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LVMH To Leverage Alibaba’s AI Capabilities as Discount Supplier Introduces Deep Price Cuts

Last Updated May 23, 2024 4:14 PM
Giuseppe Ciccomascolo
Last Updated May 23, 2024 4:14 PM

Key Takeaways

  • LVMH has renewed its partnership with Alibaba and brought its products to Tmall.
  • Despite recent slowdowns, LVMH remains optimistic about China’s long-term luxury market potential.
  • Alibaba’s open-source AI models make advanced AI functionalities accessible to smaller businesses.
  • Significant price cuts from big companies reflect China’s ambition to become a leader in AI development.
  • However, the Chinese government’s control of content remains a concern.

French luxury group LVMH is strategically moving to solidify its position in China. By extending its partnership  with Alibaba, it gains access to the e-commerce giant’s cutting-edge cloud and artificial intelligence (AI) capabilities.

This deal comes at a crucial time for luxury brands in China, where a challenging economic climate  demands innovative approaches to capture the ever-evolving market.

LVMH Strengthens Positions In China

LVMH announced  that it has strengthened its partnership with Alibaba to leverage the Chinese e-commerce giant’s cloud and AI capabilities. This will enhance LVMH’s presence in China and allow it to offer its products on Alibaba’s e-commerce platform, Tmall.

LVMH, the world’s largest luxury group, first partnered with Alibaba in 2019. The renewed collaboration comes as luxury brands intensify efforts to attract Chinese shoppers amid challenges like a property crisis and high youth unemployment.

This partnership underscores luxury brands’ growing emphasis on improving online shopping experiences, alongside investments in sophisticated physical retail stores.

Despite Kering’s recent report  of a 10% sales slump in the first quarter, causing a 7% drop in LVMH shares – and other peers stocks as well -, LVMH remains optimistic about growth in China. The local luxury market is still seen as having strong potential.

Analysts have mixed views  on China’s luxury market. While some, like HSBC , describe the demand as challenging and note disappointing trends in Hong Kong, Macao, and Singapore, others believe China will continue to lead in luxury purchases. Wall Street analysts  highlighted that Chinese tourists, despite traveling in greater numbers, are spending less, suggesting brands may need to diversify their markets. Or that they’re buying luxury products at home.

What Alibaba’s AI Products Do

Determined to compete in the AI landscape, Chinese e-commerce giant Alibaba is releasing two open-source AI models, Qwen-7B  and Qwen-7B-Chat . These models aim to rival Meta’s Llama 2, offering smaller versions of Tongyi Qianwen, the large language model (LLM) launched in April, which supports AI content generation in both English and Chinese.

Alibaba’s decision to make the 7-billion-parameter model Qwen-7B and its conversational counterpart Qwen-7B-Chat open source reflects Beijing’s push for the rapid development of “controllable” generative AI models to compete with American counterparts. This move underscores Alibaba’s ambition to challenge the status quo and establish itself as a dominant AI player.

The Qwen-7B and Qwen-7B-Chat models are particularly beneficial for small and medium-sized businesses seeking to adopt AI. By providing free access to the code, model weights, and full documentation, Alibaba democratizes advanced AI capabilities, saving users time and money on training.

In February, Alibaba Cloud launched  an AI model studio. It offered access to foundation models and training tools to expedite the deployment of LLMs. The studio includes Qwen models like the Qwen-72B and Qwen-1.8B, with 72 billion and 1.8 billion parameters, respectively, as well as third-party and industry-specific models.

Guo Dongliang, vice president of product and solution at Alibaba Cloud International, explained  that Model Studio aims to help customers overcome the challenges of building and deploying LLMs. The studio is designed for large enterprises with stringent security and privacy requirements, enabling them to run and manage LLMs in a controlled environment. It includes features for monitoring and filtering risky content based on responsible AI principles.

Organizations can also use Model Studio to train foundation models by creating, labeling, and managing training datasets, customizing model training with adjustable parameters, and easily evaluating and deploying foundation models.

Chinese Companies Cut AI Prices

Like other leading AI companies in China, Alibaba has significantly reduced the cost of its services. After the South China Morning Post reported  up to 97% discounts, Alibaba Cloud confirmed  it had lowered the price per 1,000 input tokens for its proprietary Qwen LLM. This move aims to foster the growth of AI applications in China.

Just two weeks prior, Alibaba proudly announced that Qwen had gained over 90,000 customers since its release. It has been downloaded more than seven million times from platforms like Hugging Face and GitHub. Alibaba Cloud CTO, Zhou Jingren, stated : “In China, generative AI is in hot demand.”

Alibaba’s price move came a day after competitor ByteDance introduced cheaper AI services. This decision prompted Baidu to announce  that it would offer free services based on its Ernie AI models. ByteDance also entered the fray last week, revealing prices for its AI services that are 99% lower than the prevailing industry rates in China.

These tit-for-tat maneuvers mark the early stages of a price-based battle within the AI sector. Tencent, China’s top internet company, slashed  prices for its LLMs in ChatGPT-like chatbots. The “lite” version of Tencent’s Hunyuan LLM is now free, and advanced versions are discounted by 50% to 88%. Earlier, iFlytek made its “Spark” LLM free or up to five times cheaper than competitors’ products.

This investment surge has led to numerous AI models and a proliferation of consumer and enterprise products. All of them are vying for the user base necessary to accelerate AI development.

While Beijing has prioritized AI adoption across government and industry, there is no indication that the government has mandated these price reductions. Instead, market forces appear to be driving these changes. However, China’s government may intervene if it perceives Big Tech is driving unpredictable or uncontrollable changes.

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