I like Kling AI. Why?
- GenAI video generators are an amazing product overall. And they have powerful product market fit with content creators.
- What content creator (advertisers, etc.) is not going to use such low cost software to make videos instead of cameras, lights, actors and sets?
- This is high impact value that business customers will happily pay for.
- The market for the service is global and proven. There is no guessing about the use cases with this one. It’s proven and global. And the product scales and crosses borders easily.
- Kling AI is one of the leaders in this category. They are in the top tier, with some of the most advanced video generation models.
That’s just great. This is a business case that is really quite clear. Which is not the case with a lot of the new stuff like embodied AI and LLMs (outside of coding).
For GenAI tools, I put video generators in the same “really attractive” category as coding tools and enterprise AI.
This is still early stage. But the numbers for Kling AI look pretty solid.
- Kling’s revenue passed RMB850 million in the second quarter of 2026, up more than 200% from a year earlier. Its annualized run rate was close to $500 million back in March.
- About 70-75% of revenue comes from outside China. That’s important.
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Based on this, I thought I would do a quick update on what matters (in tech and business) for Kling AI and video generators right now.
Keep in mind, Kling AI is likely going to spin off from Kuaishou. With an IPO in 2027. And Kling 4.0 is about to be released.
What matters most right now? I think 3 things:
- Kling and video generators have a large and growing base of paying customers.
- Kling has secured enough capital to keep fighting “in the arena”.
- Kling is staying competitive on the technological frontier of video generation. Against some very serious and very well-funded rivals.
The third is the most important. In Part 2, I’ll go through that and the details for the upcoming Kling 4.0.
1. Kling Is Growing the Right Way, with Paying Customers
Video generators really are stunning products. I play with Kling AI (and Seedance) all the time.
But I am not a good customer. You really don’t want to grow mostly on the consumer side (as Sora did). They don’t really pay well and the variable costs can grow very quickly.
You need customers who are professionals in TV, advertising, marketing and other types of professional content creation. Kling’s paying base has two types of these customers.
- Professional creators and creative teams. These are freelancers, agencies and studios who subscribe and work inside the Kling app. They make ads, short dramas, film sequences and game assets. Kling added a Team Plan this year so up to 15 people can work on a project together.
- Enterprises and platforms that buy through the API. They build Kling into their own products and workflows. Kling reported more than 30,000 such enterprise customers at the end of 2025. These customers stay longer and spend more.
And Kling has had a couple of recent announcements in this area. Two ads made with Kling won Lions at Cannes this year. And the TV series House of David used Kling for most of its AI shots.
In a recent earnings call, Tencent management had some interesting comments about how to assess the growth of GenAI products. They said they are focused both on market share and incremental revenue for their GenAI products. But not profits (yet).
That’s a big change from traditional software, where you could go for growth and market share for years and then worry about monetization and profits later.
But GenAI has significant variable costs. Especially for generating videos, which has both high variable costs and effectively unlimited demand. Anything free or subsidized in this area can spiral out in costs very quickly.
If you aren’t getting incremental revenue with usage then growth is the worst thing that can happen to you.
Growing usage without growing revenue will just grow your losses. OpenAI’s Sora app showed this. They got huge attention and usage but revenue was not great. It was shut down in April.
Screenshot from Kling 4.0 video
Which brings me back to my first point.
To get paying customers where revenue can increase with growth, you need to target the right customers at the start. And you need to deliver high impact value so they will pay.
So far, the three areas of GenAI that show this are coding, enterprise AI and video generation.
2. GenAI Video Is One of McKinsey & Co’s “Growth Arenas”
In 2024, McKinsey wrote a good paper about the next big arenas of competition.
They argued there is a small number of industries that are going to capture an outsized share of growth and profits in the entire economy.
They listed 12 such “arenas”, which included e-commerce, cloud services, and electric vehicles. And they showed how these industries went from 9% of economic profit in 2005 to 49% in 2019. Across the world’s 3,000 largest companies. AI software is one of McKinsey’s predicted future arenas.
But there’s a problem.
Yes, the payoff is large but market share also changes hands far more quickly than in normal industries.
It’s because they are based on major step changes in the technologies and/or business models. So major value is being created but the situation is constantly changing.
According to McKinsey & Co, three things create a high growth arena:
- A step change in technology or business model
- A large and growing market
- An escalatory investment situation.
That last one is the key.
Each round of investment and R&D spending improves the technology and the product. And the better products win more customers.
