Baidu, China's 'Google', tries to move offline

Robin Li is pushing Baidu into the kind of e-businesses dominated by Alibaba and Tencent

Baidu runs China's primary search engine, but with the PC search business maturing and the economy slowing, Chairman Robin Li has been looking to diversify. In the past two years, he's pushed Baidu deeper into the kinds of e-commerce businesses dominated by China's other two big Internet companies, Alibaba and Tencent. During that time, Baidu's invested almost $1 billion in more than a dozen websites and apps specialising in everything from food delivery to laundry pickup, from booking a doctor's appointment to reserving a slot at a karaoke club. The goal is "transforming the company from connecting people with information to connecting people with services," says Li, who's committing $3.1 billion more over the next three years to just one of Baidu's investments, Groupon look-alike Nuomi.com.

For now, Li can afford such investments because Baidu controls almost a third of China's $24.2 billion online ad market. Analyst IResearch estimates that China's search-related ad spending will rise 41 per cent this year, compared with a global increase of 14 per cent. Baidu has managed to reorient its search business toward smartphones and tablets, which account for most of its ad revenue. But as it commits more money to e-commerce expansion efforts, its profit margins have fallen by half since 2012, to 28 per cent in its most recent quarter.

So while Baidu is tapping its $12 billion in cash to widen its e-commerce footprint, it's also trying to attract big-name partners. The company paid an undisclosed amount for a minority stake in Uber in December, and fast-food chain Ajisen announced in July that it's investing $60 million in Baidu's takeout service, which launched last year and has about 8 per cent of China's market. Borrowing from Amazon.com's strategy, Li is also expanding Baidu's entertainment offerings. Its video service, IQiyi, signed a deal with Paramount Pictures in July for local streaming rights to 800 of the studio's titles, including the Transformers and Terminator series.

Li says he doesn't expect all his investments to pay off in the short term. Even with the safe-looking stake in Uber, he says, "profit in this area is not something we're looking for." He's betting on Uber to dislodge China's ride-hailing market leader, Didi Kuaidi, which is backed by both Alibaba and Tencent and doesn't rely on Baidu's mapping software. In a September 8 speech at Baidu's annual conference in Beijing, Uber Chief Executive Officer Travis Kalanick said he plans to expand Uber's Chinese presence from 20 cities to about 120 in the next year.

At the conference, Li unveiled Duer, a Siri-like service that takes voice commands a step further, leading users from movie information to ticket purchasing, or from restaurant recommendations to table bookings. Shortly before the conference, the company entered the student loan business, and in barely a month it has issued about $15.7 million worth of loans averaging $3,140 apiece, according to Ya-Qin Zhang, Baidu's president of new business. He says Baidu aims for 30 per cent of the $1.6 billion market.

Alibaba and Tencent are pursuing their own diversification plans. Tencent has bought stakes in No.2 online retailer JD.com and Yelp-esque review site Dianping.com. Alibaba is branching into local services and in August paid $4.4 billion for one-fifth of Sunning, China's leading electronics and appliance retailer.