Can SenseTime become a Chinese AI champion?

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Three years ago, Tang Xiao’ou joked to an audience at the Massachusetts Institute of Technology that it was his company, SenseTime, rather than Google, that immediately came to mind when people talked about artificial intelligence. .

Today, SenseTime, one of China’s brightest hopes for its plan to become a world leader in AI, is gearing up for a $ 2 billion public listing in Hong Kong that could arrive before the end of the year. ‘year.

Known for its expertise in facial recognition, SenseTime has raised more than $ 3 billion from investors such as SoftBank, Alibaba, Tiger Global and Silver Lake, making it one of the four most publicized AI companies. in China, with its peers Megvii, Yitu and CloudWalk.

All four have grown rapidly with the support of Beijing, which has enabled them to collect and process large swathes of data on the country’s immense population, are now attempting to list them and have the ambition to expand to abroad.

But the four companies were also concerned about the use of their technology and were hit with sanctions from the United States for allegedly aiding human rights abuses in the western Xinjiang region, a charge the companies have denied. .

Since then, companies have had to tread carefully to maintain good relationships with their most visible and important customer – the Chinese government.

SenseTime is “caught in a conundrum,” said Jeffrey Ding, postdoctoral fellow at the Center for International Security and Cooperation at Stanford. “Western investors might want them to be more direct by disavowing[ethnic profiling]. . . but that would make them lose business in China.

Documents filed by the start-up before its IPO reveal the extent of its dependence on Beijing. Its Smart City business, which includes facial recognition and predictive policing, contributed 40% of its sales last year. Its five largest customers, which accounted for nearly a third of its 3.4 billion Rmb ($ 525 million) in sales, are primarily what SenseTime calls “systems integrators,” who serve as city administrators. .

Since 2008, at least 500 Chinese cities have tried to install so-called Smart City technology, working with private companies like SenseTime, Alibaba, Hikvision and Huawei to find digital solutions to urban problems.

SenseTime’s software has been deployed in 119 cities, the vast majority of which are in China. In one city, its systems are being used to detect people not wearing seat belts in cars, with a claimed accuracy rate of 94%. It can also spot drivers who use cell phones with 86-96% accuracy.

Professor Tang Xiao'ou, co-founder of SenseTime Group

Tang Xiao’ou, co-founder of SenseTime © Imaginechina Limited / Alamy

In another prominent southern Chinese city with 17 million people, SenseTime’s traffic management system recorded traffic violations committed by mopeds. Police tracked down 50,000 such incidents and the drop in monthly moped abuse fell by more than half in just a few months. The number of drivers choosing to wear a helmet, meanwhile, fell from less than half to 94%.

Megvii, the oldest of the four AI startups, also counts the government as its biggest client. Last year, the company backed by Alibaba and Ant Group made 64% of its revenue from smart city technology. The facial recognition technology company was forced to drop its Hong Kong listing when Washington blacklisted the company in February last year.

But international expansion has been hampered by concerns about Chinese influence. British intelligence agencies, for example, have lobbied for local authorities to buy the software, fearing it could be used for espionage or surveillance.

Over the past two years, SenseTime has added offices and clients in Southeast Asia, North Asia, and the Middle East, where oversight reservations are also less pronounced.

But he doesn’t give many details on how many overseas deals he’s made, especially following his blacklist in 2019.

The growth of the Chinese computer vision software market

A long-discussed project to detect fraud and cheating in casinos with the entertainment group Genting, which operates the Singapore casino on Sentosa Island, has not yet resulted in concrete public information. A research hub in Abu Dhabi to provide “AI capabilities” to local start-ups has not announced many deals since its creation in 2019.

Meanwhile, other Chinese tech companies are investing in their own AI capabilities, which could hurt SenseTime’s “smart business” branch.

“Unicorns and other big tech companies increasingly have their AI in-house,” said William Bao Bean, Shanghai-based general partner at global venture capital firm SOSV. “Most Chinese companies are not used to paying for software, which is why many customers of companies like SenseTime are governments. “

A former SenseTime employee told the Financial Times that initially he gained tech clients including ByteDance, the owner of TikTok, and Hikvision, which makes CCTV cameras.

But in 2019, ByteDance had “strongly disengaged” from SenseTime in favor of creating its own internal teams after working with it on AI facial filters. “It’s faster because they’ve had faster access to the data, and they don’t need to pay SenseTime,” the person said.

A person close to the company admitted that it had lost business but continued to expand its base of over 2,400 customers.

SenseTime has tried to push the hardware harder and offer a larger package to customers. It wants to devote a significant portion of the proceeds from its IPO to research and development, which includes a new AI supercomputing data center near Shanghai to be completed in 2022. It is also developing AI chips, designed to process AI tasks faster and more. effectively.

Driverless AR bus and AI smart car developed by SenseTime

A driverless bus developed by SenseTime © Costfoto / Barcroft Media via Getty

Another area is software to support autonomous driving – a phrase mentioned 68 times in its documents, compared to just six mentions of “facial information.”

Even here, SenseTime has stiff competition, experts said, and currently the company’s automotive division contributes less than 5 percent of its sales.

“Autonomous driving is a crowded market and SenseTime is a late entry. Many dance cards have already been filled out by Baidu, Pony.ai and WeRide, ”said Tu Le, founder of consultancy firm Sino Auto Insights. “I don’t think many would go dual-sourced or ditch their current partners for SenseTime. “

But many investors are encouraged by government support for the business. SenseTime received 352.8 million Rmb in government grants in 2020, a 37% increase over what it received in 2019.

Producing cutting-edge technology and setting the agenda is key to President Xi Jinping’s stated goal that China should be an AI leader by 2030. The success of SenseTime and others IA, notably Megvii, Yitu and CloudWalk, directly fuel this ambition. The AI ​​industry has not received as much scrutiny from regulators as other Chinese internet companies this year.

As one mainland-based investor told Megvii: “Is it a bad thing right now if your biggest customer is the Chinese government, who is doing their part to make sure you do well? We do not think so.


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