According to a McKinsey report, the new generation of artificial intelligence technology is expected to create a massive market opportunity worth $2.6 to $4.4 trillion across various industries. While the specific figures are not the central focus, the scale they represent is significant. The widespread application of AI heralds the emergence of a new round of industry giants. Based on this, we have conducted an in-depth analysis of the AI application market and discussed the investment opportunities we have observed.

Applications: The Greatest Opportunity in the AI Industry

In terms of underlying hardware, particularly in terms of computing power and network layers, and especially in domestic substitution, there are many opportunities. On top of the hardware foundation, models and toolchains together form the infrastructure of AI applications. We believe that general-purpose large models may solve over 50% of application scenario issues in the future, in addition to opportunities in specific industry models. At the same time, we see applications transitioning from traditional structured, procedural applications (whether on PC or mobile) to intelligent applications dominated by unstructured data. The integration of large models with applications also presents different depths. The most common mode is the Copilot mode, where existing applications are enhanced and empowered by large models, with opportunities primarily coming from industry leaders. However, it is relatively difficult for startups to enter this field. We believe that the biggest opportunity for startups lies in AI-native applications, which can proactively understand, perceive the environment, and interact with users, completing tasks in a closed loop, namely the so-called AI agents. The structure based on AI agents, coupled with advancements in underlying models, toolchains, and even hardware iterations, will ultimately lead us toward the path of General Artificial Intelligence (AGI).

AI Applications: Efficiency, Creativity, and Emotional Value

In the field of AI applications, we observe three major categories of functionality: efficiency enhancement, creative assistance, and emotional value. Efficiency-enhancing applications account for the largest proportion, about 60%. Tools like ChatGPT and our investment in PlatoX are designed to improve user efficiency. Creative applications fully leverage AI's large model generative capabilities. This category not only helps humans gain creative inspiration, such as designers using tools like Midjourney to create prototype images, assisting in creative expression; tools like Meitu allow creators to turn their ideas into visual digital assets through simple methods, bypassing traditional complex processes, and directly generating images or videos that can be shared on social media. Emotional value applications are a new type of application driven by large models. These applications use AI's anthropomorphic features and extend to various scenarios such as social interaction, companionship, gaming, and entertainment. Thus, AI technology demonstrates a wealth of practical opportunities in both consumer and business sectors.

AI Technology's Practical Opportunities in ToC

1. Next-Generation Anthropomorphic Platforms

Platforms based on the anthropomorphism of large models are set to be the most explosive area. For instance, Character.AI, a leading emotional companionship application, has stabilized its monthly active users at 12 million, with an average browsing duration of 30 minutes, far exceeding other generative AI applications. More notably, the daily average usage duration of active users on Character.AI is close to two hours, surpassing TikTok, indicating extremely high user stickiness.

Character.AI initially attracted game and comic enthusiasts as a role-playing robot, gradually evolving into a virtual character platform with rich personalities and styles, incorporating social functions like group chats and group games. These groups are not only based on common interests but also form specific value-oriented communities. Evidently, the success of Character.AI lies in leveraging the anthropomorphic capabilities of large models to create a social platform integrating real humans and virtual characters. We believe such anthropomorphic applications can expand into entertainment, education, and social networking, potentially nurturing platforms on the scale of ByteDance.

2. Personal Assistants

The new generation of AI personal assistants can proactively understand user needs and independently plan and execute tasks in a closed-loop operation without human intervention. Although traditional software also attempts to offer personal assistant functions, the user experience is often subpar, mainly because they provide only mechanical record-keeping and information display, lacking intelligence. For example, our investment, PlatoX, acts as a life assistant for schedule management, capable of automatically analyzing screenshot content, extracting key information, and asking the user whether to add the event to their calendar. This process resembles an anthropomorphic assistant, significantly enhancing the user experience, which is key to the success of the future personal assistant market. Additionally, a vast amount of information and data in our lives, whether related to people or the environment, have often been overlooked and wasted in the past. Due to the large model's ability to process unstructured data, personal assistants can more effectively capture and process these data, meeting users' more frequent and rigid needs.

