Transcript: Baidu’s ‘do-or-die’ bet on AI

This is an audio transcript of the Behind the Money podcast episode: ‘Baidu’s ‘do-or-die’ bet on AI’

Michela Tindera
Back in September, Robin Li, the CEO of one of China’s biggest tech companies, Baidu, appears for a speech at a conference in Beijing. He’s wearing a black button down with the Baidu logo stamped on his shirt. 

[CLIP OF ROBIN LI’S SPEECH PLAYING]

Michela Tindera
In his speech, Li has a clear message to the other entrepreneurs and executives at the conference: Don’t compete with Baidu.

Ryan McMorrow
So it’s a bit of an odd message, essentially telling the competition: stay away, don’t even try.

Michela Tindera
That’s the FT’s China tech correspondent Ryan McMorrow. Earlier in the year, Baidu had released its first AI chatbot called Ernie Bot.

Ryan McMorrow
It’s essentially China’s version of ChatGPT.

Michela Tindera
And Li is trying to squash competition to Baidu’s new technology.

[CLIP OF ROBIN LI’S SPEECH PLAYING]

Ryan McMorrow
So he singles out entrepreneurs in the audience and he says . . . (speaks in Mandarin) And so that means he’s saying there’s no point in jumping into foundational models in really making it a race to the bottom where everyone’s competing on price, and instead you should jump into building apps for foundational models. And that’s where the big opportunity lies. So he’s telling them build apps for my model. Don’t go build your own model.

Michela Tindera
What Ryan’s saying here — foundational models — he’s talking about the generative AI technology that underpins AI chatbots like ChatGPT and Ernie Bot. It’s the technology that allows them to answer a question with humanlike text and images in just a few seconds. Now, you might just chalk this up to the hypercompetitive nature of a billionaire founder and CEO. But there really is a lot riding on this for Li and for Baidu.

Ryan McMorrow
Back a decade ago, Baidu was known as the B in BAT, alongside Alibaba and Tencent.

Michela Tindera
Ryan is talking about the top three tech companies in China. It’s like the old Faang group in the US. You know, Facebook, Amazon, Apple ...

Ryan McMorrow
But as Alibaba and Tencent have grown their revenues — maybe tripled, quadrupled, even 10x their revenues over the past decade — Baidu hasn’t really been able to grow at all.

Michela Tindera
And that’s why Robin Li is zeroing in on AI.

Ryan McMorrow
One engineer at Baidu who we interviewed told us it’s a do or die moment. Whether Ernie succeeds or not will play a decisive role in the company’s future.

Michela Tindera
Robin Li is hoping that it will be the move that, after years of stagnation, will finally turn things around. It’s just a question of whether he can get out of his own way in order to do it.

[MUSIC PLAYING]

I’m Michela Tindera from the Financial Times. After years spent attempting to jump-start Baidu’s growth, Robin Li is making a big bet on artificial intelligence. Today on Behind the Money, we’re looking at whether Li will be able to turn his new technology into a commercial success and if he can put Baidu back on a path to growth.

[MUSIC PLAYING].

Hi, Ryan. Welcome to the show.

Ryan McMorrow
Hey, thanks for having me on.

Michela Tindera
So Robin Li started Baidu, which I should note is known as the Google of China a couple decades ago. So can you tell me more about those early days and just what that was like?

Ryan McMorrow
Robin Li is the CEO and founder of Baidu. He’s 55 now, and he’s kind of known as this nerdy programmer who’s also pretty handsome. And he came back to China in the late 90s after studying in New York at the University of Buffalo. And he came back to essentially create in China what he saw was going on in the US with search engines and all the internet fervour of the late 90s.

Michela Tindera
Baidu took off and quickly rose into the top ranks of Chinese tech companies. Within just a couple of years, Li was seen as one of the country’s go-to innovators, pushing consumer tech in China forward. But around 2014, Baidu’s revenues started to lag behind the other members of that BAT trio. It’s Baidu, Alibaba and Tencent. And over the last 10 years, they’ve stayed pretty flat. So what happened? Well, first, Ryan tells me that Baidu wasn’t able to keep that same chokehold on search that Google has here in the US. That’s because China’s internet ecosystem changed a lot.

Ryan McMorrow
You have apps kind of building their own walled gardens, like WeChat just becomes this super app where people don’t really leave. Instead, they start searching for stuff inside of WeChat. And that’s a lot of content and data that Baidu’s search crawlers can’t access. So there’s no way for Baidu to return WeChat search results, which slowly become at least in some things even more useful than Baidu’s own search results.

