Baidu’s New Business Unit Eyes Consumer-facing Paid Services

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BaiduIn an internal e-mail sent to Baidu employees last week, its CEO Robin Li announced a new business unit for consumer-facing paid services thus becoming the fifth of Baidu’s. The other four are focused on search, location-based services, mobile Cloud and international businesses (in Chinese).

Robin Li said at its annual event last month that the gaming-centered paid Internet services make up “a huge market” (in Chinese). Baidu Games started as an online games search engine but changed to become an online games platform in 2008 that shared revenues from users with selected third-party games providers. In 2010 the platform and revenue-sharing program opened up to all third-party providers. Now it has had over a hundred titles on the platform and claimed it had reached 100 million users. But the revenue generated there is unknown.

Other consumer-facing paid services Baidu is operating include  Baidu Music premium subscriptions and paid services on iQiyi, the online video business wholly owned by Baidu. But it is estimated that either can’t bring the company big money in the near future. Baidu didn’t offer paid music services, higher-quality tunes or downloads, until the beginning of 2013 due to alleged pressure from the music industry. iQiyi also offers a subscription-based premium service which accounts for 2% of its total revenues (in Chinese) — but even its total revenue is minor to Baidu. Plus both digital music and online video are cost-intensive businesses.

Considering Baidu’s product portfilio, other services Baidu can possibly charge users for include digital reading, personal cloud storage and picture management. But we cannot see users would like to pay, for so many similar free services as good as or better than them are out there.

It’s not surprising to hear that Baidu wants to make money off end-users as its lucrative business-facing search business is decelerating. With the largest search service in China in terms of both market share and profitability, Baidu has been making the majority of revenues from paid search and the contextual advertising program. Baidu Search gained as big as approximately 80% a market share after Google China’s retreat from the mainland China in 2010. But the growth decelerated in recent couple of years as it became harder to expand further or have existing customers spend more. What made it worse is So.cn, the search service launched by Qihoo in August 2012, gained traction soon after its launch thanks to the high penetration rate of Qihoo browsers and began monetization from early this year. So.cn reached 15% search market share while Baidu’s declined to 68% as of May 2013, according to CNZZ, a third-party online data service.