China’s Google Tries to Move Offline

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 specializing 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 percent this year, compared with a global increase of 14 percent. 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 percent in its most recent quarter.