AI Superpowers

by Kai-Fu Lee

  ENTREPRENEURS, ELECTRICITY, AND OIL

  Wang’s story is about more than just the copycat who made good. His transformation charts the evolution of China’s technology ecosystem, and that ecosystem’s greatest asset: its tenacious entrepreneurs. Those entrepreneurs are beating Silicon Valley juggernauts at their own game and have learned how to survive in the single most competitive startup environment in the world. They then leveraged China’s internet revolution and mobile internet explosion to breathe life into the country’s new consumer-driven economy.

  But as remarkable as these accomplishments have been, these changes will pale in comparison to what these entrepreneurs will do with the power of artificial intelligence. The dawn of the internet in China functioned like the invention of the telegraph, shrinking distances, speeding information flows, and facilitating commerce. The dawn of AI in China will be like the harnessing of electricity: a game-changer that supercharges industries across the board. The Chinese entrepreneurs who sharpened and honed their skills in the coliseum now see the power that this new technology holds, and they’re already seeking out industries and applications where they can turn this energy into profit.

  But to do that they need more than just their own street-smart business sensibilities. If artificial intelligence is the new electricity, big data is the oil that powers the generators. And as China’s vibrant and unique internet ecosystem took off after 2012, it turned into the world’s top producer of this petroleum for the age of artificial intelligence.

  3

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  China’s Alternate Internet Universe

  Guo Hong is a startup founder trapped in the body of a government official. Middle-aged, Guo is always dressed in a modest dark suit and wears thick glasses. When standing for official photos at opening ceremonies, he looks no different from the dozens of other identically dressed Beijing city officials who come out to cut ribbons and deliver speeches.

  During the two decades leading up to 2010, China was governed by engineers. Chinese officialdom was packed with men who studied the science of building physical things, and they put that knowledge to work transforming China from a poor agricultural society into a country of bustling factories and enormous cities. But Guo represented a new kind of official for a new era—one in which China needed to both build things and create ideas.

  Put Guo alone in a room with other entrepreneurs or technologists and he suddenly comes alive. Brimming with ideas, he speaks quickly and listens intently. He has a voracious appetite for what’s next in technology and an ability to envision how startups can harness these trends. Guo thinks outside the box and then takes action on the ground. He is the kind of founder that venture-capital investors love to put their money behind.

  All of these habits came in handy when Guo decided to turn his slice of Beijing into the Silicon Valley of China, a hotbed for indigenous Chinese innovation. The year was 2010, and Guo was responsible for the influential Zhongguancun (“jong-gwan-soon”) technology zone in northwest Beijing, an area that had long branded itself as China’s answer to Silicon Valley but had not really lived up to the title. Zhongguancun was chock-full of electronics markets selling low-end smartphones and pirated software but offered few innovative startups. Guo wanted to change that.

  To kick-start that process, he came to see me at the offices of my newly founded company, Sinovation Ventures. After spending a decade representing the most powerful American technology companies in China, in the fall of 2009 I left Google China to establish Sinovation, an early-stage incubator and angel investment fund for Chinese startups. I made this move because I sensed a new energy bubbling up in the Chinese startup ecosystem. The copycat era had forged world-class entrepreneurs, and they were just beginning to apply their skills to solving uniquely Chinese problems. China’s rapid transition to the mobile internet and bustling urban centers created an entirely different environment, one where innovative products and new business models could thrive. I wanted to be a part of both mentoring and funding these companies as they came into their own.

  When Guo came to visit Sinovation, a core team of ex-Googlers and I were working out of a small office that was located northeast of Zhongguancun. We were recruiting promising engineers to join our incubator and launch startups targeting China’s first wave of smartphone users. Guo wanted to know what he could do to support that mission. I told him that the cost of rent was eating a big chunk of the money we wanted to pour into fostering these startups. Any relief on rent would mean more money for building products and companies. No problem, he said—he would make some calls. The local government could likely cover our rent for three years if we relocated to the neighborhood of Zhongguancun.

  That was fantastic news for our project, and even better, Guo was just getting started. He didn’t want to only throw money at one incubator. He wanted to understand what really made Silicon Valley tick. Guo began peppering me with questions about my time in the valley during the 1990s. I explained how many of the area’s early entrepreneurs went on to become angel investors and mentors, how geographic proximity and tightly woven social networks gave birth to a self-sustaining venture-capital ecosystem that made smart bets on big ideas.

  As we talked, I could see Guo’s mind working in overdrive. He was absorbing everything and formulating the outlines of a plan. Silicon Valley’s ecosystem had taken shape organically over several decades. But what if we in China could speed up that process by brute-forcing the geographic proximity? We could pick one street in Zhongguancun, clear out all the old inhabitants, and open the space to key players in this kind of ecosystem: VC firms, startups, incubators, and service providers. He already had a name in mind: Chuangye Dajie—Avenue of the Entrepreneurs.

