Doubao’s Pricing War

In May 2024, Tan Dai, president of Volcano Engine, announced at a conference that Doubao’s pricing for its large model was significantly lower than the industry average, set at just 0.0008 yuan per thousand tokens, causing a stir in the audience.

Two years later, Doubao revealed a new subscription plan with three tiers, the highest being 500 yuan for a monthly subscription. This aggressive pricing strategy marked a shift in the competitive landscape, with rivals initially emphasizing their continued free offerings rather than following suit.

Low Price Clearing the Field

On May 4, 2026, Doubao added subscription options in the latest version of its app on the App Store, with the standard version priced at 68 yuan and the premium tier at 500 yuan. The announcement quickly topped Weibo’s trending topics.

Comments ranged from users threatening to uninstall if charged to concerns about the potential decline in the quality of the free version. Two years prior, Tan had calculated that at the price of 0.0008 yuan per thousand tokens, one could purchase 1.25 million tokens for just 1 yuan, equivalent to three volumes of “Romance of the Three Kingdoms.”

This pricing strategy disrupted the industry norms. Alibaba Cloud slashed the input price of its flagship model Qwen-Long from 0.02 yuan to 0.0005 yuan, a reduction of 97%. Baidu went further, offering its main models, Speed and Lite, for free. The ensuing price war severely impacted the survival of startups, forcing them to either focus on niche markets or build application ecosystems, as the middle ground for general models vanished.

Baidu’s Shen Dou noted that the malicious price war in the domestic large model industry had led to revenue discrepancies compared to international counterparts by several orders of magnitude.

Today, the industry has undergone drastic changes. According to Guolian Minsheng Securities, China’s average daily token consumption skyrocketed from 100 billion at the beginning of 2024 to 180 trillion by February 2026. In response to surging demand, companies like Zhipu AI and Tencent Cloud issued price increase notices, with some products seeing hikes of over 400%.

The underlying logic of the price war was to burn cash for market share, but when market scale peaks, burning cash turns from investment into waste. Tan emphasized that Doubao’s pre-training costs were significantly lower than those of other domestic models, allowing for healthy margins even at current pricing. If true, Doubao’s strategy over the past two years was not about losing money for visibility but leveraging cost advantages to dominate competitors.

An Unmovable 300 Million Users

QuestMobile’s Q1 2026 report revealed that Doubao’s monthly active users reached 345 million, far surpassing the second-place Qwen at 166 million, with a gap of over 180 million. Additionally, Doubao’s quarterly user growth reached 101 million, accounting for 80% of the industry’s new users.

In just two years, Doubao’s monthly active users surged from 26 million to 345 million, a 13-fold increase, far exceeding all competitors. As Doubao became synonymous with the category, its pricing began to set new industry standards.

However, it’s important to note that not all 345 million users are direct paying customers. Doubao’s goal isn’t to have everyone pay but to sustain growth with even a small percentage of paying users from its vast user base.

Doubao’s user retention is also impressive, with a 30-day retention rate of 44.5%, significantly higher than Qwen’s 23.5% and Yuanbao’s 30.1%. On average, Doubao users engage 54.8 times per month, three times more than Qwen’s 19.8 times. Doubao also leads in activity rate at 33.5%, compared to Qwen’s 17.1%. Each metric shows a substantial gap.

High retention rates mean that the switching costs for users facing a fee are extremely high. Although users may threaten to uninstall if charged, they face the dilemma of finding a suitable alternative.

As of March 2026, Doubao’s daily token usage exceeded 120 trillion, a 1000-fold increase since May 2024. However, this massive growth in usage comes with a corresponding surge in computational costs. ByteDance’s capital expenditure in 2025 exceeded 150 billion yuan, with about 90 billion yuan allocated to AI computing power, and plans for 160 billion yuan in 2026, including 85 billion yuan for AI chip procurement.

This high expenditure resulted in a more than 70% decline in net profit year-over-year for 2025. Douyin Group’s vice president Li Liang clarified that when calculated based on operating profit margins, the actual decline was minor, but he acknowledged that the slowdown in Douyin’s e-commerce growth was indeed pressured by increased investments in emerging businesses.

