Baidu's Business Model and its Evolution
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Case Code: BSTR512 Case Length: 19 Pages Period: 2000-2017 Pub Date: 2017 Teaching Note: Available |
Price: Rs.700 Organization: Baidu, Inc. Industry: Search, E-commerce Countries: China Themes: Business Model Innovation, International Management, Globalization Strategy |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Business Model
Baidu generated revenues mainly from online marketing services which included pay-for-placement (P4P) services, performance-based online marketing, and time-based online advertising services. The company’s P4P Program was one of the core tenets of its business model.The auction-based P4P platform was an online marketplace that enabled customers to bid for priority placement of their links in the search results and reach users who searched for information related to their products or services. Baidu was the first auction-based P4P service provider in China.The P4P model helped Baidu monitor each click, understand the tastes and preferences of Chinese internet users better, and improve user experiences in order to drive traffic to its sites.....
Secret of Success
Since its inception, Baidu had positioned itself as a Chinese language search engine which allowed users to find information, products, and services using Chinese. According to industry observers, it was a challenging task for Baidu because of the complexity of the Chinese language. To make search easier for users, it introduced the ‘pinyin’ search in 2001 that allowed users to type in Chinese keywords using English alphabets when the user was not sure of a written form of a keyword. This gave relevant results and made Baidu’s search reliable......
Foray into O2O Services
O2O was one of the fastest growing segments in the Chinese e-commerce market and was projected to grow at an annual rate of 25% from US$390 billion in 2014 to US$718 billion in 2017 (See Exhibit IV). A growing population, an increasing number of internet users, and the rapid shift toward smartphones from personal computers were driving the O2O trend in China. With the PC search business maturing and the Chinese economy slowing down, Li was looking to diversify as he wanted to reduce Baidu’s dependence on the desktop search business. His goal was to transform Baidu from connecting people with information to connecting people with services. He decided to invest in O2O services as he wanted Baidu to capture a substantial market share in the surging but highly competitive e-commerce space in China. According to Li, the Chinese O2O represented a US$1.6 trillion market opportunity....
Global Expansion
Though Baidu was the biggest search engine in China, its presence outside the country was limited. In 2007, it entered Japan but eventually succumbed to market pressures and shut down its Japanese search engine in March 2015. In Japan, Baidu could not compete against Yahoo and Google and eventually reported losses that amounted to RMB 260 million in 2010. Despite the setback, Li said that he wanted Baidu to become a global brand with a presence in over half the world’s countries. Baidu’s president, Zhang Yaqin (Yaqin), said the company was targeting emerging markets like Brazil, Indonesia, and India with their huge populations and rapidly growing mobile usage so that the company could attract a new wave of users who were coming online for the first time on their smartphones. He said that in such markets Baidu planned to roll out specific products for each country rather than coming out with a generic, across-the-board service offering. “Baidu has more than 700 million users abroad, with over 250 million active users in a month. Over the past three decades, we have virtualized the physical world, but in the next three decades, we will go the reverse process, applying the Internet technology and business model to the physical world,” said Yaqin....
Growing Pains
Though Baidu dominated the online search engine market in China, its reputation was at stake as the company became involved in some serious medical and healthcare-related scandals in China. In April 2016, a 21-year-old college student, Wei Zexi (Wei), died of cancer after reportedly receiving experimental treatment from a hospital in Beijing that advertised on the Baidu search engine....
A New Business Model
In May 2016, Li announced that Baidu would shift its business from a search-oriented model to one based on Artificial Intelligence due to a slowing revenue growth in its core search business. He said that the shift would allow the company to develop products in areas such as voice search, automatic translation, and driverless vehicles. Baidu was exploring a sub-field of artificial intelligence known as deep learning which aimed to improve search results by training computers to work more like the human brain. In September 2016, Baidu launched an artificial system called the Baidu Brain, featuring state-of-the-art technology for recognizing and processing speech, images, and words and building user profiles based on big data analysis. In 2014, Baidu had opened its research facility on Deep Learning in Silicon Valley and appointed Artificial Intelligence (AI) researcher Andrew Ng as Chief Scientist of Baidu. Ng was to lead Baidu Research, with labs in Beijing and Silicon Valley.....
Can Baidu Bounce Back?
China with about 710 million internet users as of June 2016 was the world’s fastest-growing online market. As of September 2016, Baidu continued to dominate the Chinese search engine market with a market share of 54.3% followed by Qihoo 360 (29.24%) and Sogou 14.71%. In the third quarter ended September 2016, Baidu’s revenues were RMB18.253 billion (US$2.737 billion), a 0.7% decrease from the corresponding period in 2015. Net income was RMB 3.102 billion (US$465.2 million), a 9.2% increase compared to the corresponding period of the previous year. Revenue from online marketing services decreased by 6.7% year on year and 2.6% quarter on quarter due to a slump in the number of active online marketing customers....
Exhibits
Exhibit I: Market Share of Top Search Engines in the World and in China
Exhibit II: Baidu-Consolidated Statements of Comprehensive Income Data
Exhibit III: Baidu Products and Services
Exhibit IV: Online-to-Offline Ecommerce Sales in China (2011-2018)
Exhibit V:Baidu, Inc. Consolidated Statement of Income
Exhibit VI: Baidu’s Stock Price Chart
Exhibit VII:China Search Engine Market Share
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