Michela Tindera
This sort of pressure on search left Li looking for ways to diversify.

Ryan McMorrow
Robin is kind of known for pushing the company into whatever is hot at the moment. So over the past decade, that’s really been everything. He’s tried ecommerce. He’s tried to build a mobile operating system, he’s tried handing out loans to consumers, and he’s tried food delivery. Some of those have failed entirely. Some of them have been sold off, but essentially there’s not one that has really worked well.

Michela Tindera
Last year, Ryan and some of her colleagues wanted to understand if there was more to what was causing Baidu’s sluggish revenues.

Ryan McMorrow
With Baidu basically stagnant, slowly declining, we were just curious in wanting to learn more about why people inside the company thought they’ve been unable to do anything successfully over the past decade. So we started interviewing current and former employees and asking them about the culture of the company, about Robin Li’s leadership.

Michela Tindera
Over the course of a few months of interviews, Ryan tells me the two big themes rose to the top. First, about five years ago, Li hired his wife, a woman named Melissa Ma, to work at Baidu.

Ryan McMorrow
To the outside world and to investors, she is basically invisible. She is hardly mentioned in earnings reports. She’s never on the earnings calls. She’s not the one promoting the company like Robin is. But when we started talking to employees, her name was brought up a lot.

Michela Tindera
Melissa Ma is one of the company’s original co-founders, but she had left years earlier to raise her and Li’s family. Ryan tells me that Ma’s formal title with Baidu is just a special assistant, but employees told him that she’s actually heavily involved in running the company’s investments, talent management and recruiting.

Ryan McMorrow
But from what employees have said, in their view, her presence has kind of added to the dysfunction at the company.

Michela Tindera
In one case, this sort of dysfunction played a role in the departure of a top hire.

Ryan McMorrow
Right before Melissa returned to the company, Robin had lured this, man named Lu Qi, who’s really this famous AI expert and who was an executive at Microsoft. Robin won him over and brought him to Baidu to kind of be the the next chief executive-in-waiting and run day-to-day operations and be the president/COO. But soon after his arrival, then Melissa returned. And from what people who’ve worked with both of them have said is that Lu couldn’t really figure out who to deal with, whether Robin or Melissa was the boss. So about 16 months after joining, Lu left and Baidu, for its part, said he departed to deal with a personal family matter.

Michela Tindera
Ryan, what did the company say when you asked them about all this?

Ryan McMorrow
So they declined to make Robin or Melissa available for interview. But when we sent them a long list of detailed points, they said that the article presents a heavily biased and factually inaccurate depiction of the company and its CEO, and without providing any specifics, said the details the FT put to the company about Ma included many errors of fact. They also said that Ma’s role at the company is providing advisory services to Baidu’s HR department, and that she’s not involved in day-to-day operations nor among its core management. And when we asked them about her high compensation package, they said, suggesting Ms Ma is an executive officer of Baidu based on her share-based compensation is mistaken.

Michela Tindera
According to documents the company files with the US Securities and Exchange Commission, Ma earns about $1.7mn annually on average in stock compensation. Now, that’s a bit less compared to her husband Robin Li’s salary, but Ryan tells me it’s still quite a hefty sum for a Chinese tech company.

Ryan McMorrow
Even as they tried to deny her role at the company and say she’s hardly involved, they’re paying her a lot of money, which makes it hard to deny she’s doing anything.

Michela Tindera
When Melissa Ma came back to Baidu around the end of 2017, the company was facing multiple crises. A scandal involving false advertising on their search engine had led to new government rules on ads, and a significant revenue hit. Ma came back to steady the ship, but instead Ryan’s reporting highlighted how decision-making at the company has become more difficult, not less. And then there’s another key issue tied to Robin Li’s leadership.

Ryan McMorrow
So the other part of the company that I guess many employees like about it is that it’s very research-focused and doesn’t have the all-encompassing demands to ship product and hit sales targets that other companies like Tencent or Alibaba or ByteDance have. So internally, employees refer to it as like working at an internet nursing home because they’re free to do what they want.

Michela Tindera
Ryan says that he spoke with one mid-level manager who told him that Li cared about technology, not business.

