The first was the President’s support for “Mass Innovation and Mass Entrepreneurship”. That led to lots of innovation zones and incubators around China, such as Zhongguancun in Beijing. That also led to a flood of money into government-backed venture capital funds.

The second is the government’s recent support for AI. Chinese state capitalism is 100% behind winning in AI. You will see this play out in lots of ways – such as in education, loans, tax credits, government contracts, etc. It is China’s “moon shot” program.

Lesson 10: Some useful slides

I thought these were the most useful slides from Dr. Lee’s presentation at Amcham China.

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That’s my take on the book AI Superpowers. I hope this was helpful.

Cheers, jeff

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I write and speak about the Chinese consumers and digital China.

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