Source: China Entrepreneur Magazine
Author: Deng Shuanglin

$Apple (AAPL.US)$ and $Alibaba (BABA.US)$ This cross-border "marriage" has been firmly established.

On February 13, at the World Governments Summit 2025 held in Dubai, UAE, Alibaba co-founder and Chairman of the Board, Cai Chongxin, responded to rumors of collaboration between Alibaba and Apple. He stated that Apple needs a localized partner in China for their Smart Phone services. Apple has always been very selective, and they have engaged in talks with many companies in China. Ultimately, they chose to do business with us.

We are very fortunate and honored to be doing business with a great company like Apple. Cai Chongxin stated.

Previously, news broke that Apple reached a strategic cooperation with Alibaba to jointly develop localized AI features for iPhone users in China. Although the news had not yet been confirmed at that time, Jack Ma's timely appearance at Alibaba's Hangzhou campus, particularly his visit to the offices of Quark and Tongyi located in Alibaba's Intelligent Information Business Group, further increased the credibility of this news.

The Capital Markets also reacted first — on February 12, Eastern Time, Alibaba's NASDAQ shares closed up 4.92%, and Apple's stock price also rose by 1.83%.

At the beginning of 2024, after Apple CEO Tim Cook's trip to China, the industry has been discussing: which company will ultimately obtain the cooperation of "Apple Intelligence"?

According to The Information, Apple initially chose $Baidu (BIDU.US)$ as the main partner, however, Baidu failed to meet Apple's standards in developing the Apple Intelligence model, leading to obstacles in their cooperation. Later, Apple began to "shop around" and evaluated other options including $TENCENT (00700.HK)$ Models developed by companies like ByteDance, Alibaba, and the recently popular DeepSeek.

In the end, Alibaba grasped the olive branch.

However, this collaboration is not just a bonus, but rather a mutual redemption. One is experiencing a sharp drop in sales in China, while the other has had its main business continuously eroded in recent years. Both Apple and Alibaba urgently need a comeback.

Why Alibaba.

Similar to the high standards for entering the "fruit chain," Apple's "interview" process for domestic giants can also be considered strict.

In 2023, Apple began quietly testing different AI models from Chinese developers and frequently engaged with Baidu. However, during the development process, Baidu's progress and results did not meet Apple's standards, and the two sides ultimately failed to reach a cooperation.

In recent months, Apple has conducted multiple rounds of assessments of several candidate companies, including TENCENT, ByteDance, Alibaba, and DeepSeek. Particularly with the rising momentum of DeepSeek—during Apple's recent earnings reports conference call, Cook praised this "popular rising star," pointing out that DeepSeek has achieved significant innovations in reducing the training and running costs of the V3 model.

However, DeepSeek was still not selected. According to The Information, the main reason Apple gave up on DeepSeek is that the team lacks the manpower and experience to support a large client like Apple.

Kuang Yuqing, the founder of Lens Consulting, explained to "China Entrepreneur" that it is normal for a company of Apple's scale not to choose DeepSeek, as the latter's hardware capabilities cannot support Apple's significant customer demand in the short term. Apple cannot afford to wait and miss market share, so it must choose a large platform. Currently, DeepSeek's computing power resources and service capabilities cannot even meet the basic needs of C-end users. Ordinary users of their products often encounter 'network busy' messages after asking just one or two questions, making it impossible to meet Apple's stability requirements.

Previously, Apple mainly collaborated with OpenAI on AI large models, allowing overseas iPhone users to use ChatGPT for various issues. However, due to privacy data compliance issues, Apple’s AI functions have not been implemented in China.

Open-source models and low-cost training technologies have rapidly garnered significant attention for DeepSeek. However, large enterprises like Apple care more about stability, diversified service capabilities, and data compliance.

"The reasons for Apple's choice to collaborate with Alibaba include first, Alibaba's computing power; second, Alibaba's close service to B-end clients and their hands-on adaptation abilities; and third, large companies like Alibaba invest significantly in data security, which is crucial for companies like Apple that prioritize data security. Of course, this does not mean that DeepSeek's products are inferior, but rather that DeepSeek's products are more suitable for small and medium-sized enterprises and developers for local deployment," said Pan Helin, a well-known digital economy scholar and member of the Expert Committee on Information and Communication Economy of the Ministry of Industry and Information Technology, to "China Entrepreneur."

He also pointed out that with Apple as a major client, Alibaba can embed AI into Apple devices and diversify it into more Apple apps, as well as jointly create AI smartphones with Apple. On the other hand, there may be interactions in data learning between Alibaba and Apple, using data to train Tongyi Qianwen, which would mature the AI and enhance Alibaba's data advantages.

