NetEase Youdao CEO Zhou Feng on AI: Risks Are Controllable, Business is Being Reshaped, and Financial Results Are Impressive
I. Summary of Key Points
Recently, NetEase Youdao CEO Zhou Feng provided a detailed overview of AI security, business transformation, and the latest financial results. The main points can be summarized as follows:
1. AI Risks Are Controllable: Zhou Feng believes that AI security risks are phased and manageable. The primary defense mechanism is “manual deployment,” and malicious attacks require substantial computing power, which only a few leading companies possess. As long as these companies are well-managed, the risk of widespread out-of-control situations is low.
2. Business Logic Reshaping: AI has evolved from a “tool actively used by users” to an “assistant integrated into workflows.” Youdao has established a three-tier system consisting of “underlying models (Ziyue), intermediate agents (Agent), and upper-layer applications,” shifting the core capability from a single model to a system that combines model, agent, and workflow.
3. Performance and Product Highlights: In the second quarter, net revenue reached 1.47 billion yuan, with operating profits nearly tripling year-over-year. The number of users of the open-source office assistant LobsterAI exceeded one million. In response to the decline in smart hardware sales, Youdao launched the OpenPods AI headphones for a broader range of scenarios, aiming to enhance human capabilities rather than replace them.
---
II. In-Depth Analysis: Understanding NetEase Youdao’s AI Strategy from Five Dimensions
1. Security Perspective: Why Does Zhou Feng Say AI Risks Are Controllable?
Many people panic at the idea of AI getting out of control, fearing machines might take over or launch cyberattacks. Zhou Feng offers a practical and realistic explanation, which can be understood as three layers of protection:
- The First Layer of Protection: Humans Are in Charge: No matter how intelligent AI becomes, it cannot deploy itself on servers. The decision to activate and use AI in a particular environment is still made by humans. This is like an autonomous car; although it can drive itself, the steering wheel and brakes are still controlled by humans, or at least the driving route is predetermined. This “manual deployment” step serves as the first physical barrier to prevent AI from causing chaos.
- The Second Layer of Protection: Computing Power as a Barrier and a Limitation: Zhou Feng points out that conducting malicious activities (such as attacking websites) requires massive computing power, which is only available to a few leading companies like NVIDIA, Microsoft, and Google. This means that the potential for AI to cause harm is confined to these large corporations. As long as their internal security measures are robust, small companies or hackers cannot carry out large-scale AI attacks. It’s similar to nuclear weapons: although powerful, they are strictly controlled by a few nations, reducing the risk of global nuclear war.
- The Third Layer of Protection: Problems Will Be Solved Over Time: Security issues are temporary, just like the early days of the internet, when hackers and viruses were common. As the industry matures, standards are established, and technology evolves, these problems will gradually be resolved. Worrying about AI getting out of control now is like worrying about the internet bubble bursting in 2000—it’s a temporary challenge in the development process.
In Simple Terms: AI is not a runaway force; it’s confined to a few “big cages” (leading companies), and the keys to these cages (deployment rights) are in human hands. As long as these companies are well-managed, the outside world remains safe.
2. Business Transformation: AI Is No Longer a “Tool” but a “Colleague”
Zhou Feng highlights a crucial shift: AI has transformed from a tool to a colleague in the workplace. This change is significant:
- In the Past (Tool Model): To use AI, you had to open an app, enter commands, and wait for results. For example, to write an email, you’d have to use a dedicated AI software. Users had to actively seek out AI.
- Now (Assistant Model): AI is directly integrated into your work processes. For instance, it can automatically polish your emails or take meeting notes for you. Users no longer need to search for AI; it works alongside them.
Implications for NetEase Youdao: This means Youdao is no longer just selling an “AI translation app” or an “AI learning device” but designing a work approach centered around AI agents. For example, it might restructure office processes to let AI handle repetitive tasks in the background, allowing users to focus on creative work. It’s like going from being given a hammer to being given a skilled worker who can help with the entire renovation plan, not just hammering nails.
3. Technical Architecture: How Does Youdao Build Its Three-Layer AI System?
Youdao has constructed a clear three-layer AI system:
- Underlying Layer (Foundation): The Ziyue Model Matrix: This is the “brain” of Youdao, providing basic capabilities such as multi-modal reasoning, real-time voice interaction, and more, similar to human senses and thinking.
