AI Superpowers

by Kai-Fu Lee

  In analyzing Wang’s success, Western observers make a fundamental mistake. They believe Meituan triumphed by taking a great American idea and simply copying it in the sheltered Chinese internet, a safe space where weak local companies can survive under far less intense competition. This kind of analysis, however, is the result of a deep misunderstanding of the dynamics at play in the Chinese market, and it reveals an egocentrism that defines all internet innovation in relation to Silicon Valley.

  In creating his early clones of Facebook and Twitter, Wang was in fact relying entirely on the Silicon Valley playbook. This first phase of the copycat era—Chinese startups cloning Silicon Valley websites—helped build up baseline engineering and digital entrepreneurship skills that were totally absent in China at the time. But it was a second phase—Chinese startups taking inspiration from an American business model and then fiercely competing against each other to adapt and optimize that model specifically for Chinese users—that turned Wang Xing into a world-class entrepreneur.

  Wang didn’t build a $30 billion company by simply bringing the group-buying business model to China. Over five thousand companies did the exact same thing, including Groupon itself. The American company even gave itself a major leg up on local copycats by partnering with a leading Chinese internet portal. Between 2010 and 2013, Groupon and its local impersonators waged an all-out war for market share and customer loyalty, burning billions of dollars and stopping at nothing to slay the competition.

  The battle royal for China’s group-buying market was a microcosm of what China’s internet ecosystem had become: a coliseum where hundreds of copycat gladiators fought to the death. Amid the chaos and bloodshed, the foreign first-movers often proved irrelevant. It was the domestic combatants who pushed each other to be faster, nimbler, leaner, and meaner. They aggressively copied each other’s product innovations, cut prices to the bone, launched smear campaigns, forcibly deinstalled competing software, and even reported rival CEOs to the police. For these gladiators, no dirty trick or underhanded maneuver was out of bounds. They deployed tactics that would make Uber founder Travis Kalanick blush. They also demonstrated a fanatical around-the-clock work ethic that would send Google employees running to their nap pods.

  Silicon Valley may have found the copying undignified and the tactics unsavory. In many cases, it was. But it was precisely this widespread cloning—the onslaught of thousands of mimicking competitors—that forced companies to innovate. Survival in the internet coliseum required relentlessly iterating products, controlling costs, executing flawlessly, generating positive PR, raising money at exaggerated valuations, and seeking ways to build a robust business “moat” to keep the copycats out. Pure copycats never made for great companies, and they couldn’t survive inside this coliseum. But the trial-by-fire competitive landscape created when one is surrounded by ruthless copycats had the result of forging a generation of the most tenacious entrepreneurs on earth.

  As we enter the age of AI implementation, this cutthroat entrepreneurial environment will be one of China’s core assets in building a machine-learning-driven economy. The dramatic transformation that deep learning promises to bring to the global economy won’t be delivered by isolated researchers producing novel academic results in the elite computer science labs of MIT or Stanford. Instead, it will be delivered by down-to-earth, profit-hungry entrepreneurs teaming up with AI experts to bring the transformative power of deep learning to bear on real-world industries.

  Over the coming decade, China’s gladiator entrepreneurs will fan out across hundreds of industries, applying deep learning to any problem that shows the potential for profit. If artificial intelligence is the new electricity, Chinese entrepreneurs will be the tycoons and tinkerers who electrify everything from household appliances to homeowners’ insurance. Their knack for endlessly tweaking business models and sniffing out profits will yield an incredible array of practical—maybe even life-changing—applications. These will be deployed in their home country and then pushed abroad, potentially taking over most developing markets around the globe.

  Corporate America is unprepared for this global wave of Chinese entrepreneurship because it fundamentally misunderstood the secret to The Cloner’s success. Wang Xing didn’t succeed because he’d been a copycat. He triumphed because he’d become a gladiator.

