This article was written by Daphne Tomlinson, Senior Research Associate at Memoori.
China has been investing heavily in Artificial Intelligence (AI) in a national bid to become a world leader in the technology. A government plan calls for the country to be at the forefront of AI research by 2030. Billions of dollars are being poured into companies that are researching AI technology, with video analytics and IoT platforms for smart cities being two of the prime applications.
Memoori estimates that China accounts for approx. 31% of global physical security revenues. It is now the biggest single country market for physical security products having increased its share by almost 50% in the last 7 years. Video surveillance equipment has been the major contributor here, with the market growing rapidly through a boom in new construction and safe city projects in the public sector. Hundreds of cities in China, large and small, have jumped on the smart cities bandwagon, as advocated by Beijing, and have established budgets to support such initiatives.
Several Chinese AI startups addressing the smart city vertical, are valued at more than $1 billion, qualifying them as unicorns. Four companies, Megvii, SenseTime, CloudWalk and Yitu, offer face recognition software for public surveillance while Terminus Technologies offers a range of smart building technologies, leveraging AI and IoT.
According to its recently filed Hong Kong Stock Exchange IPO document, Megvii, the developer of Face++ face recognition software, is the largest AI-focused solution provider in China’s smart city and community management vertical in terms of revenue. Megvii reported revenue of around $200 million and posted losses of $469 million in 2018. The City IoT segment of its business that provides surveillance and security systems, accounts for nearly 75% of its revenues and has customers in more than 15 countries and territories outside China. The company was valued at $2 billion in 2018 and has raised over $1.4 billion in funding.
Hong Kong-based SenseTime, the highest valued of these four companies, specializes in systems that analyse faces and images on an enormous scale, with applications in the retail, telecommunications and healthcare sectors, as well as physical security. SenseTime has been profitable for two years and has grown to around 3,000 people, of which a third work in research. In September 2019, the company secured a $1 billion investment from Japanese SoftBank's Shanghai affiliate SoftBank China Venture Capital, raising its total fundraising to $2.6 billion and lifting its valuation to around $5.9 billion.
CloudWalk Technology, a Guangzhou-based developer of AI-focused facial recognition software, was an AI startup incubated in the Chinese Academy of Sciences (CAS) system. As of March 2018, a total of 24 provinces in China utilize public security solutions powered by Cloudwalk. The company also provides facial recognition solutions at airports. Total funding amounts to over $509 million and the company is valued at approximately $2 billion.
Yitu Technology, founded in 2012, is a leading Chinese AI company and one of the earliest computer vision companies in public security surveillance. Yitu is the only company to have won both facial recognition tests organized by the National Institute of Standards and Technology (NIST) and the Intelligence Advanced Research Projects Activity (IARPA). In January 2018, Yitu's systems were deployed in over 20 provincial public security bureaus and over 300 cities. Total funding amounts to over $416 million and the company is valued at approximately $2 billion.
According to its web site, Terminus Technologies has grown itself into a unicorn, with a valuation of over $1 billion. The company aspires to become the largest city-level IoT platform operator in China, committed to providing governments and enterprises with solutions for urban management, building energy management, fire protection systems and public security.
Terminus offers a broad set of smart products such as face-scanning locks, access control, automated fire control systems and energy management technologies using IoT to help upgrade multiple facilities and infrastructure in communities, office buildings, shopping malls, schools, hospitals, water services and parks. The company has expanded its business to 84 cities, covering 30 provinces across China and implemented over 8,400 projects nationwide. It is majority owned by its main backer, China Everbright Group, the Chinese state-owned conglomerate, with Ai Yu, the Group’s Managing Director also serving as Terminus' CEO. In August 2019, the company closed a Series C round of $283 million, bringing total funding to over $528 million.
It is clear that these Chinese startups have benefited from huge capital injections. What remains to be seen is whether they can sustain their technological advantage, growth and profitability while at the same time addressing global privacy concerns related to largely unregulated public surveillance in smart cities.