You are here

Baidu building an AI mousetrap

BAIDU spent a good portion of the 20-minute opening presentations of its investor call on Wednesday talking up how awesome its artificial-intelligence technology is.

AI as a service has so many fans, it's so wonderful, it's industry-leading. Blah, blah, blah. I'm paraphrasing.

CEO Robin Li pointed to the example of a user taking a picture of a flower, and its AI being able to identify the type.

That's cool.

But can AI cure addiction?

Your feedback is important to us

Tell us what you think. Email us at

I ask, because Baidu has an advertising problem, with its habit of relying on one revenue stream getting more expensive.

Speaking of addiction, the healthcare sector accounts for around 30 per cent of advertising, the company said today, a figure that's declining as it once again cleans up its ad offerings in that category.

That's just one of the many reasons why it gave a fourth-quarter revenue forecast that missed estimates. Weakness in real estate, interior design, lifestyle and online commerce were also cited. Though to be fair, Baidu is no longer recognising revenue from divisions it sold off, which eliminates around one billion yuan (S$198.79 million) of sales from that quarterly figure.

It doesn't change the fact that costs are rising. Traffic-acquisition expenses climbed 25 per cent in the third quarter, faster than both overall revenue (20 per cent) and core revenue from its ad-based business (17.8 per cent).

If you consider new accounting methods that Baidu adopted in January, then it's 27 per cent for total revenue and 25 per cent for core, which actually looks pretty good.  Under those new standards it's as if every dime of spending to get traffic is matched by a dime of actual sales.

Except that huge swathes of eyeball acquisition are hidden in sales, general and administration expenses, which climbed 51 per cent "primarily due to increased investment in channel and promotional marketing". 

Don't worry, said CFO Herman Yu, this escalating expenditure is resulting in more time spent on the Baidu app. And besides, the company has sophisticated systems in place to ensure that spending doesn't get out of hand, he said.

Sweet. So every dime is well spent.

Well, not necessarily. The company is spending big on AI and its own operating system, called Duer. It's also throwing money around in the belief that users will latch onto the Baidu app, and stay there. You know how Tencent Holdings Ltd launched WeChat seven years ago, turning it into a one-stop shop for chatting, ride-hailing, payments, news and content? That's what Baidu is hoping its own app will be.

Tencent just started opening the spigot on advertising in the WeChat feed, which makes it a huge competitor to Baidu.

Meanwhile, the DuerOS isn't quite profitable yet, and may struggle to be next year. If investors can hold on, Baidu expects "meaningful monetisation" in 2020.

And of course Baidu's AI is so awesome that it will do all sorts of great things. Like, deliver better ads. Executives couldn't stop crowing about how its core competence and company DNA make it so good at serving up content that can then be converted into clicks. Advertisers, you see, will be the biggest beneficiaries of this super-hot AI technology.

I guess we shouldn't be surprised. Baidu already painted itself into a corner when it decided to get out of the online-to-offline business. It was never much into games, and its major content play - iQiyi Inc - remains a massive money burn.

Which leaves Baidu trying to building a better mousetrap.

Not to worry, it'll be an AI-powered one. BLOOMBERG OPINION

  • The writer is a Bloomberg Opinion columnist covering technology

BT is now on Telegram!

For daily updates on weekdays and specially selected content for the weekend. Subscribe to