Internet & Tech

Rainmaker required

Baidu hopes for boom in cloud storage sales


Cloud atlas: Baidu owner Robin Li

Earlier this month the annual results of China’s national campaign to “eradicate pornography and illegal publications” showed that over 1,300 people were punished last year. The crackdown has a long history but it has been targeting an unlikely new culprit: cloud storage.

Two years ago the government launched the “Strike the Net 2015” initiative, taking aim at the dissemination of illegal material through online storage services, commonly known as “clouds”. The racket was simple: a supplier uploaded pirated, pornographic or otherwise prohibited content to an online storage account and then sold access.

As a result of the “Strike the Net” campaign, online storage providers were forced to invest in more content supervision. According to Southern Weekend, the government launched a second effort last year and since then seven providers, including Qihoo360 and Sina, have opted to reduce or drop their cloud offerings.

However, the government’s campaign might have given some of the cloud firms a convenient excuse for withdrawing from the market as online storage was not a particularly profitable venture to begin with. Many of the services are provided free, despite the costs of hiring servers and securing bandwidth. Advertisers meanwhile have been reluctant to invest in the area due to concerns about pirated material, while the Beijing Times reports that customers for cloud services have been unwilling to upgrade to paid-for storage. At the height of Dropbox’s popularity, fee-paying users accounted for just 3.5% of its customers, the newspaper claims, suggesting that the number of paying subscribers for similar services in China would be lower still.

Baidu, China’s leading search engine, hasn’t been deterred from focusing on cloud services, however. In the first half of 2016 it grabbed 70% of China’s cloud storage market and cheekily celebrated rival Qihoo 360’s withdrawal from the sector on its official weibo page. “We suddenly feel like giving out red packets. How many? 360 million super VIP red packets,” it chortled.

No surprise too that foreign operators will have trouble getting a foothold in the market. They have tried to circumvent local restrictions by creating partnering arrangements with licenced Chinese providers. But the authorities seem to be taking a dimmer view of these arrangements, meaning that non-Chinese providers may need to be restructured or migrated onto local partner owned infrastructure.

Baidu’s market share means it will have a higher number of paying subscribers. Because its search engine business has struggled for supercharged growth, Baidu has been shifting focus to other ventures such as artificial intelligence and big data, both of which are supported by the collection of information through its online services. The plan is to build online solutions in verticals such as healthcare, marketing and finance, allowing clients to download the applications for their businesses in a cost-effective way.

“Cloud computing was recognised as an infrastructure investment for corporate users several years ago, but the market demand for cloud-driven AI platforms has seen rapid growth since this year,” Zhang Yaqin, Baidu’s president, told China Daily in December.

Earlier this month Baidu demonstrated its advances in artificial intelligence by entering a robot, Xiaodu, for a popular game show called Super Brain in China. It beat its human competitors by winning three rounds against their two, demonstrating complex facial recognition capabilities. This should have been a great success but unfortunately the coup was overshadowed by the news that China’s world champion Go player had just been beaten by a computer, called Master. Unfortunately for Baidu, Master wasn’t created by its engineers but by those employed by Google.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.