  CONTRASTING CULTURES

  Startups and the entrepreneurs who found them are not born in a vacuum. Their business models, products, and core values constitute an expression of the unique cultural time and place in which they come of age.

  Silicon Valley’s and China’s internet ecosystems grew out of very different cultural soil. Entrepreneurs in the valley are often the children of successful professionals, such as computer scientists, dentists, engineers, and academics. Growing up they were constantly told that they—yes, they in particular—could change the world. Their undergraduate years were spent learning the art of coding from the world’s leading researchers but also basking in the philosophical debates of a liberal arts education. When they arrived in Silicon Valley, their commutes to and from work took them through the gently curving, tree-lined streets of suburban California.

  It’s an environment of abundance that lends itself to lofty thinking, to envisioning elegant technical solutions to abstract problems. Throw in the valley’s rich history of computer science breakthroughs, and you’ve set the stage for the geeky-hippie hybrid ideology that has long defined Silicon Valley. Central to that ideology is a wide-eyed techno-optimism, a belief that every person and company can truly change the world through innovative thinking. Copying ideas or product features is frowned upon as a betrayal of the zeitgeist and an act that is beneath the moral code of a true entrepreneur. It’s all about “pure” innovation, creating a totally original product that generates what Steve Jobs called a “dent in the universe.”

  Startups that grow up in this kind of environment tend to be mission-driven. They start with a novel idea or idealistic goal, and they build a company around that. Company mission statements are clean and lofty, detached from earthly concerns or financial motivations.

  In stark contrast, China’s startup culture is the yin to Silicon Valley’s yang: instead of being mission-driven, Chinese companies are first and foremost market-driven. Their ultimate goal is to make money, and they’re willing to create any product, adopt any model, or go into any business that will accomplish that objective. That mentality leads to incredible flexibility in business models and execution, a perfect distillation of the “lean startup” model often praised in Silicon Valley. It doesn’t matter where an idea came from or who came up with it. All that matters is whether you can execute it to make a financial profit. The core motivation for China’s market-driven entrepreneurs is not fame, glory, or changing the world. Those things are all nice side benefits, but the grand prize is getting rich, and it doesn’t matter how you get there.

  Jarring as that mercenary attitude is to many Americans, the Chinese approach has deep historical and cultural roots. Rote memorization formed the core of Chinese education for millennia. Entry into the country’s imperial bureaucracy depended on word-for-word memorization of ancient texts and the ability to construct a perfect “eight-legged essay” following rigid stylistic guidelines. While Socrates encouraged his students to seek truth by questioning everything, ancient Chinese philosophers counseled people to follow the rituals of sages from the ancient past. Rigorous copying of perfection was seen as the route to true mastery.

  Layered atop this cultural propensity for imitation is the deeply ingrained scarcity mentality of twentieth-century China. Most Chinese tech entrepreneurs are at most one generation away from grinding poverty that stretches back centuries. Many are only children—products of the now-defunct “One Child Policy”—carrying on their backs the expectations of two parents and four grandparents who have invested all their hopes for a better life in this child. Growing up, their parents didn’t talk to them about changing the world. Rath
er, they talked about survival, about a responsibility to earn money so they can take care of their parents when their parents are too old to work in the fields. A college education was seen as the key to escaping generations of grinding poverty, and that required tens of thousands of hours of rote memorization in preparing for China’s notoriously competitive entrance exam. During these entrepreneurs’ lifetimes, China wrenched itself out of poverty through bold policies and hard work, trading meal tickets for paychecks for equity stakes in startups.

  The blistering pace of China’s economic rise hasn’t alleviated that scarcity mentality. Chinese citizens have watched as industries, cities, and individual fortunes have been created and lost overnight in a Wild West environment where regulations struggled to keep pace with cutthroat market competition. Deng Xiaoping, the Chinese leader who pushed China from Mao-era egalitarianism to market-driven competition, once said that China needed to “let some people get rich first” in order to develop. But the lightning speed of that development only heightened fears and concerns that if you don’t move quickly—if you don’t grab onto this new trend or jump into that new market—you’ll stay poor while others around you get rich.

