Zhang Tong, the director of Tencent's (OTC:TCEHY) AI Lab, recently resigned after leading the unit for nearly two years. Tencent poached Zhang from Baidu (NASDAQ:BIDU) in March 2017 to lead the division, which develops machine learning, computer vision, speech recognition, and natural language processing technologies.

Tencent's AI Lab was founded in 2016. After Zhang took the helm, the unit grew its number of research scientists from 50 to 70, and its number of engineers from 200 to 300. So will Zhang's abrupt departure impact the future of Tencent's AI initiatives?

A human-looking robot's brain shatters.

Image source: Getty Images.

Understanding China's AI market

Tencent owns WeChat, the largest social network in China with over a billion monthly active users; the older QQ messaging platform; and the Qzone social network. It's also the largest video game publisher in the world.

Its core businesses give Tencent access to large amounts of data, which it can sort with AI tools. For example, WeChat uses natural language processing to provide real-time translations between users who are speaking different languages; its news aggregator, Tiantian Kuaibao, uses deep learning technologies to recommend content based on a person's previously read articles; and it uses facial recognition technologies to tag faces in pictures across its social networks.

Tencent's biggest AI rivals are Baidu and Alibaba (NYSE:BABA). Baidu controls about 70% of China's online search market, and Alibaba owns the country's biggest e-commerce and cloud platforms. Both companies are also sitting on gold mines of data, which can be crafted into actionable data with AI tools.

Small human-shaped figures are linked by lines of light.

Image source: Getty Images.

Baidu has a head start in the AI market. It first started discussing AI initiatives in 2010, and founded its Big Data Lab in 2014 to improve its machine learning algorithms, core search technologies, and big data applications. It also launched a state-backed engineering laboratory for a wide range of deep learning technologies in 2017.

Baidu's Big Data Lab developed its Alexa-like assistant Duer, which now powers over 141 million hardware devices. It also acquired smart-speaker maker Raven Tech, which led to the launch of Xiao DU -- the third-best-selling smart speaker in China, according to Canalys, after Alibaba's Tmall Genie and Xiaomi's (NASDAQOTH: XIACF) Xiao AI.

Alibaba started developing its AI initiatives in 2016. It mainly uses its AI tools to improve the shopping experience on its websites and provide analytics for its cloud customers. However, its Tmall Genie smart speaker -- which tethers customers to its e-commerce and cloud services -- also gives it a strong presence in smart homes. Tencent also sells a smart speaker called Tingting, but it trails far behind the three market leaders.

Dominating different markets

Tencent, Baidu, and Alibaba invested in dozens of AI start-ups and acquired a wide range of patents over the past few years. Tencent is the leader in facial recognition patents, which it applies to over 50 initiatives, including WeChat, Qzone, and its image processing app, Pitu.

Tencent is also working with major banks and regional governments to tap its facial recognition technology for authentication purposes. Another major market for Tencent is healthcare AI -- 60% of Chinese medical institutions already let patients register and pay for appointments via WeChat Pay.

Linked drawings of health-related items, including a bandage and a heart.

Image source: Getty Images.

Tencent is leveraging that first mover's advantage to develop Miying, an AI-powered healthcare platform that manages health records and helps doctors diagnose illnesses. Tencent's cloud platform is much smaller than Alibaba's, but it could leverage these strengths to tether more enterprise customers to its cloud services.

Meanwhile, Baidu dominates the driverless car market with about 100 partners for its Project Apollo autonomous platform. Baidu plans to launch self-driving cars with Chinese automaker Chery in 2020, and it's currently testing out driverless vehicles for people with mobility issues in California. It's also invested in the development of driverless cars in Singapore.

Lastly, Alibaba is expanding its AI ecosystem to brick-and-mortar stores, which are stepping-stones toward the development of smart cities. The Alibaba Cloud's ET City Brain service, which crunches a massive amount of data from cameras, sensors, social media, and government databases, uses its AI algorithms to manage entire cities including Hangzhou and Macau.

Room for long-term growth

In late 2017 the Chinese Ministry of Science and Technology declared that the country's first wave of open AI platforms would depend on Baidu for autonomous cars, Alibaba for smart cities, and Tencent for healthcare. Therefore, Baidu, Alibaba, and Tencent might clash in overlapping markets like smart speakers, but there's still plenty of room for all three companies to grow.

Zhang's departure is disappointing, but it probably won't derail Tencent's AI efforts. Baidu lost Zhang to Tencent in 2017, along with chief AI scientist Andrew Ng, yet its AI ecosystem continued to expand with new products and services. Moreover, Tencent's recent restructuring -- which prioritizes the growth of its cloud, AI, and digital media efforts over its gaming business -- should ensure that its AI Lab has adequate funding to attract fresh talent.

Check out the latest Tencent earnings call transcript.