Baidu’s Business Model Case Study
Baidu was founded in the year 2000 to offer an internet search solution to people in the Chinese language. Investments in technology in Baidu have become a big deal with a focus on the local constant, which has helped the company maintain its lead in the search engine market in the country. According to Xiyuan (2021), the 2016 second quarter saw the company reporting a fall in its income by 34%, the biggest decline in a single quarter since the company went public in 2005, which indicated a fall of $362 million in that quarter. This undesirable performance at Baidu is linked to the challenges facing online advertising in the Chinese advertising platforms following the death of a student who tried experimental cancer therapy after advertising it on the Baidu network. The challenges faced by the company include flags to the company to pay more attention to growth factors and sustainable strategies and leadership. These would lead to the delivery of the desired customer experience and maintaining the top spot in regards to advancement in technology. However, there are many reasons for the growth of Baidu, one being the explosion of the market within a short time which has seen user information needs changing fast. This paper highlights the current situation of Baidu, the problems it ci currently facing, the recommendations to those problems, and lessons picked from the company.
The current situation
The company’s business model usually generates revenues from online marketing services, including performance-based online marketing, pay-for-placement, and time-based online services for advertisement. Baidu’s P4P approach forms one of the company’s tenets of its business model. According to Zhang et al. (2020), the P4P platform works through an online environment, where customers come online to bid for priority placement. Notably, a priority placement increases the chances of clicking on a link on the search results page. Also, Baidu has gained significant experience in the tastes and preferences of the Chinese culture, such that they know what drives traffic to a website, given that it was the first provider of P4P on auction. This makes the overall customer experience better with guaranteed value for their money. In the year 2009, the company switched from its traditional system of advertising, which focused on price bid ranking, to the Phoenix nest system accessible online. The new advertising system has immensely contributed to the generation of strong revenue growth alongside an increased number of internet users. In this regard, Baidu has seen a growth in revenue between 2010 and 2014 with an average of 33% annual increase. This success is because Baidu has been offering performance-based online marketing services and time-based adverts where the customers have been paying the company based on their performance criteria.
The problem the company is facing
The main problem that the company is facing is regulatory challenges. Although the company is at a very competitive edge in the Chinese online market for search engines, its reputation was at risk because of a health scandal involving a student in 2016 (Ramzy, 2016). In this case, the student succumbed to cancer after visiting a highly advertised hospital in Baidu, where she received the experimental treatment. The hospital had paid Baidu for higher placement despite offering thee treatment services, way less than what it claimed to offer on its online ads.
In the 2016 student health scandal, Baidu was accused of promoting false procedures and the hospital for being dishonest through an advert widely circulated in China (Tang, 2018). The incident caused an outcry from the online community in China, where the critiques blamed the company for promoting falsified ads that are critical to individuals’ health and putting profits before ethics. The Chinese government launched an investigation into the matter, which led to the blockage of Baidu adverts from unqualified healthcare providers. The Chinese authorities also enhanced a new regulation over internet advertisement with the new laws requiring internet search firms to explicitly identify promoted pages as adverts, especially using the prefix “ad.” Besides, all the online advertisement platforms were designed to assist the users in differentiating between organic and sponsored search results.
The recommendation for Baidu company is, first, by being a local company that understands local resources, Baidu should continue using a strategy that focuses on Chinese searches and expands globally. Currently, the company has an advantage as it seems to understand and utilize the Chinese language and culture instead of its competitors. However, the company must understand that there is a moral obligation to ensure its practices are non-maleficence. For instance, the P4P SEO strategy has been known to sacrifice the value offered by companies in return for likes. This is something that leads to deceptive information online and can at times cause tragic endings, such as the 2016 student scandal. Hence, the company should invest in improving local searching to create a balance between the promotion of links and dignifying valuable links that are not promoted.
Secondly, the company has an advantage as a fast-mover with innovative resources. Being among the first companies to get into the Chinese market, many of the new companies have found it difficult to imitate the firm as this is costly. The company can use this aspect to develop itself and expand its services beyond the Chinese borders. The company can invest extensively in covering other Chinese-speaking countries such as Taiwan and Singapore, carrying on the values vastly developed in China. Entry into such markets will be easier and will likely have a positive response to company growth since the countries share fairly a similar culture.
Thirdly, Baidu has been enjoying tax benefits of relatively lower tax rates than google regarding the regulations and taxes. The company can use this as an added advantage to reduce its operating cost, raise savings, and expand its technological capability. Also, the company has been making profits and seems to be the dominant search engine in China. With this advantage, Baidu can increase its services and products and improve its security features on its search platform to avoid practices that are seen as unethical practices.
Lesson learned from the case
There are many lessons that I have learned from the Baidu case study. First, the company’s business-level strategy has revolved around developing and maintaining a competitive advantage through the coordination of resources and business processes, which have allowed the company to execute its strategies fully. It seems that success in business is determined partly by the management of resources or processes in a manner that attracts more customers while keeping costs down.
Secondly, I have learned that research development and customer feedback play a critical role in deciding the way forward of a company’s business process and the model to choose, although a business’s general direction is received from the corporate level strategy. One can have a great product, but if they have failed to gain a positive apperal to the customers, sales will be low, which risks the business failing. Currently, the Baidu business strategy is anchored on customer value, loyalty, and satisfaction, which will provide customer retention in the face of growing competition.
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Thirdly, I have also learned that positioning a company to the host country’s culture allows the users to find information, services, and products using the native culture. Although it was a challenge for Baidu to adopt the Chinese language into the system, there was the introduction of simplified searches that allowed the users to type the Chinese words using English alphabets. Therefore, Baidu designed strategies that appealed to the Chinese web users by leveraging the concept of Chinese heritage and nationalism into its business model.
Ramzy, A. (2016). China Investigates Baidu After Student’s Death From Cancer (Published 2016). Retrieved 26 March 2022, from https://www.nytimes.com/2016/05/04/world/asia/china-baidu-investigation-student-cancer.html
Tang, J. (2018). Evaluation of the forecast models of Chinese tourists to Thailand based on search engine attention: a case study of Baidu. Wireless Personal Communications, 102(4), 3825-3833.
Xiyuan, W. (2021). Business model innovation of Chinese internet enterprises a stakeholder perspective of BAT (Baidu, Alibaba, Tencent).
Zhang, H., Liu, L., & Tossenou, C. B. (2020). Enterprise Strategy Logic and Strategic Selection in the Context of Big Data: A Study based on Baidu Company. International Journal of Performability Engineering.