  Combine these three currents—a cultural acceptance of copying, a scarcity mentality, and the willingness to dive into any promising new industry—and you have the psychological foundations of China’s internet ecosystem.

  This is not meant to preach a gospel of cultural determinism. As someone who has moved between these two countries and cultures, I know that birthplace and heritage are not the sole determinants of behavior. Personal eccentricities and government regulation are hugely important in shaping company behavior. In Beijing, entrepreneurs often joke that Facebook is “the most Chinese company in Silicon Valley” for its willingness to copy from other startups and for Zuckerberg’s fiercely competitive streak. Likewise, while working at Microsoft, I saw how government antitrust policy can defang a wolf-like company. But history and culture do matter, and in comparing the evolution of Silicon Valley and Chinese technology, it’s crucial to grasp how different cultural melting pots produced different types of companies.

  For years, the copycat products that emerged from China’s cultural stew were widely mocked by the Silicon Valley elite. They were derided as cheap knockoffs, embarrassments to their creators and unworthy of the attention of true innovators. But those outsiders missed what was brewing beneath the surface. The most valuable product to come out of China’s copycat era wasn’t a product at all: it was the entrepreneurs themselves.

  THE EMPEROR’S NEW CLOCKS

  Twice a day, the Hall of Ancestor Worship comes alive. Located within Beijing’s Forbidden City, this was where the emperors of China’s last two dynasties once burned incense and performed sacred rituals to honor the Sons of Heaven that came before them. Today, the hall is home to some of the most intricate and ingenious mechanical timepieces ever created. The clock faces themselves convey expert craftsmanship, but it’s the impossibly complex mechanical functions embedded in the clocks’ structures that draw large crowds for the morning and afternoon performances.

  As the seconds tick by, a metal bird darts around a gold cage. Painted wooden lotus flowers open and close their petals, revealing a tiny Buddhist god deep in meditation. A delicately carved elephant lifts its trunk up and down while pulling a miniature carriage in circles. A robotic Chinese figure dressed in the coat of a European scholar uses an ink brush to write out a Chinese aphorism on a miniature scroll, with the robot’s own handwriting modeled on the calligraphy of the Chinese emperor who commissioned the piece.

  It’s a dazzling display, a reminder of the timeless nature of true craftsmanship. Jesuit missionaries brought many of the clocks to China as part of “clock diplomacy,” an attempt by Jesuits to charm their way into the imperial court through gifts of advanced European technology. The Qing Dynasty’s Qianlong emperor was particularly fond of the clocks, and British manufacturers soon began producing clocks to fit the tastes of the Son of Heaven. Many of the clocks on display at the Hall of Ancestor Worship were the handiwork of Europe’s finest artisanal workshops of the seventeenth and eighteenth centuries. These workshops produced an unparalleled combination of artistry, design, and functional engineering. It’s a particular alchemy of expertise that feels familiar to many in Silicon Valley today.

  While working as the founding president of Google China, I would bring visiting delegations of Google executives here to see the clocks in person. But I didn’t do it so they could revel in the genius of their European ancestors. I did it because, on closer inspection, one discovers that many of the finest specimens of European craftsmanship were created in the southern Chinese city of Guangzhou, which was then called Canton.

  After European clocks won the favor of the Chinese emperor, local workshops sprang up all over China to study and recreate the Western imports. In the southern port cities where Westerners came to trade, China’s best craftspeople took apart the ingenious European devices, examining each interlocking piece and design flourish. They mastered the basics and began producing clocks that were near-exact replicas of the European models. From there, the artisans took the underlying principles of clock-building and began constructing timepieces that embodied Chinese designs and cultural traditions: animated Silk Road caravans, lifelike scenes from the streets of Beijing, and the quiet equanimity of Buddhist sutras. These workshops eventually began producing clocks that rivaled or even exceeded the craftsmanship coming out of Europe, all while weaving in an authentically Chinese sensibility.

