If you’ve been paying attention to China’s internet industry, then you are surely aware of the term “BAT”, an acronym that’s used to refer China’s IT triumvirate Baidu, Alibaba and Tencent. For a long time, this term is the only one you need to understand China’s digital market.

As pioneers of China’s internet boom, BAT are often dubbed as the first generation of Chinese tech companies. When they began, they each had their own distinct focus: Baidu for search, Alibaba for e-commerce and Tencent for social networking and games.

Different from the U.S. and Europe, where internet companies focus on one sector and try to be the best at it, Chinese companies start by focusing on and solving one problem, but their ultimate goal is to build huge companies that can attack all different parts of the market.

As the most typical example of this mentality, BAT have been spreading quickly to each other’s core businesses and whatever is trendy in the market. The presence of BAT kingdoms are so visible in China. They are the powers behind nearly ever emerging sectors from ride-hailing, bike-rental, m-health, online education, AI, cloud and big data.

While the kingdom of Tencent and Alibaba have continued their upward run, Baidu, which comes first in the acronym, is gradually lagging behind. Many have started to doubt whether the internet giant is qualified to remain in the term.

Baidu vs Tencent and Alibaba in market cap

Market capitalization is perhaps the most direct means of evaluating the size of a company. Tencent just reached US$ 302 billion market cap this week. After all the fanfare about its historic IPO in 2014, Alibaba came close to breaking the US$ 300 billion barrier on April 24 with a market cap of US$ 286.6 billion. That number does not include Alipay’s operator Ant Financial, which has been seeking an individual listing in the near future.

Regardless of stock price fluctuations, the market cap of Tencent and Alibaba linger around US$ 300 billion. In comparison, Baidu closed at around US$ 178 per share with approximately US$61 billion market cap at the time of writing. That’s only around one-fifths of its peers.

The NASDAQ-listed company has seen its market cap drop constantly after reaching a historical high of US$ 249 per share on November 10th, 2014. In terms of revenue and profits, the gap between Baidu and the other two companies is also widening due to Baidu’s lack of long-term growth momentum.

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Image credit: The Economist

Always one step behind

BAT are trying their best to diversify their businesses in order to construct an ecosystem that would facilitate synergy effect among different units. Tencent and Alibaba are no doubt the bellwethers in creating their business ecosystems.

For example, you can’t really define Alibaba as an e-commerce company anymore. In addition to its core business, its revenue source is quite diversified with significant growth from cloud computing as well as digital media and entertainment. Its business covers sectors including entertainment, m-health, mobile payment, B2B services and cloud computing. Tencent is doing something very similar but with a slightly different focus. In addition to core messaging tools like WeChat and QQ, Tencent saw positive returns from Tencent Video, Tencent Music, and investments in Dianping and Didi.

However, Baidu is highly reliant on its search service and has few successful investment cases to boast about. Alibaba and Tencent’s startup investment strategy looks like a trawler net fishing,  while Baidu seems to be going for precision strikes. However, precision takes time and the search company has been consistently derided for coming late to the game. For that reason, it has missed chances to capitalize on several waves of tech trends.

China’s ride-hailing market really heated up at the beginning of 2014. At that time Tencent and Alibaba were competing through proxy by investing in Didi and Kuaidi respectively. Baidu joined the battle almost one year after at the end of 2014 through investment in Uber. Something similar happened to Baidu when it’s transitioned to mobile and O2O. Sure it’s the safest to enter the arena when the scene is maturing, but it would also generate the least return.

Bogged down in negative news

IMG_9940Press coverage about Baidu has trended somewhat negative in the past few years along with a series of scandals.

One of the most scandalous events that sparked public outcry was the death of a college student named Wei Zexi, who blamed Baidu for promoting untrustworthy hospitals that failed to cure his cancer. Baidu’s paid listing practice has long been questioned by the public for selling listings to bidders, especially medical institutions, without adequately checking their claims. In January 2016, it was revealed that Baidu had sold the management rights to a popular online message board on hemophilia to a private hospital in Shaanxi province.

In addition to the incidents themselves, Baidu’s slow and ill-received responses lead the company to a larger PR crisis. The fiasco created a popular meme in the tech circle: “This session of Baidu PR sucks.”

Baidu bets its future on AI

In order to stay focused, Baidu has sold the mobile gaming business that was shaped out of 91 Wireless, acquired for US$ 1.9 billion, and axed several businesses with mediocre performance including their mobile health department, Baidu Future Store (an e-commerce platform), and Baidu Shuoba (a social networking unit).

Now, they are focusing on AI and autonomous driving, especially after Lu Qi, former Microsoft exec, took office as the company’s COO at the beginning of this year. But the company suffered a server brain drain as several top execs in AI unit left the company last month, led by Andrew Ng, the man behind Google Brain.

Baidu, who put forward the concept of Baidu Brain back in 2016, surely enjoys some first mover advantage this time and it’s continuing it through home-grown R&D and investments. In the past one-year period, it has announced acquisition or investment in five startups related to the businesses, including AI service xPerception, electric car manufacturer NextEV, Alexa-like Raven Tech, Velodyne, Lidar for self-driving cars, and fintech company ZestFinance.

In a recent article, The Economist pointed out that Baidu is becoming the Yahoo of China, “a once-dominant search giant that sank owing to lack of innovation and a series of management blunders” and that AI is probably the company’s last resort to restore its former glory.

Currently, however, no matter if it’s Baidu Brain or autonomous driving, Baidu’s AI businesses are more in the R&D stage. They still need more application scenarios to apply these cutting-edge technologies before making profits from it.  Even if they were the first, this advantage is slowly diminishing as both Tencent and Alibaba have announced their own AI projects.

Baidu just open-sourced its self-driving technologies and services through Project Apollo, a tentative commercialization drive of its auto drive technologies, as company COO Lu calls it.

Robin Li also disclosed last month that the company is going to accelerate the commercialization drive for its AI products. We still need time to see what changes this strategic change will bring to the search giant.