HONG KONG, Feb 10 (Reuters Breakingviews) - Who can resist a free cup of tea? Shoppers in China briefly overwhelmed Alibaba’s artificial intelligence app over the weekend as they took advantage of a lavish Lunar New Year marketing blitz pitting the country’s top apps against one another. But one-off subsidies are a poor way to build loyalty. And turning that into AI profits is even tougher.

The $390 billion Alibaba (9988.HK), opens new tab kicked off a $400 million-plus holiday giveaway on Friday, promising users on its Qwen chatbot free drinks and other coupons. Within the first nine hours of the campaign, the company clocked in 10 million orders of milk tea, resulting in a plea for bargain-hunters to give the app a break. It’s an embarrassing, if temporary, glitch for boss Eddie Wu, who is keen to showcase Qwen’s impressive agent-like capabilities. Users simply need to say “help me buy” for the chatbot to order food, complete payment and other tasks without switching apps.

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Rival AI-linked offerings are also vying for the attention of millions of Chinese consumers over the upcoming holiday period. Tencent (0700.HK), opens new tab is giving away 1 billion yuan of cash in red envelopes via its Yuanbao chatbot; ByteDance has landed a coveted partnership with the Spring Festival Gala - China’s biggest televised event akin to the Super Bowl in the United States - to promote its popular Doubao app and deploy its Volcano Engine models and cloud computing services, according, opens new tab to the South China Morning Post.

The land grab for users follows a well-trodden path in China’s technology sector, where deep-pocketed giants compete to outspend one another for market share in grueling and expensive price wars. Just last year, for instance, Alibaba, Meituan (3690.HK), opens new tab and JD.com (9618.HK), opens new tab ramped up discounts and subsidies on their food delivery platforms, prompting regulators to step in.

But the difference with AI apps is that companies have yet to find ways to generate revenue, let alone sustainable earnings, once the dust settles. Convincing consumers to fork out subscriptions will be a long slog: a Tencent executive last year warned that “in China, in reality, it’s actually very hard to use the user-paid model” popular in the United States, such as at ChatGPT-owner OpenAI. And subscriptions alone may not be sufficient to cover rising costs; Sam Altman’s firm will soon experiment with sponsored content and advertising in its chatbot. China’s latest AI flex may be driven in part by a greed to be the new tech’s dominant player, but it masks deeper financial fears.

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Context News

• Alibaba’s artificial intelligence chatbot Qwen temporarily stopped issuing Spring Festival coupons due to customer overload, Reuters reported on February 9. Qwen began offering coupons to users on February 6; they allow for in-app purchases from Alibaba-owned retail apps using chatbot prompts alone.
• The company will spend 3 billion yuan ($433 million) in promotions to attract users to Qwen over this year’s 9-day Lunar New Year public holiday period, which begins on February 15. Users can order free milk tea using the app, as well as invite friends to sign up in exchange for 25-yuan coupons, among other things.
• Rivals Tencent and Baidu have pledged 1 billion yuan and 500 million yuan in similar holiday promotions respectively.

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Editing by Antony Currie; Production by Aditya Srivastav

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Robyn Mak

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Robyn Mak joined Reuters Breakingviews in 2013. Previously, she was a Research Associate for the Global Policy Programs at the Asia Society in New York. She has also worked at the Carnegie Endowment for International Peace in Washington DC and interned at several consulting firms, including the Albright Stonebridge Group. She holds a masters degree in international economics and international relations from the Johns Hopkins School of Advanced International Studies and is a magna cum laude graduate of New York University.

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