- Baidu is struggling to shift from search advertising to lucrative AI markets, as its revenue declines amid China’s economic challenges.
- Despite a competitive AI market, Baidu remains committed to evolving beyond its traditional advertising roots to a future based on advanced AI technologies.
OUR TAKE
Baidu faces a challenging transition from search advertising to AI-driven revenues amid an economic downturn in China. Despite a slight decline in quarterly revenue, the company posted a better-than-expected net profit. Baidu is seeking to transform its business model by leveraging its generative AI technology, but this shift has been met with intense competition from other tech giants and economic pressures. This reflects a wider struggle within the Chinese tech sector, as companies try to innovate while dealing with macroeconomic instability.
–Heidi Luo, BTW reporter
What happened
Baidu reported a slight decline in revenue for the quarter ending in June, down 0.4% to $4.7 billion, just below the $4.74 billion forecast. However, the company’s net profit beat expectations, reaching $764 million, compared to a forecast of $703 million.
These financials highlight Baidu’s ongoing struggle to shift its business focus from traditional search advertising to more robust AI-driven revenue streams, amid a challenging economic environment in China.
This transition is crucial as Baidu seeks to reduce its reliance on advertising revenue, which has been hit hard by the economic downturn following the COVID pandemic. The tech giant is facing intense competition and market pressure to capitalise on its advances in AI technology, including its renowned generative AI model, Ernie.
In 2022, Baidu captured approximately 20% of China’s $250 million generative AI market, according to IDG. However, ByteDance’s Doubao chatbot has recently overtaken Baidu’s Ernie in popularity.
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Why it’s important
Baidu founder Robin Li wants to position the company as a leader in China’s generative AI market, similar to ChatGPT. However, the company faces stiff competition from established tech giants and emerging startups.
Bloomberg Intelligence analysts Robert Lea and Jasmine Lyu are concerned about Baidu’s future, predicting continued financial losses in its AI ventures over the next three years due to fierce competition from Tencent and Alibaba. They expect Baidu’s search engine business to remain under pressure from competitors in the short video sector, further complicating its financial outlook with a projected 5-10% decline in adjusted net profit this year.
Meanwhile, Baidu’s cloud business saw a 14% increase in revenue to 5.1 billion yuan, with AI products contributing nearly 9% of this growth. The increased integration of Ernie-generated content, which now accounts for 18% of Baidu’s search results, represents a strategic reduction in advertising space to increase user engagement with its AI services.
Despite the challenges, Baidu’s investments in AI are showing incremental success. The company’s autonomous vehicle division, Apollo Go, is expected to become profitable by 2025. It is currently operating a growing fleet of robotaxis in Wuhan, demonstrating the potential long-term benefits of its significant investment in AI technology.
