Amidst the global surge of artificial intelligence, China's AI industry has entered a fiercely competitive era. Keywords like large models, multimodality, and open-source ecosystems continue to reshape industry perceptions. However, Megvii, a seasoned player in the computer vision arena, finds itself caught between technological prowess and ecological shortcomings.

As one of the earliest domestic unicorns to venture into AI vision, Megvii once dominated the global market with its "Face++" facial recognition technology. Currently, however, it faces multifaceted competition from rivals like SenseTime and Yitu, along with significant policy pressures in international markets. The troubling figures in its financial report highlighting "revenue growth, profit pressure" further underscore the profound challenges this technological giant faces in commercialization and ecosystem development.

The "Moat" and "Hollowing Out" of the Algorithm Empire

Megvii's rise is inextricably linked to its deep expertise in computer vision technology. As one of the pioneering companies in China's AI vision sector, Megvii has achieved remarkable milestones in core technologies such as facial recognition and image recognition. Leveraging these technological advantages, Megvii swiftly expanded into multiple industries including security, finance, and retail, amassing a vast array of high-quality customer resources.

First, the imbalance between patent barriers and scenario implementation

As of 2025, Megvii has cumulatively filed over 12,000 patents, with facial recognition-related patents accounting for 58%, ranking first globally for five consecutive years. Its proprietary Brain++ AI development platform enhances algorithm training efficiency by 40%, supporting over 80% of smart city projects. Nonetheless, these technological advantages have not fully translated into commercial value; the 2025 financial report reveals that patent licensing revenue accounts for merely 3% of total revenue, with core revenue still heavily reliant on hardware sales (68%). One investor bluntly observed: "Megvii's patents are akin to an isolated island, lacking the ability to synergize and monetize with upstream and downstream industries."

Second, the "double-edged sword" of government-enterprise cooperation

Through the "City Brain" project, Megvii secured smart security orders from 23 provincial-level administrative regions nationwide in 2024, with government business revenue surging by 62% year-on-year. However, over-reliance on government orders has weakened its bargaining power: the average gross margin of government projects in 2025 plummeted to 28%, a decrease of 12 percentage points from 2023. More alarmingly, a central province suspended cooperation with Megvii due to data leakage risks, directly resulting in a revenue shortfall of over 400 million yuan in Q3.

Third, the "backfire effect" of open-source frameworks

Megvii open-sourced its core face detection algorithm RetinaFace in 2024, attracting over 100,000 developers to its ecosystem within a short span. However, this strategy lowered the industry barrier of entry; SenseTime and CloudWalk swiftly launched competing products based on the open-source code, causing Megvii's market share in the financial identity authentication market to decline from 37% in 2023 to 24% in 2025.

Giant Encirclement and Emerging Challenges

The AI industry in which Megvii operates is exceptionally competitive. On one hand, traditional technology giants are deploying in the AI field, encircling Megvii with their formidable technological strength, financial advantages, and market resources. On the other hand, emerging AI enterprises continue to surface, challenging Megvii with their agile innovation models and unique technological advantages.

Indicators

Firstly, the "Prisoner's Dilemma" of Hardware Price Wars

To compete in the smart retail market, Megvii reduced the unit price of AI cameras from 3200 yuan to 2200 yuan in 2024, sparking a vicious price war in the industry. SenseTime subsequently launched a "buy algorithm, get hardware free" package, while CloudWalk partnered with Huawei to supply edge computing devices at cost. By 2025, the average price of AI cameras in the industry had plummeted by 45% compared to 2023, with Megvii's relevant business gross margin plummeting to just 19%, halved from three years prior.

Secondly, the "Fatal Weakness" of the Ecological Closed Loop

Unlike SenseTime's foray into the metaverse and Yitu's deep dive into medical AI, Megvii has never been able to transcend the main track of security. Its smart logistics robots launched in 2025 suffered from a customer repurchase rate of less than 20% due to the lack of warehouse management system support. In contrast, SenseTime has secured factory digitization orders from BMW and Tesla with its "AI+AR" solutions, with individual project values exceeding 300 million yuan.

Thirdly, the "Compliance Black Hole" of Overseas Markets

Affected by the EU's Artificial Intelligence Act, Megvii was forced to exit the German and Dutch markets in 2024, with overseas revenue plummeting from 15% in 2023 to 8%. In contrast, SenseTime maintains a 22% growth rate in overseas business through its data sandbox cooperation with the Singapore government. A report from an international law firm pointed out: "Megvii's algorithm black box design and data storage mechanism fail to meet GDPR transparency requirements."

Growth Fatigue and Profitability Challenges

Megvii's market performance also faces numerous challenges. Although the company has secured a certain market share in fields such as security and finance, the overall market growth rate is gradually slowing down, and profitability remains unsatisfactory. The 2024 financial report reveals that Megvii's revenue increased by only 10% year-on-year, far below market expectations; net profit losses further widened to 500 million yuan. Behind these figures lies Megvii's double dilemma in market expansion and profitability.

From a market expansion perspective, Megvii's market share in its traditional strongholds is gradually being eroded by competitors. In the security sector, traditional security giants such as Hikvision and Dahua Technology continue to introduce AI-integrated security solutions, leveraging their robust channel advantages and product line integration capabilities, posing a significant challenge to Megvii. In the financial sector, with the tightening of regulatory policies and intensifying market competition, financial institutions are becoming more cautious about the application of AI technology, increasing the difficulty of Megvii's business expansion.

Furthermore, Megvii's progress in emerging market development has been sluggish. Although the company has deployed in retail, logistics, and other fields, its market share remains small due to the lack of core competitiveness and market recognition.

From a profitability perspective, Megvii grapples with high costs and an unbalanced revenue structure. On one hand, the company's investment in technology research and development, marketing, and other areas continues to escalate, leading to a substantial rise in costs. On the other hand, Megvii's revenue is predominantly reliant on a few large projects, resulting in a relatively narrow revenue stream and weak anti-risk capabilities. Should these large projects encounter issues, the company's profitability will be severely impacted.

Moreover, Megvii's business model harbors certain flaws. The company primarily charges fees for providing technical solutions and services. While this model can generate certain revenue in the short term, it lacks a stable profit model and sustainable revenue streams in the long run, making it challenging to support the company's sustainable growth.

In the AI 2.0 Era, Megvii Needs a "Genetic Revolution"

Megvii's future is fraught with challenges, but it is not devoid of opportunities. As the AI industry transitions from "incremental expansion" to "stock market competition," Megvii requires the courage to "revolutionize itself," reconstructing its value chain and reshaping its core competitiveness. This transformation will undoubtedly be painful: short-term performance pressure, organizational restructuring turmoil, strategic resource redistribution... Yet, history has shown that only those who dare to break the deadlock can emerge as the breakers of the deadlock.

The time window for Megvii is narrowing, and the real test lies in whether it is prepared for the rules of the new world as the dividends of the old era dissipate.