Abstract

The case explores how Chinese AI startup DeepSeek has disrupted the Generative AI (GenAI) space by embracing a lean approach, a radical shift from the Big Tech paradigm of developing AI models through massive compute and heavy capital investments. Founded in 2023 by Liang Wenfeng, DeepSeek adopted a lean approach to AI development with smaller models, lower computing requirements, and a focus on cost-efficiency, accessibility, and sustainability. It developed high-performing open-source large language models (LLMs) optimized for cost and usability. DeepSeek R1 model, released in January 2025, grabbed global attention for its performance and cost-efficiency. Despite its success, DeepSeek faced significant challenges. Some critics raised concerns over data privacy and security, particularly with regard to the handling of user information. The app was banned on government devices in the US, while lawmakers in multiple countries, including Australia, South Korea, and Taiwan, either restricted or banned DeepSeek over security concerns. The global GenAI market was also becoming intensely competitive, with big players such as OpenAI, Google, Anthropic, and Microsoft consistently releasing new models, and newer entrants such as Mistral AI, Cohere, and Stability AI entering the fray. Moreover, US export controls on advanced AI chips could hinder DeepSeek’s progress.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Evaluate the trade-offs between cost and efficiency in the development of GenAI models.
• Apply Lean principles to a capital-intensive GenAI industry
• Assess the factors that contributed to DeepSeek’s success, highlighting the role of its lean approach
• Identify the key challenges organizations face when developing and deploying GenAI models.
• Recommend strategies through which DeepSeek can maintain its lean approach and emerge as a dominant player in the global GenAI space.

Keywords

General Artificial Intelligence (GenAI); Lean Principles; Open Source Approach; Frugal innovation; competitive advantage; deepseek; technology; innovation; disruption; lean AI,Artificial Intelligence; Emerging Technologies; Business Strategy; competitive strategy; Operations Management