Thread by @lillianmli

1) Let's talk about Baidu's fall from grace - from being synonymous with Chinese tech in the form of BAT with a market cap of $110bn to now - a punchline for when a tech trend has ended.

Why did Baidu fall behind?

2) Baidu hustled hard in its early days, it was facing off Yahoo and Google who had first movers advantage in the Chinese market.

They did well in localising search and offering a suite of products such as music and forums to woo the information-hungry Chinese consumer

3) When Google fully pulled out of the Chinese market in 2009, Baidu was on top of the world. It went from owning 66% market share to 100% overnight in the biggest consumer market in the world.

Money basically printed itself through advertising. Everyone could just chill.

4) Urgency was gone, complacency set in, innovation slowed down.

There were persistent allegations that advertising money could change search rankings but Baidu never took this seriously enough to change their sales policies.

This was a ticking time bomb.

5) Baidu gained a steady reputation as the tech player who misses every big trend. When they did move, it was always to back the wrong horse.

They fumbled the shift to mobile, unlike Ali or Tencent. When they did move, they spent billions buying 91 Wireless, a games marketplace

6) This play went out the window when the Android and IOS operating war started and marketplaces narrowed down. They wrote it off the books and went back to the drawing board.

7)They waited then went all in for the Online to Offline wars, investing $2.3bn in Nuomi, a group buying offering. They had a chance at winning until kingmaker Meituan merged with Dianping and sided with Tencent. Meituan won.

8) They then launched headfirst into self-driving and missed the short-video wars. Precisely when Bytedance was carefully creating a new tech giant. Baidu course reversed but none of their apps ever took off.

At this point, their reputation for being slow is established.

9) The reason why Baidu was looking for new fields is that with the rise of mobile and super-apps, the Chinese internet had become balkanised.

People spent hours browsing inside WeChat or news apps. These closed gardens couldn't be indexed by Baidu, and ad revenue tapered off.

10) In 2016, the time bomb goes off. Before a 21 y.o. cancer patient dies, he wrote a post detailing his experience. He got treatment in a hospital through a promoted search result on Baidu, and accused Baidu of taking money to promote less proven treatments in its search results

11) Overnight public trust in Baidu eroded and never fully recovered. While Baidu was managing this scandal and internal misaligned incentives between sales and product, It's biggest killer was growing stronger day by day.

12) Before there was TikTok, there was Toutiao.

Bytedance fundamentally understood that the next phase of search is not going to be based on intentions. It's making the information find you. Their AI first apps shows the users relevant info before they search.

13) Baidu realised far too late that Bytedance was attracting serious revenue with their Toutiao news app. But their best attempt was only to copy rather than to innovate. Today there's little UI difference between the Baidu and Toutiao app, though Toutiao has better AI.

14) Fast forward to today, Baidu has bet the house yet again on an operating software for self-driving cars, the metaverse and other AI-enabled projects. All of these are not close to commercialisation.

15) So why did Baidu fall behind?

In short: complacency, bad commercial judgement, changing external environment and Bytedance

Writing more regular threads these days about Chinese tech and the Chinese economy. Follow along here or on my newsletter. Thannnnnks

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