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AliCloud said the decision to open source its two AI models is to make it easier for users to train and deploy the generative AI models without having to spend so much time and capital building a new one on their own.

AliCloud’s move follows a similar one by Meta Platforms to open source its generative AI model Llama 2. In China, AliCloud is a pioneer among big enterprises working on generative AI to have open sourced the AI model.

The ‘open source’ decision could help AliCloud leap forward in the AI race.

Big Chinese internet companies are all into AI, many of them busy with building proprietary ChatGPT like AI models. Baidu and AliCloud are early movers with several others (e.g. Tencent and Bytedance) following closely. In this new and heatedly-contested AI field, it is difficult to tell at this moment which player(s) would be the ultimate winner(s).

Yet, Nomura believe AliCloud’s ‘open source’ strategy would help it build an AI ecosystem that will be joined by business users from all walks of lines, and third-party SaaS developers that produce various AI applications catering to the needs to the business users. This is similar to the Android mobile operating system in its early years. The owner of Android system, Google, open sourced Android mobile system amidst competition from then early movers, e.g. Microsoft's windows and Nokia’s Symbian, making its Android system widely accepted by smartphone makers and ultimately becoming one of the two dominant mobile systems today.

How can AliCloud make money from the ‘free’ AI models?

These two open-sourced AI models, i.e. Qwen-7B and Qwen-7B-Chat, are two intermediate versions of AliCloud’s LLM, Tongyi Qianwen, which in Nomura‘s view should be able to meet the needs of most business users. However, for certain businesses with deep pockets such as large SOEs, they may prefer the deployment of a customized and ready-to-use version of AI model, which is not free.

For the free versions of AI models, AliCloud is entitled to charge a license fee as long as the monthly active users of the individual business partner surpasses 100mn. Meanwhile, as the ecosystem operator, AliCloud is able to take a cut in the subscription revenue for various AI gadgets developed by third-party app developers as well as selling its selfproduced AI tools that are running on the open-sourced AI models. This monetization model is similar to the one employed by Apple and Google to monetize their respective mobile ecosystem.

Last but not least, this open-sourcing moving would enhance the appeal of AliCloud’s cloud service. For the prospective users of AliCloud’s open-sourced AI models, there will be one more incentive to choose AliCloud’s cloud services, in Nomura‘s view, for the convenience of training and deployment of their future AI applications that are adapted from AIiCloud’s open-sourced models.

Stock: BABA.US

Stock Rating: Buy

12m Price Target: USD136.00