SenseTime's vision: become the “State Grid of AI”

The venture capital darling's products may sound like the stuff of science fiction, but its co-founder tells FinanceAsia they could soon be as matter-of-fact as electricity or water supplies.
Singapore Prime Minister Lee Hsien Loong tries out SenseTime's facial recognition system (photo provided by SenseTime)
Singapore Prime Minister Lee Hsien Loong tries out SenseTime's facial recognition system (photo provided by SenseTime)

Are you hooked on TV crime drama Person of Interest?

If you are familiar with the American series, you'll know all about "The Machine", a computer system built and designed for a secret US government agency that uses artificial intelligence to pore through immense amounts of surveillance data to predict and prevent terrorist attacks.

In America it's science fiction. In China, it's becoming science fact.

Driven by the government’s ambition to build a national closed-circuit television network, investors have poured billions into maturing artificial intelligence and deep learning technologies, turning China into a cutting-edge surveillance powerhouse.

While the trend alarms human rights groups, investors are excited by the possibilities of companies that focus on AI research and applications such as facial recognition and object detection. At the vanguard of this research is Hong Kong-based SenseTime, which believes its cutting edge technology could one day be part of everyday life.

“We want the use of artificial intelligence to become as common as water, electricity, or gas in the daily life,” Xu Bing, co-founder and vice-president of SenseTime, told FinanceAsia of the firm’s vision.

Founded in 2014 by a group of long-standing academic research colleagues from the Chinese University of Hong Kong, SenseTime has quickly turned into one of the world’s hottest AI companies. Its technologies are used in city surveillance system, financial institutions, and smartphones, among others.

It's on the brink of closing its Series C fundraising round, approximately four months after its last round in July, which valued the firm at around $1.5 billion. It is now valued at more than $2 billion, according to Xu, and the new round – set to raise more than $500 million – will be closed by the end of the year.

In October, it inked a strategic cooperation deal with mobile chip giant Qualcomm Technologies, becoming the latter’s only global partner to develop on-device AI in areas such as innovative vision and camera-based image processing. And the US chip maker is now a strategic investor in SenseTime, according to an announcement on November 15.

“Our original algorithm IP [intellectual property] is a major reason Qualcomm chose us,” said Xu. The firm developed its own proprietary deep-learning platform, dubbed Parrots, which can quickly innovate and develop a variety of algorithms at low cost and with a quick turnaround.

With a focus on computer vision, the AI start-up has developed applications including human-face recognition, text and character recognition, human-body recognition, mobile vehicle recognition, object recognition, and image processing, all powered by the Parrots platform.

A subset of machine learning technologies, deep learning embodies algorithms that teach computers to learn and perform tasks based on classifying various data in various forms, such as images, sound and text.

SenseTime co-founder Tang Xiaoou (centre) demonstrates the use of its gesture recognition technologies [photo provided by SenseTime]

This robust and cost-efficient system has enabled SenseTime to build an imposing market share in China, leading to rapid revenue growth, as well as a tail of investors.

Its revenue last year exceeded the total of all other computer vision AI start-ups in China combined, according to Xu, and is growing at over 400% this year.

It now has more than 400 customers and strategic partners, including China Mobile, HNA Group, Wanda Group, selfie-app Meitu, graphics processor maker Nvidia, China UnionPay, JD Finance, Sina Weibo, China Merchants Bank, and smart-phone makers Huawei, Oppo, Vivo and Xiaomi.

It also works with the Ministry of Public Security’s Third Research Institute to develop the mainland’s citizen network identity infrastructure, which has attracted criticism overseas.

In July, it netted $410 million from a group of nearly 20 investors in the Series B round. But Xu confessed the firm, a venture capital darling, had to turn away over $300 million from many other would-be backers in this round. “We planned to raise only $200 million at first,” Xu said.

Accelerated race

SenseTime is tapping investors so frequently amid a frenzied race to build scale in China's hyper-competitive AI industry.

Chinese facial recognition specialist Megvii, also known as Face++, which is behind Alipay’s “scan your face to pay” function and a major rival to SenseTime, announced earlier this month it had raised $460 million from China State-owned Venture Capital Fund and China-Russian Investment Fund, which is backed by the sovereign wealth funds of both countries, and existing backers Ant Financial and Foxconn.

But Xu is confident of Sensetime’s future in this sector, despite the fact intense competition will inevitably drive down business margins. Its gross profit rate reached 85% last year, according to Xu, adding that this means “we have the room to cut price when volume, or competition, goes up”. Therefore “we can use price advantage to quickly take market,” Xu said.

Xu Bing talks up AI market potential
[photo provided by interviewee]

“Facial recognition will be very cheap in the end, just like water, electricity or gas utility,” said Xu.

He believes Apple's decision to add a Face ID function to its new iPhone X will also cultivate acceptance of facial recognition among consumers.

Abeit being the best commercialised AI application at the moment, facial recognition only accounts for a small portion of SenseTime’s market-ready products. That means, the firm has “ample bullets” in terms of other market-ready products, said Xu.

Ultimately, AI applications should be as cheap as electric utility and SenseTime aims to be a “State Grid of AI”, Xu said, adding "electric utility is cheap, but State Grid is among the most valuable companies".

SenseTime is the first of 10 hot startups FinanceAsia will profile as part of a new series running the rule over exciting companies that are changing the game across Asia. We'll publish more such profiles in the days to come.

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