Whale AI's Jerry Ye on China's AI

This report comes from CNBC's The China Connection newsletter, offering insights into China's economy. It explores major business stories, market trends, and sets the stage for the week.

Jerry Ye, a Caltech alumnus and former data scientist at Meta, returned to China in 2017 to launch Whale, an AI software and hardware company for retailers. Whale's clients include Starbucks, Xiaomi, and Unilever. Recently, it secured $60 million in Series C funding with participation from Bosch Ventures, Singtel, and MDI Ventures. Whale has headquarters in Hangzhou, China, and a global base in Singapore. Ye was interviewed in Beijing.

U.S.-China Trade War Impact

Despite U.S.-China tensions, Whale believes in global opportunities, emphasizing that "business is business." Their clientele includes Procter & Gamble, Watsons, and Starbucks.

AI Race

The U.S. and China are the largest AI markets. China will see application growth in marketing and sales, while the U.S. will focus on specific sectors like transportation and legal. Southeast Asia will likely adopt U.S. or Chinese models.

AI Development Restrictions

China faces no shortage of AI computing power. Many AI companies no longer heavily train models, as on-device chips become capable enough for AI model execution, ensuring data privacy. Edge computing will be a major competitive area, not just data centers.

AI Monetization

Marketing and sales are the primary areas for AI monetization due to their direct link to revenue. AI adoption in these areas can yield results within a week.

Future of Content

Marketing is about communication, bridging the gap between customer understanding and brand messaging. AI enhances personalization by offering richer understanding and algorithms, speeding up decision-making. Generative AI offers opportunities for video creation. AI also facilitates sending unique photo and video content to social media, influencing ad production.

However, excessive generative AI can spread misinformation, leading platforms to be wary of such videos. Authentic videos remain essential for conveying real emotions.

AI Applications in Business

Whale serves Starbucks in China and Southeast Asia, enhancing customer experiences with AI. AI helps ensure coffee orders are ready within 5 minutes, 98% of the time. If a Starbucks location is busy, AI reroutes online orders to nearby locations.

Whale's Financials

Whale has experienced approximately 100% annual growth over the past three years and expects to maintain this rate. Last year's revenue was 230 million yuan ($31.39 million), with an expected 400 million yuan this year. The company has around 500 enterprise clients. Monthly operating costs are 1 million yuan in China and a total of 3 million yuan globally. Data privacy and security compliance are major challenges.

AI Language Models

Different AI models have unique strengths. Claude excels at website and PDF generation, while Gemini specializes in video. Many business clients prefer not to be tied to a single model and prioritize data privacy, opting for open-source models deployed in their data centers.

AI Devices

Battery life, not AI, is the main obstacle for AI hardware like glasses. The application layer holds the greatest potential value in AI, offering margins of 90% to 95%, compared to cloud (5% to 10%) and hardware.

Jony Ive & OpenAI

Collaborations between large companies exploring AI, such as Jony Ive's deal with OpenAI, face challenges but offer significant potential for innovation.