Doubao’s free model is not unsustainable; rather, each additional day of operation further squeezes the profit margins of its core business. In Q1 2026, global AI application monthly active users surpassed 2.7 billion, with China contributing over 50% of the new users, bringing the domestic AI application monthly active user base to 851 million. Essentially, all users capable of using AI have become users of AI applications.

Once the user base is established, free offerings shift from investment to cost.

Rules Rewritten

After Doubao announced its pricing, competitors reacted more vigorously. DeepSeek was the first to announce a limited-time 75% discount on its V4-Pro model API. Alibaba’s Qwen launched a subsidy campaign, enticing users with free milk tea. Yuanbao and Wenxin Yiyan directly advertised free usage.

Doubao’s pricing table has placed all competitors in a dilemma: charging would effectively hand users over to rivals, while maintaining free services would imply an acknowledgment of still being in the user education phase.

The standard version’s price of 68 yuan per month was not arbitrarily set. A 2025 Tencent Research Institute survey found that about three-quarters of AI users had paid or were willing to pay, with over 55% of paying users spending less than 100 yuan monthly. The price of 68 yuan accurately aligns with the psychological price range of most users.

Is there a precedent for this pricing strategy? Yes. Kimi has validated this for the entire industry. Within a month of launching the K2.5 model, it surpassed its total revenue for 2025, with global paying users increasing fourfold. Stripe’s data showed an astonishing 8280% month-over-month increase in orders from Kimi’s individual subscribers.

The valuation of “The Dark Side of the Moon” soared to 10-12 billion USD, setting the record for the fastest unicorn emergence for a Chinese company.

Chinese AI users are not unwilling to pay; they simply lacked products that matched the price point. Doubao’s 345 million monthly active users, even with just a 1% conversion rate, would vastly exceed Kimi’s total paying user base.

An earlier precedent dates back ten years. In 2016, WeChat Pay was the first to charge a 0.1% fee for withdrawal services. At that time, Alipay was still leading in mobile payments, and it was widely believed that WeChat Pay was prematurely charging while still establishing its competitive edge. However, users did not abandon WeChat Pay. The core scenarios of WeChat Pay, such as sending red envelopes, splitting bills, and transferring payments, are highly sticky and can only be completed within its ecosystem.

The cost of user exit is extremely high, making charging not a threat.

Now, Doubao is replaying the same scene. The largest user base is the first to charge, not defining its profit margins but establishing a clear price benchmark for the entire category.

Morgan Stanley has already calculated the numbers. Based on a conversion rate of 0.3% to 3% and monthly active users ranging from 345 million to 525 million, Doubao’s annual subscription revenue could range from 100 million to 1.5 billion USD, with a neutral scenario corresponding to approximately 426 million to 684 million USD in revenue.

However, Wall Street’s optimism is predicated on a premise: achieving a 30% annual renewal rate for domestic C-end tool products is already considered top-tier in the industry, while similar overseas products average renewal rates of 60% or more. Whether Doubao can convert initial impulsive payments into long-term retention remains unanswered.

Meanwhile, across the ocean, OpenAI has taken a different path. ChatGPT’s weekly active users reached 500 million, with only 25 million paying users, reflecting a payment rate of about 5%, meaning only 1 in 20 users is willing to pay.

OpenAI’s solution is to launch a low-cost version, ChatGPT Go, priced at $8/month, while also incorporating ads, aiming for $2.5 billion in ad revenue by 2026. This approach subsidizes free users through ad revenue, lowering the payment barrier.

In contrast, Doubao has chosen the opposite route: it does not rely on ads to dilute user experience but directly charges heavy users for premium features.

The divergence in these two paths stems from the recognition that a purely free model is unsustainable. One opts for ads as a safety net, while the other chooses subscription services to support operations.

Morgan Stanley provided a clearer qualitative assessment: the cultivation phase of Chinese consumers’ AI usage habits is nearly complete, and the industry is shifting from user subsidies to sustainable commercial development.

If Doubao’s subscription model is validated by the market, competitors like Tongyi and Yuanbao, which still maintain free strategies, will face the tough decision of whether to follow suit or stick to free offerings.

Two years ago, Doubao disrupted the existing pricing system with its 0.0008 yuan per thousand tokens; two years later, it has restructured this system with a price range of 68 to 500 yuan. The entity that once broke the rules has now become the dominant force in re-establishing them.

The first to release a pricing table does not merely define its profit margins but provides the entire industry with a clear pricing benchmark.