Business Model Spotlights
Baidu’s business model is focused primarily on the core of the company: search engines monetisation. In fact, through its network of more than 60 platforms, the firm can reach virtually any person inside Mainland China. During recent years, its services also expanded to other countries, such as Brazil, Egypt, Indonesia, Japan and Thailand.
The management divides the business into two major segments: Baidu Core and iQIYI.
Baidu Core is a group of products and services that made the company successful, such as search engines and AI solutions.
iQIYI is instead an online entertainment service provider in China. To simplify, it is a video streaming platform with professionally produced, partner generated and user-generated content. Subscribers to this platform reached 101.7 million in December 2020.
Baidu’s structure looks as follows:
The search and feed segment includes apps like Baidu App, enabling users to access Baidu’s proprietary search engine, feed and other accessory services.
The same can be done through Baidu’s online search on any of the portal of the group.
Interestingly, to drive more traffic to Baidu’s pages, the company proposes also Haokan, a short video app and Post Bar, a social media platform that builds online communities based on topical interest.
Knows is instead a query-based searchable community to share knowledge and experiences.
Moreover, the group also powers Baidu Encyclopedia, compiled by experts of any sector, Baidu Maps and Baidu Input Method Editor, a keyboard focused on the peculiarities of the Chinese language.
As previously said, Baidu is also present in some countries overseas. The most internationally known products outside of Mainland China are popIn, an ad recommendation platform, Simeji, the most popular mobile keyboard in Japan and Facemoji, Simeji’s international edition.
All these services fuel the system of auction-based P4P services, allowing customers to bid for priority placement of paid sponsored links to reach better users seeking that specific information or product.
In the last years, Baidu invested heavily in developing new AI business initiatives and Cloud services. Among its AI businesses, Baidu invests in DuerOS, a cross-platform voice assistant with an installed base of 400 million as of 2019, and Apollo, an open-source autonomous driving platform that supports commercial production of self-driving vehicles.
Baidu Cloud, instead, provides AI solutions, cloud infrastructures and accessory services to enterprises and individuals. This segment of the company aims to offer a comprehensive set of products, services, and tools to enable enterprises to improve productivity and operational efficiency through Baidu AI and cloud infrastructure.
Baidu’s revenues can be divided into three main parts: Online marketing services, non-marketing services, and iQIYI sales.
As clearly recognisable in the pie chart below, Baidu gets the vast majority of its revenues through online marketing services. These items amounted to $10.16 billion in full-year 2020, for a share of 61.2% on total revenues.
iQIYI follows, with $4.55 billion of sales, accounting for 27.4% of the total.
Non-marketing activities have a relatively low share of contribution in Baidu’s business: they account for “only” $1.9 billion in sales, an 11.4% on the total.
The core business is having a hard time growing at favourable rates; however, the management is implementing a change in its overall strategy focusing on other sectors.
Will Baidu continue to play an essential part in the Chinese economy, or will it turn into a falling star?
We think that Baidu can grow further, but last year’s results are difficult to overtake, and the competitors are strong.
Competitors, threats and overlooked opportunities
China’s technology and online services sector is thriving. Tencent, Alibaba, Baidu are some of the best-known names when it comes to Chinese companies.
They also happen to be all in competition with each other in some of their numerous business segments.
Baidu is encountering growing competition from Tencent’s WeChat, the social network and messaging app. WeChat, with 1.213 billion users in 2020, is a real threat to Baidu’s legacy.
In 2017, Tencent introduced a search function in its core social network, powered by Baidu’s direct competitor Sogou (NYSE: SOGO), and a series of mini-programs that allow users to access several apps and services without leaving the app.
Also Baidu introduced mini-programs in its apps, but the user base is still low.
Tencent has the potentiality, in the next few years, to overtake Baidu in its core business.
Alibaba is still the leader in the market of digital advertising platforms. Recent changes, however, happened recently behind Jack Ma’s group. Baidu has been taken over by TikTok and Toutiao, both subsidiaries of ByteDance. These apps, top-rated among generation Z teenagers, are growing their customer base internationally and in mainland China.
ByteDance entered a war of search engines traffic officially with Baidu when, in 2018, it introduced a search function in Toutiao.
It’s not only a war on search engines but also on content quality. Baidu can leverage the user base of Haokan, the short video app (a competitor of TikTok), and the proprietary news app. However, both of the apps are falling behind the rowling power of ByteDance and its subsidiaries.
Alibaba is also a competitor of Baidu when it comes to search engines and cloud infrastructure. Shenma is the second-largest mobile search engine in China, and it’s the property of Jack Ma’s group. This platform is relatively small, but with the help of a better relationship with several Chinese retailers could reach a dangerous position for Baidu.
Baidu’s cloud infrastructure is undoubtedly not the group’s leading business and doesn’t attract as many clients as Alibaba Cloud, which controls half of the market. The chasm between those two services’ power could widen if Alibaba decided to send prices of its services down to levels impeding Baidu to grow.
In January 2021, Baidu announced to be interested in pursuing electric vehicles’ productions, using a strategic partnership with Zhejiang Geely Holding Group.
Analysts estimate Baidu’s Apollo project’s value to be around $32 billion, and the segment is expected to produce $8.3 billion in revenues in 2023.
In this segment, Baidu has surely relevant competitors in Mainland China: Nio, Li Auto and Xpeng are ready to fight Tesla’s legacy.
Even though the competitors in this segment are numerous and robust of piles of cash, Baidu has the power to make happen the next grand shift in the car industry: the focus is not anymore on the production of Electric Vehicles, but on making them smarter. Apollo’s AI technologies’ employment could lead Baidu to produce in some years cars that are not only full electric but also smart and capable of self-driving and self-behaving.
Baidu, then, has the potential to fight the competition on Electric Vehicles empowering its AI knowledge.