3. New Generation of Application Distribution and Traffic Entry Platforms

With the emergence of new-generation applications, there will also be new platforms for application distribution and traffic entry. Taking Discord as an example, originally focused on gaming voice chat, it has smoothly transitioned and integrated features like built-in bots, group management, and permission control. These functionalities, tightly integrated with the conversational interfaces of large models, have made Discord a primary hosting platform for many AI-generated content (AIGC) applications, setting a standard for new-generation application distribution platforms akin to the APP store.

4. Integrated Smart Devices

The fourth opportunity in the ToC domain is integrated smart devices, driven by changes in interactive experiences and the demand for enhanced hardware performance. With the advancement of large models, more human-centric, natural language-based interaction methods will become mainstream. We can expect more devices adapted to this natural language interaction, like the smart earphones we have invested in, which are naturally suited for voice interaction. This also indicates that new categories like wearable devices and robots will emerge. Additionally, data in the future will primarily exist in unstructured forms, posing new demands on the transmission and processing capabilities of smart devices. Especially in perception and unstructured data processing, there are higher requirements for hardware. Therefore, combining these two needs, future development opportunities in smart devices will arise, with China's advantages in the supply chain of devices playing a crucial role.

5. Prosumer Market

Between ToB and ToC, the Prosumer market is emerging. Prosumer characteristics lie in the fact that although the users belong to the consumer segment, the functionalities of these tools are commercial and professional. The key to this market is that the new generation of AI integrates tools into the productivity chain, achieving effects and efficiency far beyond traditional software or human models. For example, in content creation, many KOLs pay for tools but use them to produce commercial content like images or videos, which are monetized through social media, live streaming, e-commerce, etc.

Compared to the cost and time of visiting physical stores offline, using Pixocial's Airbrush product requires only uploading 15-20 photos, taking about ten minutes, at a cost of five dollars, sometimes with a discount, and the photos can be processed in half an hour. This demonstrates the exponential improvement in performance and efficiency of the new generation of AI, posing a significant impact on traditional productivity, and indicating the potential development of the Prosumer market.

AI Technology's Practical Opportunities in ToB

1. Copilot to Agent Transition

In enterprise-level applications, the integration of AI with vertical industries is often gradual. The AI needs of enterprise applications depend on the complexity of their processes and the extent of interaction with the environment. For example, in independent or one-time operation scenarios, such as PDF operations, combining AI to form a copilot function is ideal. For startups, it's more suitable to cover complex interaction scenarios that traditional software struggles with, such as the AI agent mode, which can autonomously judge, execute, and plan. For instance, RPA systems are widely used in enterprise customer service, but due to their rigid processes, they lack adaptability to external environmental changes and are thus ripe for replacement by intelligent, self-learning, and adaptive agents. Enterprise-level AI agents are a market necessity, although adaptation to technology and enterprise customer attitudes takes time. A viable path is to start from lightweight scenarios, like internal corporate knowledge bases or customer service, gradually transitioning from human-led to AI-led processes, ultimately achieving full agent functionality.

2. Private Data Advantage

In the B2B market, startups' biggest challenge is data scarcity. Much of the data in vertical industries like manufacturing, healthcare, and finance are privatized. Therefore, enterprises that have accumulated private data have an early advantage. For example, Yidianling in the field of psychological counseling, Wind in finance, and Winning Health in healthcare are early integrators of AI with vertical industries. Companies with private data can use this advantage to start with scenarios with higher error tolerance, like customer service and marketing. In this process, they can continuously iterate technology and products, gradually moving into more core and valuable areas, like primary production and R&D.

AI Applications: Trillion-Dollar Opportunities

Overall, in the comparison between global and Chinese enterprises, influenced by policy freedom, the consumer market is more suited to developing global applications, especially in areas of efficiency enhancement, creative release, and emotional value. For B2B vertical industries, Chinese software is experiencing a triple opportunity of domestic substitution, digital transformation, and AI innovation. We are particularly optimistic about the application of AI in specific industries. Additionally, based on the existing supply chain advantages, China also has strengths in the field of intelligent terminals. We believe that now is a golden era for investment in the field of AI applications, with great potential to nurture the next industry giants like ByteDance or Tencent.