"Of course, data cooperation is based on compliance, and Alibaba has its advantages in compliance since it has gone through significant challenges," Pan Helin said.

It is noteworthy that Alibaba has continuously invested in open-source technologies. Since August 2023, Alibaba Cloud's Tongyi Qianwen has successively open-sourced four generations of models including Qwen, Qwen1.5, Qwen2, and Qwen2.5. Public information shows that the number of derivative models of Qwen in the domestic and international open-source community has exceeded 0.09 million, surpassing the Llama series of open-source models under Meta, ranking among the top globally.

Apple and Alibaba have long awaited timely assistance.

Both Apple and Alibaba, the two giants, are eager to see this cooperation come to fruition.

At Apple's autumn new product launch on September 10, 2024, Beijing time, the iPhone 16 series equipped with the latest AI system Apple Intelligence was unveiled, which became the highlight of the event.

According to Apple's plan at the time, the Apple Intelligence feature will gradually expand to support more languages, with plans to add English dialects from Australia, Canada, New Zealand, South Africa, and the United Kingdom by December 2024. Chinese support may come in 2025.

Time waits for no one, and smartphone manufacturers aiming to seize the window period are also not waiting. The past year can be considered as the first year of AI phones, with brands like vivo, OPPO, and Honor launching smartphones equipped with AI functions. Amid strong competition, Apple’s AI features have yet to launch domestically, which has directly impacted Apple's sales in China.

Over the past year, iPhone sales in China have continued to decline. According to statistics from Canalys, in the fourth quarter of 2024, iPhone shipments in China fell by 25%.

In terms of market share, according to Counterpoint's monthly smartphone sales report, in the fourth quarter of 2024, Huawei ranked first in China's market share, followed by Xiaomi, Apple, vivo, and Honor. Huawei's sales increased by 15.5% year-on-year, Xiaomi grew by 3.9%, while Apple saw a decline of 18.2%.

Regarding the sharp decline in sales in China, Cook admitted at the Earnings Reports meeting that, "Apple has not yet launched Apple Intelligence in this market, which has also affected revenue."

The iPhone equipped with ChatGPT is still not available domestically, while other smartphone manufacturers have already been fiercely competing in the realm of intelligence. Apple hopes that once the collaboration with Alibaba is realized, it can reverse the market decline and accelerate Apple's AI progress in the Chinese market.

According to reports from IFanr, barring any surprises, the Qwen model is likely to integrate into the iPhone ecosystem in two forms in its latest collaboration with Alibaba. One is essentially in the form of a plugin, providing full-function AI services as a third-party LLM.

This strategy aligns with Apple's approach to integrating ChatGPT in overseas markets. However, just as its collaboration with OpenAI is not exclusive, in the future, models such as Google Gemini or Claude may also be integrated into overseas iPhones, and more domestic AI models may be introduced into the domestic market.

The second is the collaboration with Alibaba to deploy distilled small models. Unlike DeepSeek V3/R1, which focuses on the 671B super large models, Qwen takes a comprehensive approach. Even DeepSeek, among its six open-source distilled small models, has four options based on Qwen.

Meanwhile, Alibaba is waiting for the Capital Markets to reassess the value of its cloud and AI businesses.

After the appointment of Cai Chongxin and Wu Yongming, the two strategic focuses of 'User First, AI Driven' were established, and based on this, business restructuring was carried out to reshape business strategy priorities. For non-core businesses, the aim is to realize the value of these assets through profitability as soon as possible or through various capitalizing methods.

Alibaba is investing in AI technology research and infrastructure construction with unprecedented intensity. Currently, Alibaba's self-developed Tongyi large model has been integrated by over 300,000 corporate clients including China FAW, Lenovo, Weibo, Ctrip, Himalaya, and Suntory (China). For Alibaba, the collaboration with Apple has a far greater value in terms of capability and credit endorsement than its financial contribution.

However, it is still too early for the pattern of the AI era to be finalized, and Alibaba still needs to maintain a sense of urgency. "OpenAI and DeepSeek indicate that disruptive innovations may emerge at any time in this industry, and the cycles may become shorter. Before the old pattern has formed, it may be disrupted by new significant innovations, making it hard to say that any particular pattern can achieve long-term stability," analyzed Kuang Yuqing.

In December 2024, Jack Ma, at the 20th anniversary event of ANT GROUP CO., LTD., mentioned the development of AI, stating that the changes brought by the AI era in the next 20 years will exceed everyone's imagination. "AI will change everything, but that does not mean AI can determine everything. While technology is indeed important, what will truly decide the winners and losers in the future is what we do today that is genuinely valuable and unique for this upcoming era," said Jack Ma.

Editor/rice