  This kind of top-down construction of an innovation ecosystem runs counter to Silicon Valley orthodoxy. In that worldview, what really makes the valley special is an abstract cultural zeitgeist, a commitment to original thinking and innovation. It’s not something that could have been built merely using bricks and rent subsidies.

  Guo and I both saw the value in that ethereal sense of mission, but we also saw that China was different. If we wanted to bootstrap this process in China today, money, real estate, and government support mattered. The process would require getting our hands dirty, adapting the valley’s disembodied innovation ethos to the very physical realities of present-day China. The result would leverage some of the core mechanisms of Silicon Valley but would take the Chinese internet in a very different direction.

  That ecosystem was becoming both independent and self-sustaining. Chinese founders no longer had to tailor their startup pitches to the tastes of foreign VCs. They could now build Chinese products to solve Chinese problems. It was a sea change that altered the very texture of the nation’s cities and signaled a new era in the development of the Chinese internet. It also led to an overnight boom in production of the natural resource of the AI age.

  UNCHARTED INTERNET TERRITORY

  During the copycat era, the relationship between China and Silicon Valley was one of imitation, competition, and catch-up. But around 2013, the Chinese internet changed direction. It no longer lagged behind the Western internet in functionality, though it also hadn’t surpassed Silicon Valley on its own terms. Instead, it was morphing into an alternate internet universe, a space with its own raw materials, planetary systems, and laws of physics. It was a place where many users accessed the internet only through cheap smartphones, where smartphones played the role of credit cards, and where population-dense cities created a rich laboratory for blending the digital and physical worlds.

  The Chinese tech companies that ruled this world had no obvious corollaries in Silicon Valley. Simple shorthand like “the Amazon of China” or “the Facebook of China” no longer made sense when describing apps like WeChat—the dominant social app in China, but one that evolved into a “digital Swiss Army knife” capable of letting people pay at the grocery store, order a hot meal, and book a doctor’s visit.
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  Underneath this transformation lay several key building blocks: mobile-first internet users, WeChat’s role as the national super-app, and mobile payments that transformed every smartphone into a digital wallet. Once those pieces were in place, Chinese startups set off an explosion of indigenous innovation. They pioneered online-to-offline services that stitched the internet deep into the fabric of the Chinese economy. They turned Chinese cities into the first cashless environments since the days of the barter economy. And they revolutionized urban transportation with intelligent bike-sharing applications that created the world’s largest internet-of-things network.

  Adding fuel to this fire was an unprecedented wave of government support for innovation. Guo’s mission to build the Avenue of the Entrepreneurs was just the first trickle of what in 2014 turned into a tidal wave of official policies pushing technology entrepreneurship. Under the banner of “Mass Innovation and Mass Entrepreneurship,” Chinese mayors flooded their cities with new innovation zones, incubators, and government-backed venture-capital funds, many of them modeled on Guo’s work with the Avenue of the Entrepreneurs. It was a campaign that analysts in the West dismissed as inefficient and misguided, but one that turbocharged the evolution of China’s alternate internet universe.

  Thriving in this environment required both engineering prowess and raw manpower: armies of scooter-riding deliverymen schlepping hot meals around town, tens of thousands of sales reps fanning out to push mobile payments on street vendors, and millions of shared bikes loaded onto trucks and dispersed around cities. An explosion of these services pushed Chinese companies to roll up their sleeves and do the grunt work of running an operations-heavy business in the real world.

  In my view, that willingness to get one’s hands dirty in the real world separates Chinese technology companies from their Silicon Valley peers. American startups like to stick to what they know: building clean digital platforms that facilitate information exchanges. Those platforms can be used by vendors who do the legwork, but the tech companies tend to stay distant and aloof from these logistical details. They aspire to the mythology satirized in the HBO series Silicon Valley, that of a skeleton crew of hackers building a billion-dollar business without ever leaving their San Francisco loft.

  Chinese companies don’t have this kind of luxury. Surrounded by competitors ready to reverse-engineer their digital products, they must use their scale, spending, and efficiency at the grunt work as a differentiating factor. They burn cash like crazy and rely on armies of low-wage delivery workers to make their business models work. It’s a defining trait of China’s alternate internet universe that leaves American analysts entrenched in Silicon Valley orthodoxy scratching their heads.

  THE SAUDI ARABIA OF DATA

  But this Chinese commitment to grunt work is also what is laying the groundwork for Chinese leadership in the age of AI implementation. By immersing themselves in the messy details of food delivery, car repairs, shared bikes, and purchases at the corner store, these companies are turning China into the Saudi Arabia of data: a country that suddenly finds itself sitting atop stockpiles of the key resource that powers this technological era. China has already vaulted far ahead of the United States as the world’s largest producer of digital data, a gap that is widening by the day.

  As I contended in the first chapter, the invention of deep learning means that we are moving from the age of expertise to the age of data. Training successful deep-learning algorithms requires computing power, technical talent, and lots of data. But of those three, it is the volume of data that will be the most important going forward. That’s because once technical talent reaches a certain threshold, it begins to show diminishing returns. Beyond that point, data makes all the difference. Algorithms tuned by an average engineer can outperform those built by the world’s leading experts if the average engineer has access to far more data.

