“Competition is a click away” was Google’s response in the early days of the European Commission’s investigation into possible antitrust behaviour. Its argument was based on the assumption that Google can’t technically force any of its users to stick to its services and that the barrier to entering the online search market is low. A case in point would be how the California-based company dislodged Yahoo in the early 2000s, despite having no first-mover advantages.
Founded in 2000, Baidu set out to emulate Google’s success but more recently it has been watching its own back in a bid to avoid suffering the same fate as Yahoo. Seven year-old Bytedance, for instance, is seeking to break Baidu’s stronghold: earlier this month it launched a search portal within Jinri Toutiao, Bytedance’s AI-curated newsfeed app (see WiC244).
The Beijing-based company has been preparing for the foray into search services for a few quarters, poaching at least 100 alumni from Google, Microsoft and Baidu, according to TechCrunch.
Baidu’s dominance in the market has gone largely unchallenged since Google exited a decade ago. Last year it maintained a 66% share in desktop searches and 71% in mobile searches, according to StatCounter, a market researcher. But its leading position has looked increasingly vulnerable.
Baidu made a strategic decision last year to prioritise its own self-sponsored content when displaying search results, a move that led a prominent critic to question Baidu’s utility as an information scout (see WiC439). This has opened up the prospect of a balkanisation of the search engine market – with the habit of using multiple providers gaining traction as the leading internet companies try to promote their own ecosystems.
Perhaps most significantly, Bytedance’s new approach is optimised for smartphone usage, turning Toutiao into a sort of ‘super app’ similar to Tencent’s WeChat.
For example, when a user types “property market” into Toutiao’s search bar and clicks “information”, news articles relevant to the subject will be listed; clicking “weitoutiao” will generate feeds from Bytedance’s weibo-like social media platform; and selecting “short video” will bring content from Douyin, also known as TikTok outside China (see WiC437).
One obvious merit of the new search function is its ability to promote cross-usage of the different Bytedance apps, breaking them out of their silos.
“Without the search function, which helps expand user scenarios and improve content quality, Toutiao’s room to grow would probably be capped at 40 million daily active users,” Bytedance’s founder Zhang Yiming told his staff, according to Wallstreetcn.com, a local news portal. In contrast, short video platform Douyin, the most popular of Bytedance’s apps, reached 320 million daily active users last month. Zhang’s strategy is thus to use Douyin to divert traffic to its sister apps.
Bytedance’s move can also be understood in the light of Chinese internet users’ increasing tendency to stick to a super app for their more general online searches but to go to a specialised platform when they already know what they want, notes Meigushe, a zimeiti media source. A lot of netizens prefer making general searches on the WeChat app, where they can also see what is trending among their friends. But when it comes to beauty information, they often go straight to specialised platforms such as Xiaohongshu (see WiC413).
Bytedance’s detractors, however, believe that the AI-powered company’s latest undertaking is not a surefire win. It’s not its first diversification attempt either and prior ones have foundered. Take the lacklustre performance of Duoshan, Bytedance’s video-based social messaging app launched in January, and Flipchat, another social app launched in May that combined instant messaging and forum functionalities.
Both offerings were seen as Bytedance’s attempt to rival Tencent in its core social media business (see WiC454). But Duoshan’s daily active users had dropped from 5.75 million to 96,000 by the end of June; while Flipchat’s hovered at around 80,000, according to Shenzhen-based data aggregation company Jiguang.
As compared to its other BAT counterparts, Baidu is a weaker target for Bytedance to take on. The 19 year-old company is clearly on the defensive, facing search engine newcomers such as Alibaba-backed Shenma as well as seeing drastic declines in both its net income and share price.
On Tuesday Baidu reported that its second quarter net income dropped 62% on the year to just Rmb2.41 million ($340,000). That actually marks an improvement from last year, when Baidu recorded its first annual loss since going public in 2005 (see WiC453). But investors are impatient with the meagre growth and Baidu’s shares are down 34% this year. When the BAT term was coined around a decade ago the Robin Li-founded firm was indisputably one of China’s top three internet behemoths. More recently it has slipped out of the league of China’s five most valuable internet firms.
Its autonomous driving and artificial intelligence divisions promise much but concrete results have proven slow to materialise. As such, Baidu’s short-term focus is on providing more compelling content, which explains its recent investment in Zhihu, China’s equivalent to Q&A platform Quora. Headquartered in Beijing, the nine year-old firm is known for enabling more cerebral dialogue online. It currently has 220 million registered users and 130 million content listings.
During Baidu’s earnings conference call, Li said the partnership will help to improve Baidu’s user experience, a key consideration he specified for future M&A opportunities. This year Baidu has invested in four content-related assets, including Guokr (a science-based sharing platform), Shanghai Seven-Cat Culture Media (an online literature platform) and Kaishu Story (a content provider for children).
Baidu co-invested in Zhihu’s $434 million financing round alongside Tencent-backed Kuaishou, a video-sharing platform that views Bytedance’s Douyin as its chief rival.
So how did Bytedance react to its competitors’ grab for Zhihu’s intellectual user base? In what looked like a tit-for-tat move last Wednesday it acquired a 22% stake in Baike.com – China’s answer to Wikipedia – for Rmb8.71 million.
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