Baidu (BIDU) is betting on emerging technologies such as AR (augmented reality) and AI (artificial intelligence) to arrest its revenue slide and put it firmly on a path toward long-term growth. In a recent move, the company announced that it will open an AR research lab in Beijing, saying the move was part of its efforts to invest ~200 million in developing technologies that can revitalize its growth.
Baidu said that the AR lab will initially focus on developing cutting-edge marketing technologies, but there are plans to expand to education and healthcare. With revolutionary AR technology, Baidu could gain more from China’s robust e-commerce industry. Research firm eMarketer forecasts online retail spending in China to top $2.4 trillion in 2020 from ~$900 billion in 2016.
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An effort to comply with a new government directive on medical advertising led to a loss of advertisers and advertising revenue at Baidu last year. The company reported a 16% drop in the number of advertisers and a 4.6% fall in revenues in 3Q16. Baidu was forced to take down some medical ads from its Internet search to comply with the directive.
But with better technology, Baidu will be able to run a clean online search platform by speeding up the removal of illicit ads and improving its image and win customer trust, which is crucial in attracting higher-paying ads. Baidu is also betting that cutting-edge technology such as AR and AI can help it diversify its revenue streams into areas like autonomous driving.
For Baidu, the pressure to innovate is not only to defend its market share in China, where it competes for digital ad spending with Alibaba (BABA), JD.com (JD), and others, but also to hedge against Facebook (FB), Twitter (TWTR), and Alphabet’s (GOOGL) Google, in case these companies are allowed to offer their services in China.