Price war escalates in China as Alibaba and Baidu cut AI costs

The price war threatens to impact companies’ profit margins and follows a surge in investment in LLMs after the success of OpenAI’s ChatGPT in China.

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On Tuesday, Chinese tech giants Alibaba and Baidu significantly reduced prices for their large-language models (LLMs), intensifying a price war in the cloud computing sector. Alibaba’s cloud unit announced cuts of up to 97% on its Tongyi Qwen models, with the Qwen-Long model now costing only 0.0005 yuan per 1,000 tokens, down from 0.02 yuan. Baidu quickly followed, making its Ernie Speed and Ernie Lite models free for all business users.

The price reduction comes amid an ongoing price war in China’s cloud computing industry, with Alibaba and Tencent already lowering prices for their cloud services. Cloud vendors in China have increasingly relied on AI chatbot services to boost sales, spurred by the popularity of OpenAI’s ChatGPT. The competition has now extended to the LLMs powering these chatbots, potentially impacting profit margins.

Other companies have also joined the fray. Bytedance recently slashed the prices of its Doubao LLMs by 99.3% below the industry average for business users. Chinese startup Moonshot introduced a tipping feature for prioritising chatbot use, targeting both business and individual users. Baidu was the first in China to charge consumers for its LLM products, with its Ernie 4 model costing 59 yuan per month.