  The Hall of the Ancestors dates back to the Ming Dynasty, and the story of China’s own copycat clockmakers played out hundreds of years in the past. But the same cultural currents continue to flow into the present day. As we watched these mechanical marvels twirl and chime, I worried that those currents would soon sweep away the master craftspeople of the twenty-first century who stood all around me.

  COPYKITTENS

  China’s early copycat internet companies looked harmless from the outside, almost cute. During China’s first internet boom of the late 1990s, Chinese companies looked to Silicon Valley for talent, funding, and even names for their infant startups. The country’s first search engine was the creation of Charles Zhang, a Chinese physicist with a Ph.D. from MIT. While in the United States Zhang had seen the early internet take off, and he wanted to kick-start that same process in his home country. Zhang used investments from his professors at MIT and returned to China, intent on building up the country’s core internet infrastructure.

  But after a meeting with Yahoo! founder Jerry Yang, Zhang switched his focus to creating a Chinese-language search engine and portal website. He named his new company Sohoo, a not-so-subtle mashup of the Chinese word for “search” (sou) and the company’s American role model. He soon switched the spelling to “Sohu” to downplay the connection, but this kind of imitation was seen as more flattery than threat to the American web juggernaut. At the time, Silicon Valley saw the Chinese internet as a novelty, an interesting little experiment in a technologically backward country.

  Bear in mind that this was an era when copying fueled many parts of the Chinese economy. Factories in the southern part of the country cranked out knockoff luxury bags. Chinese car manufacturers created such close duplicates of foreign models that some dealerships gave customers the option of removing the Chinese company’s logo and replacing it with the logo of the more prestigious foreign brand. There was even a knockoff Disneyland, a creepy amusement park on the outskirts of Beijing where employees in replica Mickey and Minnie Mouse suits hugged Chinese children. At the park’s entrance hung a sign: “Disneyland is too far, please come to Shijingshan!” While China’s enterprising amusement park operators borrowed unabashedly from Disney, Wang Xing was hard at work copying Facebook and then Twitter.

  While leading Google China, I experienced firsthand the danger that these clones posed to brand image. Beginning in 2005, I threw myself into building up ou
r Chinese search engine and the trust of Chinese users. But on the evening of December 11, 2008, a major Chinese TV station dedicated a six-minute segment of its national news broadcast to a devastating exposé on Google China. The program showed users searching Google’s Chinese site for medical information being served up ads with links to fake medical treatments. The camera zoomed in tight on the computer screen, where Google’s Chinese logo hovered ominously above dangerous scams and phony prescription-drug services.

  Google China was thrown into a full-on crisis of public trust. After watching the footage, I raced to my computer to conduct the same searches but curiously could not conjure up the results featured on the program. I changed around the words and tweaked my settings but still couldn’t navigate to—and then subsequently remove—the offending ads. At the same time, I was immediately flooded with messages from reporters demanding an explanation as to Google China’s misleading advertising, but I could only give what probably sounded like a weak excuse: Google works quickly to remove any problematic advertisements, but the process isn’t instantaneous, and occasionally offending ads may live online for a few hours.

  The storm continued to rage on, all while our team kept failing to find or locate the offending ads from the television program. Later that night I received an excited email from one of our engineers. He had figured out why we couldn’t reproduce the results: because the search engine shown on the program wasn’t Google. It was a Chinese copycat search engine that had made a perfect copy of Google—the layout, the fonts, the feel—almost down to the pixel. The site’s search results and ads were their own but had been packaged online to be indistinguishable from Google China. The engineer had noticed just one tiny difference, a slight variation in the color of one font used. The impersonators had done such a good job that all but one of Google China’s seven hundred employees watching onscreen had failed to tell them apart.