Baidu, one of China's leading internet giants, recently released its 2024 financial report, shedding light on its performance amid the rapidly shifting AI-driven market. The outcomes reveal mixed results, as the company faces intense scrutiny and competitive pressures from both established and emergent challengers.
According to the company’s annual report published on February 18, 2024, Baidu reported total revenues of 133.1 billion RMB for the fiscal year, marking a slight decline of 1% from the previous year. Excluding the revenues from iQIYI, Baidu's core revenue remained relatively stable, increasing by 1% year-on-year to 104.7 billion RMB. This contrasts sharply with the steady growth experienced by competitors like Alibaba, which reported total revenues of approximately 981.8 billion RMB for the same year, up by 5.9% (Reported by The Washington Post).
Despite the overall decline, Baidu's financial report does highlight some encouraging figures, especially within its AI segment. AI-related revenues from non-online marketing sources accounted for nearly 30% of its core revenue, bringing in approximately 31.7 billion RMB—a remarkable 12% growth over the past year. Notably, Baidu's AI cloud revenue tripled year-on-year, with the fourth quarter alone seeing growth of 26%. Services such as its RoboTaxi program also thrived, delivering about 1.1 million rides.
Yet, the company's online marketing revenue, which forms the backbone of Baidu’s advertising business, witnessed declines. For 2024, the online marketing revenue dropped to 73 billion RMB, representing a decrease of 3% year-on-year. Baidu’s management attributed this downturn to the adverse macroeconomic conditions and the fact that only 22% of its search results have begun to monetize through AI integration. This decline has drawn comparisons to Tencent, which reported strong growth of 17% for its advertising revenue during the same period, underscoring Baidu’s struggles against key competitors.
Challenges for Baidu are compounded by the rise of alternative search platforms such as Xiaohongshu (Little Red Book), which has seen its daily search volume recently approach 600 million, posing significant competition to Baidu's user base. There have been internal discussions within Baidu about the erosion of its search market share, reflecting the increasing reliance on competing platforms for information rather than traditional search engines.
"Search is becoming integrated,” admitted Baidu’s management during the earnings call. With most users now relying on AI assistants for information, Baidu faces the harsh reality of having to redefine its role from being just another search engine to point of service. The introduction of AI-assisted tools like DeepSeek and the transition to incorporate generative AI are initiatives aimed at revitalizing its user engagement.
Earlier discussions within the company revealed plans to test simplified versions of the Baidu app, focusing on direct searches rather than content feeds, which have become less prominent due to changing user behaviors. The decision to revert to previous marketing slogans signifies a strategic narrowing of focus back to core search functionalities amid external pressures.
The restructuring follows Baidu’s announcements of significant investments aimed at enhancing its AI capabilities, including deep search functions and integration of platforms like DeepSeek. Nevertheless, there are concerns about whether these technological advancements will translate to improved monetization.
Adding to Baidu's predicament is the external competition from tech giants who have begun to integrate advanced AI models without the market hesitation seen with Baidu’s services. For example, as Tencent integrates similar technologies, the potential for user retention and advertising revenue diminishes for Baidu.
The dilemma facing Baidu revolves around the balance between leveraging their AI investments and achieving competitive efficiency without alienation of users—something highlighted during their instruction to avoid tension around monetization with AI outputs. Advertisements integrated directly within search results have spurred issues of user trust and satisfaction, which compound the concern of how to transition smoothly to AI-driven commercial models.
With 22% of query volume now featuring integrated AI results, Baidu is working to refine its monetization strategy. While the proposals to monetize AI-generated content hover on the horizon, the execution of such strategies remains precarious. Should the transition falter, Baidu risks exacerbation of user attrition, as market trends shift away from traditional advertising.
Looking forward, the future hinges on Baidu's ability to capitalize on AI advancements, transforming its search mechanisms whilst stabilizing its online presence. With numerous players entering the marketplace with sophisticated AI technologies, the pressure is on Baidu to not only adapt but thrive amid fierce competition. The company’s strategic steps will dictate its posture moving forward, as both challenges and opportunities continue to evolve.