Business Model Evolution Introduction Second Quarter 2016 Ended July Baidu Inc Baidu Leadi Q36002038

BUSINESS MODEL AND ITS EVOLUTION Introduction In the second quarter of 2016 ended July, Baidu, Inc. (Baidu), the leading Chinese language Internet search engine, a 34% fall in its quarterly net income its biggest quarterly decline since going public in August 2005 The company’s net income fell to RMB 241 billion (USS362 million) in the quarter from RMB 3.66 bilion a year earlier. The poor performance of the company was attributed to curbs on online advertising in China following the death of a 21-year-old Chinese student in April 2016 who had tried an experimental cancer therapy advertised on Baidu’s website. “The challenges Baidu faced in the second quarter served as a healthy reminder to stay focused on the key drivers of growth, sustainability and leadership: delivering the best user experience and staying at the torefront of technology. The implementation of new regulations and the stricter standards that we proactive imposed to make our platform more robust will likely suppress revenue for the next two to three quarters. This period of uncertainty will pass,” said Robin Li Yanhong (Lá), Chairman and CEO of Baidu. Back ground note Baidu was co-founded by Li and his friend Xu in 2000. In 1991, Li, a native of the Shanxi province of China, went to the US for higher studies. After completing his studies, he worked with IDD Information Services between 1994 and 1997, and as a staff engineer at Infoseck between 1997 and 1999. Right from the beginning, Li had a passion for Internet-based search and while working at Infoseck he developed a search mechanism called “Link Analysis’. After this, he was given an assignment to supervise search engine development. But in 1999, Walt Disney Co. acquired stake in Infoseek after which the company’s focus shifted from search to content. In order to further his interests in search engines, Li decided to start his own search engine along with Xu, a Chinese national working in the US, who had a PhD in biochemistry and good contacts in Silicon Valley Excerpts Business Model Baidu generated revenues mainly from online marketing services which included pay-for-placement (P4P) services performance-based online marketing, and time-based online advertising services. The company’s PAP Program one of the core tenets of its business model.The auction-based P4P platform was an online marketplace that enabled customers to bid for priority placement of their links in the search results and reach users who searched for information related to their products or services. Baidu was the first auction-based P4P service provider in China The P4P model helped Baidu monitor each click, understand the tastes and preferences of Chinese internet users better, and improve user experiences in order to drive traffic to its sites Secret of success information, products, and services using Chinese. According to industry observers, it was a challenging task for Baidu because of the complexity of the Chinese language. To make search in 2001 that allowed users to type in Chinese keywords using English alphabets when the user was not sure its inception, Baidu had positioned itself as a Chinese language search engine which allowed users to find search easier for users, it introduced the pinyin r a written form of a keyword. This gave relevant results and made Baidu’s search reliable Foray in to 020 Services 020 was one of the fastest growing segments in the Chinese e-commerce market and was projected to grow at an annual rate of 25% from US$390 billion in 2014 to US$718 billion in 2017 (See Exhibit IV) A gr an increasing number of internet users, and the rapid shift toward smartphones from personal computers were driving the 020 trend in China. With the PC search business maturing was looking to diversify as he wanted to reduce Baidu’s dependence on the desktop search business. His goal was to transform Baidu from connecting people with information to connecting people with services. He decided to invest in 020 services as he wanted Baidu to capture a substantial market share in the surging but highly competitive e- commerce space in China. According to Li, the Chinese 020 represented a USS1.6 trillion market opportunity and the Chinese economy slowing down, Li Global Expansion Though Baidu was the biggest search engine in China, its presence outside the country was limited. In 2007, it entered Japan but eventually succumbed to market pressures and shut down its Japanese search engine in March 2015. In Japan, Baidu could not compete against Yahoo and Google and eventually reported losses that amounted to that he wanted Baidu to become a global brand with a the company was targeting markets like Brazil, Indonesia, and India with their huge populations and rapidly growing mobile usage so RMB 260 million in 2010. Despite the setback, Li said presence in over half the world’s countries. Baidu’s president, Zhang Yagin (Yaqin), said emerging that the company could attract a new wave of users who were He said that in such markets Baidu planned to roll out specific products for each country rather than coming out with a generic, acros-the-board service offering. “Baidu has more than 700 million users abroad, with over 250 miltlion active users in a month. Over the past three decades, decades, we will go the said Yaqin. coming online for the first time on their smartphones we have virtualized the physical world, but in the next three model to the physical world, reverse process, applying the Internet technology and business Growing Pains Though Baidu dominated the online search engine market in China, its reputation was at stake as the company became involved in some serious medical and healthcare-related scandals in China. In April 2016, a 21-year-old college student, Wei Zexi (Wel), died of cancer after reportedly receiving experinental treatment from a hospital in Beijing that advertised on the Baidu search engine. A New Business Model In May 2016, Li announced that Baidu would shift its business from a search-oriented model to one based on Artificial Intelligence due to a slowing revenue growth in its core search business. He said that the shift would allow the company to develop products in areas such as voice search, automatic translation, and driverless vehicles. Baidu was exploring a sub-field of artificial intelligence known as deep learning which aimed to improve search results by training computers to work more like the human brain. In September 2016, Baidu launched an artificial systenm called the Baidu Brain, featuring state-of-the-art technology for recognizing and processing speech, images, and words and building user profiles based on big data analysis. In 2014, Baidu had opened its research facility on Deep Learning in Silicon Valley and appointed Artificial Intelligence (Al) researcher Andrew Ng as Chief Scientist of Baidu. Ng was to lead Baidu Research, with labs in Beijing and Silicon Valley Can Baidu Bounce back? China with about 710 million internet users as of June 2016 was the world’s fastest-growing online market. As of September 2016, Baidu continued to dominate the Chinese search engine market with a market share of 54.3% followed by Qih o 360 (29.24%) and Sogou 14.71%. In the third quarter ended September 2016, Baidu’s revenues were RMB18 253 billion (US$2737 billion), a 0.7% decrease from the corresponding period in 2015 Net income was RMB 3 102 billion (USS465.2 million. a 92% increase compared to the corresponding period of the previous year Revenue from online marketing services decreased by 67% year on year and 2.6% quarter on quarter due to a slump in the number of active online marketing customers Case Questions: Identify the need to continuously reinvent the business model of a company amidst rising competition and the changes in the business environment. l. 2. Explore ways in which Baidu can overcome the challenges by effective team performance 3. Evaluate the business model and strategy of Baidu and suggest which of the leadership skills facilitate the team performance and that contributed to its success 4 IIlustrate the internal and external factors of team performance and examine the global expansion strategy of Baidu Show transcribed image text