Baidu Strengthening Its Offline Presence
Baidu, which runs the primary and most popular search engine in China, is looking to diversify its services under the leadership of Chairman Robin Li. Since PC search business has matured and the economy has slumped the diversification route is logical and important for survival. In recent two years, Li has aggressively established Baidu among the likes of e-commerce business controlled mostly by Alibaba and Tencent.
Baidu has already invested just about $1 billion in over a dozen specialized websites and apps ranging from laundry pickup to food ordering, from reserving karaoke slots at club to doctor’s appointments. The main idea is “transforming the company from connecting people with information to connecting people with services”, said Li, who has further committed an investment of $3.1 billion spread over a period of three years in Chinese equivalent of Groupon, Nuomi.com.
Li is able to commit such investments as Baidu holds nearly a third of $24.2 billion online Chinese ad market. As per the projections of Analyst IResearch the spending’s in Chinese search-related ad sector will rise to 41 percent compared to the global rise of 14 percent.
Baidu has successfully restructured its search business model keeping in mind the surge of smartphones and tablet users, and generates most of its ad revenue from the same.
But with commitments of more aggressive and dedicated investments in e-commerce expansion, the profit margins of the company have declined halfway down since 2012 to 28 percent in the recent quarter.
Baidu is not only investing $12 billion cash money to strengthen e-commerce footprint but simultaneously partnering with other big names. The company has already invested an undisclosed sum in Uber for a marginal stake last December and also managed to bag in an investment of $60 million from Ajisen into its takeout service, which was launched last year and currently holds 8 percent of the Chinese market. Inspired from Amazon.com’s tactics, Li is also strengthening Baidu’s entertainment portfolio. The company’s video service, IQiyi, has managed to sign a contract with Paramount Pictures past July winning local streaming rights of over 800 movie titles, comprising entire series of Transformers and Terminator.
Li’s investment decisions are not expected to reap any short term benefits. Even in regards to his investment in Uber, he said, “profit in this area is not something we’re looking for”. With his alliance with Uber, Li is hoping to dislocate Chinese cab providing leader, DidiKuaidi, patronized by Alibaba and Tencent, as it doesn’t depend on Baidu’s mapping software. In Baidu’s annual conference held on September 8, Travis Kalanick, Chief Executive Officer of Uber shared his vision of expansion to 120 cities from the existing 20 in one years’ time.
In the same conference, Li also unveiled Duer, a digital voice command assistant similar to Siri but rather more evolved as it not only displays movie information but actually assists to book the tickets and also from populating the screen with restaurant recommendations to booking the table. The company has also ventured into the student loan business and in a month’s frame has dispersed loans amounting to $15.7 million averaging $3,140 worth of loan to a single applicant. As per Ya-Quin Zhang, president of Baidu’s new business, the company aims to capture 30 percent of share in the student loan market worth $1.6 billion.
In a similar move, Alibaba and Tencent are too following up with their own diversification tactics. Tencent boasts of its stakes in 2nd ranked JD.com, an online retailer along with Dianping.com, a review site from Yelp-esque. Alibaba too is entering the local service segment and has bought $4.4 billion worth of stakes, accounting for a one-fifth of share in Sunning, a leading retailer of electronic items and appliances in China.