  But China’s data advantage extends from quantity into quality. The country’s massive number of internet users—greater than the United States and all of Europe combined—gives it the quantity of data, but it’s then what those users do online that gives it the quality. The nature of China’s alternate universe of apps means that the data collected will also be far more useful in building AI-driven companies.

  Silicon Valley juggernauts are amassing data from your activity on their platforms, but that data concentrates heavily in your online behavior, such as searches made, photos uploaded, YouTube videos watched, and posts “liked.” Chinese companies are instead gathering data from the real world: the what, when, and where of physical purchases, meals, makeovers, and transportation. Deep learning can only optimize what it can “see” by way of data, and China’s physically grounded technology ecosystem gives these algorithms many more eyes into the content of our daily lives. As AI begins to “electrify” new industries, China’s embrace of the messy details of the real world will give it an edge on Silicon Valley.

  This sudden data windfall for China wasn’t the result of some master plan. When Guo Hong came to see me in 2010, he couldn’t have predicted the exact shape China’s alternate universe would take or how machine learning would suddenly turn data into a precious commodity. But he did believe that given the right setting, funding, and a little prodding, Chinese startups could create something both totally unique and very valuable. On that point, Guo’s entrepreneurial instincts were right on the money.

  THE MOBILE LEAPFROG

  I left Google China and founded Sinovation Ventures a few months before Google decided to pull out of the mainland market. That move by Google was a major disappointment to our team, given the years of work we had poured into making the company competitive in China. But that departure also created an opening for Chinese startups to build an entirely new suite of products for the most exciting new trend in technology, the mobile internet.

  After the iPhone’s 2007 debut, the technology world began slowly adapting websites and services for access via a smartphone. In its simplest form, this meant building a version of one’s website that worked well when transposed from a large computer screen onto a small smartphone. But it also meant building out new tools: an app store, photo-editing apps, and antivirus software. With Google leaving China, the market for Android-based apps in this space was now wide open. Sinovation’s earliest batch of incubated startups looked to fill these gaps. In the process, I wanted us to explore a new and exciting way of interacting with the internet, a space where Silicon Valley had not yet defined the dominant paradigm.

  During China’s copycat era, the small portion of its population that accessed the internet did so in the same way as Americans, through a desktop or laptop computer. Chinese users’ behavior differed significantly from that of Americans, but the fundamental tools used were the same. Computers were still too expensive for most Chinese people, and by 2010 only around one-third of China’s population had access to the internet. So when cheap smartphones hit the market, waves of ordinary citizens leapfrogged over personal computers entirely and went online for the first time via their phones.

  Simple as that transition sounds, it had profound implications for the particular shape that the Chinese internet would take. Smartphone users not only acted differently than their desktop peers; they also wanted different things. For mobile-first users, the internet wasn’t just an abstract collection of digital information that you accessed from a set location. Rather, the internet was a tool that you brought with you as you moved around cities—it should help solve the local problems you run into when you need to eat, shop, travel, or just get across town. Chinese startups needed to build their products accordingly.

  This opened a real opportunity for Chinese startups backed by Chinese VCs to break new ground in order to foster Chinese-style innovation. At Sinovation, our first round of investment went into incubating nine companies, several of which were eventually acquired or controlled by Baidu, Alibaba, and Tencent. Those three Chinese internet juggernauts (collectively known by the abbreviation
“BAT”) used our startups to accelerate their transition into mobile internet companies. Those startup acquisitions formed a solid foundation for their mobile efforts, but it would be a secretive in-house project at Tencent that first cracked open the potential of what I call China’s alternate internet universe.

  WECHAT: HUMBLE BEGINNINGS, HUGE AMBITIONS

  Hardly anyone noticed when the world’s most powerful app waltzed onto the world stage. The January 2011 launch of WeChat, Tencent’s new social messaging app, received only one mention in the English-language press, on the technology site the Next Web. Tencent already owned the two dominant social networks in China—its QQ instant messaging platform and Q-Zone social network each had hundreds of millions of users—but American analysts dismissed these as mediocre knockoffs of American products. The company’s new smartphone app didn’t even have an English name yet, going only by the Chinese name Weixin, or “micro-message.”

  But it did have a few other things going for it. The app lets you send photos and short voice recordings along with typing out messages. The latter was a major benefit given how cumbersome inputting Chinese characters on a phone was at the time. WeChat was also created specifically for smartphones. Instead of trying to transform its dominant desktop platform, QQ, into a phone app, Tencent aimed to disrupt its own product with a better one built just for mobile. It was a risky strategy for an established juggernaut, but one that paid off big time.

  The app’s clean functionality took off, and as WeChat gained users, it also tacked on more functions. In just over a year it had hit 100 million registered users, and by its two-year anniversary in January 2013, that number was 300 million. Along the way it had added voice and video calls and conference calls, functions that seem obvious today but that WeChat’s global competitor WhatsApp waited until 2016 to incorporate.