Conquering Markets and Arming Insurgents

What happens when you try to take game-changing AI products global?

Thus far, much of the work done in artificial intelligence has been contained within the Chinese and U.S. markets, with companies largely avoiding direct competition on the home turf of the other nation. But despite the fact that the United States and China are the two largest economies in the world, the vast majority of AI’s future users still live in other countries, many of them in the developing world. Any company that wants to be the Facebook or Google of the AI age needs a strategy for reaching those users and winning those markets.

Not surprisingly, Chinese and American tech companies are taking very different approaches to global markets: while America’s global juggernauts seek to conquer these markets for themselves, China is instead arming the local startup insurgents.

In other words, Silicon Valley giants like Google, Facebook, and Uber want to directly introduce their products to these markets. They’ll make limited efforts at localization but will largely stick to the traditional playbook. They will build one global product and push it out on billions of different users around the globe. It’s an all-or-nothing approach with a huge potential upside if the conquest succeeds, but it also has a high chance of leaving empty-handed.

Chinese companies are instead steering clear of direct competition and investing in the scrappy local startups that Silicon Valley looks to wipe out. For example, in India and Southeast Asia, Alibaba and Tencent are pouring money and resources into homegrown startups that are fighting tooth and nail against juggernauts like Amazon. It’s an approach rooted in the country’s own native experience. People like Alibaba founder Jack Ma know just how dangerous a ragtag bunch of insurgents can be when battling a monolithic foreign juggernaut. So instead of seeking to both squash those startups and outcompete Silicon Valley, they’re throwing their lot in with the locals.

Ride-Hailing Rumble

There is already some precedence for the Chinese approach. Ever since Didi drove Uber out of China, it has invested in and partnered with local startups fighting to do the same thing in other countries: Lyft in the United States, Ola in India, Grab in Singapore, Taxify in Estonia, and Careem in the Middle East. After investing in Brazil’s 99 Taxi in 2017, Didi outright acquired the company in early 2018. Together these startups have formed a global anti-Uber alliance, one that runs on Chinese money and benefits from Chinese know-how. After taking on Didi investments, some of the startups have even rebuilt their apps in Didi’s image, and others are planning to tap into Didi’s strength in AI: optimizing driver matching, automatically adjudicating rider-driver disputes, and eventually rolling out autonomous vehicles.

We don’t know the current depth of these technical exchanges, but they could serve as an alternate model of AI globalization: empower homegrown startups by marrying global AI expertise to local data. It’s a model built more on cooperation than conquest, and it may prove better suited to globalizing a technology that requires both top-quality engineers and ground-up data collection.

AI has a much higher localization quotient than earlier internet services. Self-driving cars in India need to learn the way pedestrians navigate the streets of Bangalore, and micro-lending apps in Brazil need to absorb the spending habits of millennials in Rio de Janeiro. Some algorithmic training can be transferred between different user bases, but there’s no substitute for actual, real-world data.

Silicon Valley juggernauts do have some insight into the search and social habits in these countries. But building business, perception, and autonomous AI products will require companies to put real boots on the ground in each market. They will need to install hardware devices and localize AI services for the quirks of North African shopping malls and Indonesian hospitals. Projecting global power outward from Silicon Valley via computer code may not be the long-term answer.

Of course, no one knows the endgame for this global AI chess match. American companies could suddenly boost their localization efforts, leverage their existing products, and end up dominating all countries except China. Or a new generation of tenacious entrepreneurs in the developing world could use Chinese backing to create local empires impenetrable to Silicon Valley. If the latter scenario unfolds, China’s tech giants wouldn’t dominate the world, but they would play a role everywhere, improve their own algorithms using training data from many markets, and take home a substantial chunk of the profits generated.

Looking Ahead

Scanning the AI horizon, we see waves of technology that will soon wash over the global economy and tilt the geopolitical landscape toward China. Traditional American companies are doing a good job of using deep learning to squeeze greater profits from their businesses, and AI-driven companies like Google remain bastions of elite expertise. But when it comes to building new internet empires, changing the way we diagnose illnesses, or reimagining how we shop, move, and eat, China seems poised to seize global leadership. Chinese and American internet companies have taken different approaches to winning local markets, and as these AI services filter out into every corner of the globe, they may engage in proxy competition in countries like India, Indonesia, and parts of the Middle East and Africa.

This analysis sheds light on the emerging AI world order, but it also showcases one of the blind spots in our AI discourse: the tendency to discuss it solely as a horse race. Who’s ahead? What are the odds for each player? Who’s going to “win”?

This kind of competition matters, but if we dig deeper into the coming changes, we find that far weightier questions lurk just below the surface. When the true power of artificial intelligence is brought to bear on our world, the real divide won’t be between countries like the United States and China. Instead, the most dangerous fault lines will emerge within each country, and they will possess the power to tear them apart from the inside.

Posted by Dr. Kai-Fu Lee on Mar 14, 2019 in All Posts In the Media

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