But then even more investment is required as the technology keeps advancing. If you don’t deliver in tech advancement every 6 months, you can lose your competitiveness and your customers very quickly.
So, you have to keep spending to stay in the arena.
Doesn’t that sound like the video generation business?
Video generation is an attractive, high growth and likely high profit industry.
Screenshot from Kling 4.0 video
But the technology keeps advancing. So, you have to stay on the frontier with every new product iteration.
Competing in an arena is different than other industries. You have to:
- Keep investing. Quality is rapidly advancing. If you pause, you fall behind and your market share can rapidly move to someone else.
- Go global. Arena companies tend to be global. You need a worldwide market to pay for the ongoing R&D spending.
- Rapidly convert spending into revenue. The investment has to directly translate to more paying customers, or the race becomes unaffordable pretty quickly.
- Secure capital. The race rewards those who can fund the next round, and the one after that. That means a deep well of internal or external capital.
When I look at Kling, this looks to me like an arena competition. And they seem to be doing well on the first three of the above requirements. The fourth is why they are preparing to raise money with an IPO.
Which brings me to the problem.
Kling’s Competition Is Formidable
I see five serious competitors in GenAI video today. Four are Chinese (interesting) and one is American.
And they are all targeting the same global market. Here’s a run down.
- Kling (a business owned by Kuaishou). The latest models are Kling 3.0 and Kling 4.0. It has the largest disclosed video revenue. It has a full focus on video generation. It has up to $3 billion in new funding.
- Seedance (a product of ByteDance). The latest Seedance models are very impressive, especially in editing capabilities. And ByteDance has massive Facebook-like cash flow. Plus, they have CapCut and TikTok for distribution. Plus, they have their own cloud business (Volcano Engine) and language models (note: their AI assistant Doubao is #1 in China).
- Wan (a product of Alibaba). They have Wan and HappyHorse for video generation. They have the largest cloud business in Asia and a full suite of frontier models (everything from image to language to robotics).
- Hailuo (a product of MiniMax). This is an interesting niche player that has both popular open source LLMs and video generators (Hailuo). It is listed in Hong Kong, where it raised $619 million in January.
- Veo (a product of Google). Similar to Alibaba, they are playing across the board of GenAI models. They have Google Cloud, YouTube and lots of other resources (especially cash flow).
These are formidable competitors. And some of them (ByteDance, Alibaba, Google) have massive cash flow and resources. MiniMax is the closest to Kling in its specialization. It’s an LLM/API company with a strong video product.
This is why capital matters.
Screenshot from Kling 4.0 video
Kling is being set up as a standalone company, with up to $3 billion in outside funding at about an $18 billion valuation. That does not match the resources of ByteDance, Alibaba or Google.
But it does create a focused company with real revenue and the means to stay in the top tier. But unlike the digital giants, they are going to have to place their bets very selectively.
My Take: Kling Is Well Positioned for a Long Fight
Kling has what most GenAI companies are still hunting for:
- Proven demand and customers who pay
- A global market
- A product in the top tier
That’s pretty great. But the competition is still evolving. And if you view it with the arena framework, you realize this is going to be a long, expensive fight.
Here is what I am watching for with Kling:
- The Kling 4.0 release and where it lands in capabilities and the rankings.
- Quarterly revenue. Is paid growth keeping up with usage? What is the client number?
- The funding round and the planned listing.
- Any move into video agents.
Note: I’m hoping to visit the company later this year. Here’s a breakdown of Kling 4.0 in Part 2.
Cheers, Jeff
Screenshot from Kling 4.0 video
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Related articles:
- AutoGPT and Other Tech I Am Super Excited About (Tech Strategy – Podcast 162)
- AutoGPT: The Rise of Digital Agents and Non-Human Platforms & Business Models (Tech Strategy – Podcast 163)
- Why ChatGPT and Generative AI Are a Mortal Threat to Disney, Netflix and Most Hollywood Studios (Tech Strategy – Podcast 150)
From the Concept Library, concepts for this article are:
- Videos
- AI Generative Video
- McKinsey & Co: Arenas
From the Company Library, companies for this article are:
- Kling AI
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I am a founder, consultant and keynote speaker specialized in digital and AI agentic strategy.
I am the founder of Agentic Org Now, a firm that helps leadership teams launch AI and agentic initiatives fast.
I write (a lot) about digital and digital AI strategy (3 best selling books, +2.9M followers on LinkedIn). You can get a free book at the email sign-up below.
My Moats and Marathons book series is a framework for building and measuring competitive advantages in digital and AI businesses.
Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.
