Monday, 08 May 2017 09:06

Inside Baidu's Billion Dollar Push To Become An AI Global Leader


To Chinese search engine operator Baidu, the future is set in stone. The company, dubbed the Google of China, has been investing heavily in artificial intelligence, betting that smart machines will disrupt industry after industry.

Of the 20 billion yuan ($3 billion) Baidu spent in research and development over the past two and a half years, the majority goes to AI, the company’s vice president and head of artificial intelligence group Wang Haifeng told FORBES in a recent interview. In the past quarter alone, R&D expenses went up by another 35% to $412 million from a year ago, according to its latest financial results. Like Google, Baidu wants to use the technology to refine its search algorithms, develop voice assistants, produce self-driving cars and build augmented reality tools that may soon have broader applications in marketing, tourism and healthcare.

To Baidu, however, AI means more than frontier research. The company needs AI-enabled services to be new money spinners, as its core online advertising revenues face mounting pressure from government restrictions in healthcare ads. What’s more, advertisers are flocking to e-commerce and social media platforms such as Tencent’s messaging app WeChat and Alibaba’s Taobao marketplace. According to consultancy eMarketer, Alibaba accounted for 29% of China’s $42 billion digital advertising market in 2016, with Baidu’s share falling to 21% from 28% in 2015.

Baidu, Alibaba and Tencent are collectively known as ChinaChart by Yue Wang
Baidu, Alibaba and Tencent are collectively known as China's technology trinity BAT. But the company has been slipping in market capitalization after a series of unsuccessful investments in mobile services.

In the past quarter, Baidu’s operating profit declined by 9% to $291 million, after going down 14% last year. Its other diversification efforts have produced mixed results. The company invested billions of dollars in online-to-offline services a few years ago, betting that it would earn healthy commission fees from cinemas, restaurants and other local services using its products to connect to nearby customers. But that plan failed to gain much traction, as the Tencent-backed Meituan Dianping  now holds 80% of this $100 billion market, according to Beijing-based consultancy Analysys International. iQiyi, its online video unit that just inked a streaming partnership with Netflix, remains popular but rising content cost means it is loss-making.

BaiduChart by Yue Wang
Baidu's profit has been declining since last year.

Baidu is banking on AI to make a strong comeback. It has amassed a 1,700-member team comprised of top talents from the world’s best universities and built four research labs in China and Silicon Valley, with the second Silicon Valley lab ready to accommodate 150 scientists, the company announced in March. In January, it hired Lu Qi, a Microsoft veteran who was the architect of the software giant’s AI effort, as its president and chief operating officer. Now Lu oversees Baidu’s AI research.

“Baidu's strategic focus, organization, and resources have shifted increasingly towards AI,” Wang the vice president said.

The company has its advantages. Its online search app boasts 665 million monthly active users, whose search data and behavioral patterns can be harnessed for deep learning, a branch of AI specializing in teaching machines to learn by themselves. And because search encompasses so many different topics, Baidu has more diversified data tranches than other Chinese tech giants, which may allow it to train computers better, said Wang Shengjin, a professor at China’s prestigious Tsinghua University.

And there has been real progress in this area. The company, which claims a 97% accuracy rate in voice recognition and 99.7% rate in facial recognition, has won many international competitions in speech-text interaction with its DuerOS platform, including one where its software was found to type three times faster than humans.

It has also been appointed by China’s National Development and Reform Commission to lead a national AI lab, as Beijing seeks to transform from a manufacturing economy to a growth trajectory driven by advanced technologies.

In perhaps the clearest articulation of Baidu’s ambition, its billionaire founder Robin Li said at last year’s World Internet Conference in Wuzhen that, “The age of the mobile internet is over,” and “Future opportunities lie in artificial intelligence.” In a May 4 internal letter obtained by FORBES, Li went on further to say that he wants Baidu to transform to an AI company from the world’s largest Chinese language search engine operator.

But not everyone is convinced of that prospect. In voice assistants, which is the most commercialized aspect of AI, other tech giants are catching up. Earlier this month, Tencent launched Dingdang, a voice interaction platform that is a direct competitor of Baidu’s DuerOS. DuerOS now counts speaker manufacturer Harman as well as smartphone companies Lenovo, Xiaomi and Vivo among its customers, according to Baidu.

When it comes to autonomous cars, commercialization is still decades away, partly because all relevant players need to collect far more data to perfect their systems, said Yang Qiang, a professor at the Hong Kong University of Science and Technology.

“Current data collected for autonomous driving isn’t reliable enough,” Yang said. “And we have to figure out how to use those cars. Is it in car-sharing, or logistics, or something else? We have no idea yet.”

That means Baidu’s biggest advantage is still in online search, as it has plenty of related data to write better algorithms , he said. In addition to adding voice and image search functions, Baidu is also using AI to develop personalized news feeds in its mobile search app, which Nomura Securities analyst Shi Jialong estimates will bring 6 billion yuan ($868 million) in revenues in fiscal year 2017.

What’s more, Baidu faces fierce competition for AI talents. After the company’s chief scientist Andrew Ng resigned in March, its director of big data lab Zhang Tong was poached by Tencent. In the same month, Baidu’s senior Vice President Wang Jing resigned to build his own autonomous driving startup.

Baidu’s Wang points to the competition for talent as one of the biggest challenges in the company’s AI push. “AI represents an enormous opportunity – but to seize this opportunity, we need access to the best R&D talents in China and globally,” he said. “There is fierce competition throughout the industry, worldwide, to both find and retain these talents.”

But the commercialization of AI is still at very early stages, and Baidu may still stand out in the end, said HSBC analyst Chi Tsang. At least AI is heading the right direction for them to focus on, and the company has the talent and technology expertise to tap into multi-billion dollar markets such as human-machine interaction and autonomous driving

“Any market where there is tremendous amounts of data and the inability to process data is applicable to AI,” Tsang said. “The building blocks of AI Baidu has can enable them to enter a lot more markets other than advertising.”

Source : This article was published in By Yue Wang

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