Is Baidu’s technology bet making it less relevant to marketers?

When a change in Chinese ad regulations in 2016 delivered a withering 16% decline in advertising customers and with Baidu losing serious ground in the search market to rivals like Alibaba and Tencent, a shift was inevitable.

In recent years, Baidu has realigned its strategic focus away from search and mobile advertising, towards technology – most notably AI.

Baidu controls 80% of China’s mobile search and 60% of PC search, which means it has a lot of data, so the obvious first step for the company is predictive search, powered by AI.

Baidu has reportedly invested 20 billion RMB ($2.9 billion) in research and development in recent years, with the majority of this money going to AI. Last year alone, Baidu allocated $200 million to AI and AR development through its Baidu Research arm, which includes dedicated research divisions the Big Data Lab, Silicon Valley Lab, Institute of Deep Learning, and the Augmented Reality Lab, which it launched in February.

In a further show of the company’s AI focus, Baidu hired Microsoft’s EVP responsible for AI Qi Lu, appointing him as Baidu's vice chairman, group president and chief operating officer.

Baidu’s chairman and CEO Robin Li said recently "Baidu's strategic evolution from a mobile-first to an AI-first company continues to gain momentum.”

“While our investment in AI is a long-term proposition, we are already seeing the powerful benefits of AI bear fruit across our existing platform. With AI set to play an increasingly important role across all major industries, we are confident that Baidu's technology advantage positions us to both enable and participate in the growth and transformation of China's AI-powered industries," said Li.

Baidu achieved early successes with its speech recognition technology Deep Speech 2 and autonomous car projects. This year it unveiled its voice controlled home robot / assistant Xiaoyu or ‘little fish’ which it hopes to compete with Amazon’s Echo and Google Home. It has also launched a medical assistant chatbot Melody, partnered with a Chinese charity to use its facial recognition technology – which reportedly has 99.77% accuracy - to find missing persons, and revealed its text-to-speech system.

In April, Baidu opened its self-driving car platform to the public in a bid to help car manufacturers develop autonomous cars. The move is a strategic play which also aims to give the company a leg up over Tesla and Google.

However, Baidu’s AI ambitions were served a blow with the departure of Baidu’s chief scientist Andrew Ng, who is widely recognised as one of the world’s leading thinkers in AI, was seen as a significant blow to the company and impacted stocks immediately.

Baidu was quick to appoint a replacement, Wang Haifeng, to led its 1,300 strong AI team but with the race to AI supremely more competitive than ever, as Alibaba and Tencent bolster their own divisions, Baidu has been keen to ensure the company maintains a show of strength.

New launches such as an investment arm, Baidu Capital have aimed to ensure the company maintains a show of strength.

Baidu also notched up a major win via its video streaming site iQiyi, which has inked a deal with US streaming giant Netflix, that would see the company’s content finally arrive in China via a deal with Baidu.

However, industry observers question whether Baidu is losing ground and influence in China’s fast moving market, many observers believe the brand is losing relevance, particularly for advertisers.

“Whichever way you look at it, Baidu are on the decline,” says Kenneth Tan, chief digital officer, Mindshare China. “Financial return, financial momentum, financial potential, consumer platform, relevance to consumers and therefore relevance to marketers, it is on a decline, they are not going to fall over a cliff anytime soon but there’s only one word and that is decline.”

He’s not alone in this thought with many experts questioning the future relevance of Baidu’s search engine which, unlike Google in western markets, is losing ground as the bulk of Chinese search moves to other platforms, such as Tmall, Taobao or WeChat.

MediaCom China’s head of digital Christian Solomon says, “Whether it’s travel, movie tickets, dining, whatever – Google still does a respectable job as a one stop search shop. Baidu never did that. Strategically they went out and built branding assets as opposed to the user experience.”

“Over the last 18 – 24 months we’ve seen specialist apps come in and decimate that portion of the traffic. C-trip has been doing it years, the most recent ones has been food delivery apps, movie tickets went a while ago. Then there’s the rise of WeChat, and everyone is staying within Wechat and ecommerce, obviously if I am in the process of buying there’s no way I am Baidu-ing anything, I’m just going straight into Tmall and I’ll do my business there. That’s the reality from a consumer standpoint so the relevance of that platform is on a decline and therefore marketing dollars can only follow.”

The shift to AI is seen by many as the most logical play for Baidu but it is a long-term strategy for the company with the industry still too nascent to determine success.

Major Lin, managing partner and chief digital officer at OMD China, says, “Baidu are facing a bottleneck of the growth of their advertising business and they need to find ways to invest in the future of the business, AI is the direction they have chosen. If you look at current forecast of AI, it is focused on automated driving and medical services, it is all very early stages though, so I cannot see when that will actually happen.”

Humphrey Ho, managing director of Hylink Digital, China’s largest independent agency says, “The only playing field left for Baidu in the world of advertising is predicting what users want and serving them creative ads for that.

“Baidu is sitting on a lot of data, search is still the best indication of what people want and AI will allow them to predict what people want. It helps solve the issue of what does the user want and enables them to fill that.

“They plan to be the best tech company because they own user intent. By owing user intent they have the best chance of honing in on AI and predictive applications. They can do this very well. They are one step short of calling themselves Alphabet, as they are so much more than a search company.”

As Baidu doubles down on AI, it faces increased competition from Alibaba and Tencent. In recent months, a power battle has emerged between the big three as they scramble to open new labs, poach staff and generally tussle for dominance.

It is still very early days for this emerging technology, and media experts remain sceptical about the AI applications that are currently launching to market.

“AI in China is a lot of hot air,” says Tan. “There are really good things coming out of china in the R&D space. However, a lot of what is happening in our industry is fluff.”

“At best, what is happening in artificial intelligence is correlational analysis with some form of predictive capability. At worst, it is just rule based decision making. That is the extent of it, but I guess our industry is used to marketing PR-able fluff.

“When Baidu come out and say [they are focused on AI], it is a long play and I can’t for the life of me see how that is going to make the users come back. Because ultimately what can Baidu do to attract users back to the table?,” says Tan.

Solomon agrees, “At the moment the advertising that has been AI has really been better versions of programmatic. There’s still a way to go for AI. It’s going to be clunky for a while but when it does eventually kick off we don’t know what’s going to happen it could speed off in a direction that we don’t know yet.”

And with Baidu tying its fortunes to AI, its future is hard to predict.

This article is the second in The Drum’s series looking at the three leading tech giants Baidu, Alibaba and Tencent (BAT). The first article look at their latest big bets on global growth.