- Intermediate Layer (Skeleton): AI Agent Products: These are the “arms and legs” that convert the underlying model’s capabilities into practical services. For example, LobsterAI understands your intentions, calls upon the underlying models, and performs tasks like organizing documents or scheduling meetings.
- **Upper Layer (Functionality): Applications for Office, Learning, Marketing, etc.: This is where users interact directly with the AI, such as in writing emails, taking meetings, or creating marketing content.
Key Point: The key to AI’s effectiveness is no longer the strength of a single model (e.g., GPT-4 vs. others) but the efficiency of the entire “model + agent + workflow” system. Just as a car’s engine is important, the transmission and road design determine how fast and smoothly it can move.
4. Financial Results: AI as the Driver of Profit Growth?
Youdao’s second-quarter financial report shows:
- Net Revenue: 1.47 billion yuan, a 3.5% increase year-over-year. The steady revenue growth indicates a stable business base.
- Operating Profit: 110 million yuan, nearly tripling year-over-year. This is the most impressive figure, showing excellent cost control and a growing proportion of high-profit businesses.
Contribution of AI:
- LobsterAI Users Exceeded One Million: The open-source office assistant LobsterAI, launched in February, has over one million users, indicating that Youdao’s AI products are widely adopted and used.
- LobsterAI 2.0 Release: The September 16 release of version 2.0, which is fully compatible with OpenClaw 2.0, enhances ecosystem compatibility and integration with existing office environments.
Why Such Profit Growth? likely because AI services (like LobsterAI) have low marginal costs and high user willingness to pay for practical solutions, significantly increasing profit margins. In contrast, traditional hardware businesses (like learning devices) have higher costs and lower profits, so their decline had a limited impact on overall profits. The surge in AI business was a major driver of profit growth.
5. Hardware Challenges and Solutions: The New Role of OpenPods AI Headphones
Youdao’s smart device business revenue decreased by 31.5% in the second quarter due to declining demand for learning devices. This reflects a shift in parents’ preferences away from traditional learning devices, which mainly focused on practice and dictionary lookups, leading to market saturation.
Youdao’s Strategy: Expanding into New Scenarios (From Learning to Communication)**:
The new OpenPods AI headphones target a broader range of scenarios, including meetings. High Huitan, the person in charge, emphasizes that the value of AI lies in enhancing human capabilities and reducing burdens, allowing users to focus more on communication and creativity.
What Does This Mean?:
- From Tool to Partner: Learning devices were tools for doing tasks; now, AI headphones are partners for efficient communication. In meetings, they can translate in real-time, take notes, and generate summaries, freeing users to focus on thinking and expressing themselves.
- Breaking Free from the “Learning Device” Label: Youdao aims to move beyond being seen as an educational hardware company to an AI efficiency tool provider. OpenPods are not just for students but also for professionals and business people, opening up a larger market.
- Hardware as a Gateway, AI as the Core: Hardware may not be profitable or even loss-making, but it’s a platform for delivering AI services. Profits come from subscription-based services and advanced features.
III. Conclusion and Outlook
NetEase Youdao is undergoing a profound transformation from a company focused on educational hardware and content services to a technology company centered around AI agents that empower office and learning scenarios:
- Risk Management: Zhou Feng’s approach provides a rational perspective, reducing panic while reminding companies to continue investing in security.
- Business Focus: The “model + agent + workflow” system has become a new competitive focus. Youdao’s three-layer architecture and the success of LobsterAI demonstrate its market value.
- Financial Performance: The significant profit growth shows that AI businesses are commercially viable and more profitable than traditional ones.
- Hardware Strategy: The launch of OpenPods is a key step in addressing the decline in hardware sales by expanding into communication scenarios. It marks a shift from being an educational hardware company to an AI efficiency hardware provider.
The success of Youdao depends on whether its AI agents can truly integrate into users’ workflows and become indispensable partners, as well as whether its hardware can find a unique position in a competitive market. Zhou Feng’s view on controllable AI risks also offers a sense of rationality to the entire AI industry.