Ryan McMorrow
And so when they tried things like online loans or food delivery or ecommerce, and these new businesses proved overly competitive, Robin would start to rethink it. He would cast them as being tech-enabled businesses. Like you need a smartphone to order food, but it’s not something like artificial intelligence or self-driving cars, where advanced tech is your competitive moat. And so he would slowly lose interest.

Michela Tindera
So it’s been a decade of challenges, but Ryan tells me that Li’s new focus on AI is really a bet the company moment for Baidu.

Ryan McMorrow
They’ve really gone all-in on AI and they’re using Ernie to reposition their company and kind of hope that this will bring about the next decade of growth for the company.

Michela Tindera
Coming up: will Robin Li’s bet on AI pay off? Or will it also end up in the growing pile of struggling Baidu businesses?

[SWAMP NOTES TRAILER PLAYING]

Michela Tindera
So, Ryan, have you had the chance to check out the Ernie chatbot yet?

Ryan McMorrow
Yeah, I have used Ernie, I think, back in April.

Michela Tindera
And what’s it like?

Ryan McMorrow
Well, in English it’s not very good at all. In Chinese, it seems OK. It can’t always answer all the questions that ChatGPT can, but at least for me, it seems not so bad.

Michela Tindera
So how’s the reception of it been in China so far?

Ryan McMorrow
Baidu says that there have been 100mn people that have used it as of the end of 2023, and I think they also say there are 20,000 companies using it as well.

Michela Tindera
Wow. So for reference, ChatGPT says that it has over 100mn weekly active users. So these are serious figures.

Ryan McMorrow
So this is not just a totally off the cuff project for Baidu. And so they find themselves in the middle of China’s AI craze. And everyone, like even the employees at their rivals will admit, that at least for the moment Ernie’s models are ahead of what other people are producing.

Michela Tindera
Ryan tells me that it’s unlikely that the Chinese government will allow OpenAI’s ChatGPT to operate there. So that means, for now, Baidu is leading this race for AI dominance in the country. Now, I should say that the speech we heard earlier, where Robin Li was telling people not to compete with him and his large language model. Ernie, that wasn’t the only time that Li did that last year. And well, despite his repeated attempts, it doesn’t seem like they had much of an effect on the competition.

Ryan McMorrow
Even though Robin has been urging all rival tech companies and start-ups to stay away from making their own nice language models, they haven’t really been listening. And so when he first gave his speech telling people not to get into large language models, he counted, I think it was around 70. And by November, when he gave a similar version of the speech, he was up to about 276. So every Chinese company has really jumped in and wants to create their own large language model. So he faces a problem of trying to build an ecosystem when there’s not really anybody building apps on top of Ernie yet. Or not, at least not to the scale that he needs to make his vision come true.

Michela Tindera
So, Ryan, what do you think? Can Robin Li figure this out?

Ryan McMorrow
Robin is definitely very involved and very smart, and he’s pushing staff to work overtime on Ernie. He’s very involved in making sure Ernie works out. But at the same time, he’s proven himself with their past products to not end up being the best leader, at least in commercialising and monetising products. So he’ll have to make sure that they’re very focused on commercialising and monetising, so they don’t end up with a product that no one is going to use.

Michela Tindera
So what do you think you’ll be watching for in the coming months?

Ryan McMorrow
So from what analysts we’ve talked to think, it seems like it’s going to be the next one, two, three years we’ll see which company or companies end up with foundational models that are built on top of. And Robin is definitely hoping that will be Baidu. But, other people I talk to in the Chinese tech world are less confident that he’ll be able to make that happen. I think Baidu is slowly going to end up more and more on the fringe of China’s tech ecosystem. I mean, they’ve been slowly left out of conversations when people think of China tech and the leading companies. So if they aren’t able to make AI work, then that’s going to be more true than ever. And when it comes to their company and business, I think search will remain. It’s just going to continue to shrink. So the company will be around. It’s just not going to be one of China’s leading tech companies for much longer.

[MUSIC PLAYING]

Michela Tindera
Ryan, thanks for coming on the show.

Ryan McMorrow
Sure. Thank you so much for having me.

[MUSIC PLAYING]

Michela Tindera
Behind the Money is hosted by me, Michela Tindera. Saffeya Ahmed is our producer. Topher Forhecz is our executive producer. Sound design and mixing by Sam Giovinco. Special thanks to Murad Ahmed and Eva Xiao. Cheryl Brumley is the global head of audio. Thanks for listening. See you next week.

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