DeepSeek offers steep discounts, escalating AI price war

Chinese AI firm DeepSeek has unveiled a significant price reduction for developers using its AI models, a move that could intensify competition among both domestic and global rivals.

On its website, the Hangzhou-based startup said that from 16:30 UTC to 00:30 UTC (11.30am-7.30pm EST) developers accessing its API — used to integrate DeepSeek’s AI capabilities into applications and web services — will see costs drop by as much as 75%.

Although DeepSeek labels this window as “off-peak” — it’s night-time in China — the discounted rates are available during business hours in the US, where the company’s competitively priced AI models have already disrupted markets.

The latest price cut highlights DeepSeek’s push to strengthen its presence in the AI market. The company is accelerating the launch of a successor to January’s R1 model to strengthen its competitive position, Reuters reported.

Competition through commoditization

DeepSeek aims to drive adoption by attracting more developers to its platform, making discounted pricing a key strategy. A larger developer community increases usage, reinforcing its market position.

“This is another step toward the commoditization of language models and making AI more affordable,” said Sharath Srinivasamurthy, associate vice president of research at IDC. “Eventually, language models will become commoditized, and we are already seeing trends in that direction. DeepSeek’s launch and its latest price cuts are putting pressure on other AI vendors, and this pressure will only increase. As enterprises seek cheaper ways to run AI workloads, all vendors will be forced to offer their solutions at lower prices.”

The pricing battle has already prompted a response from rivals. OpenAI is offering new free versions, while Google has introduced lower-cost access tiers for its Gemini AI models.

“DeepSeek’s strategy revolves around ‘optimized scalability,’” said Neil Shah, a partner at Counterpoint Research. “It aims to optimize its resources while strategically targeting and attracting potential Western customers by offering its model at a very low cost. This is a great way to acquire customers while also ensuring its systems and models are fully utilized.”

By undercutting competitors, DeepSeek is lowering the barriers to AI adoption, particularly for small and mid-sized developers. While larger enterprises often use a mix of AI models, DeepSeek’s pricing could allow them to optimize costs and maximize margins for AI-powered applications.

Opportunities and risks for enterprises

DeepSeek’s aggressive pricing strategy has positioned it as a formidable player in the AI market, but experts caution that enterprises must carefully evaluate the potential risks before adoption.

“While integrating DeepSeek’s AI models offers significant advantages in cost and accessibility, enterprises must carefully assess potential risks related to data privacy, regulatory compliance, and geopolitical factors,” said Prabhu Ram, VP of industry research group at Cybermedia Research. “As competition intensifies, these considerations will play a crucial role in enterprise AI adoption strategies.”

Despite these challenges, DeepSeek’s rapid advancements and disruptive pricing make it an increasingly attractive option.

“Considering the speed and innovation with which DeepSeek is progressing, it definitely looks like an attractive option for enterprises, provided they have clarity on data security guardrails,” Srinivasamurthy said.