Baidu's booth is seen at the International Technology Fair in Shanghai on April 21.
(STR / AFP / Getty Images)Baidu's booth is seen at the International Technology Fair in Shanghai on April 21.
(STR / AFP / Getty Images)

Baidu Inc.’s standing amongst China’s elite internet triumvirate is on shaky ground as the company battles slowing sales growth, regulatory uncertainty, and an ongoing cash burn from diversification.

The company has a near monopoly on China’s internet search business after Google exited in 2010. But the business environment is deteriorating and its efforts to diversify away from search—which generates over 90 percent of Baidu’s revenues—have not yielded returns. While second-quarter sales increased 10 por cento, profits dropped 36 percent year over year, the biggest quarterly decline in the company’s 11 year history as a publicly traded entity.

Baidu’s U.S.-listed ADR shares are down around 6 percent year-to-date. Its market capitalization is now dwarfed by other members of the “BAT”—China’s big three internet giants of Baidu, Alibaba Group, and Tencent Holdings.


Baidu (BIDU)’s market cap compared to Alibaba Group (BABA) and Tencent Holdings (TCTZF) during the last five years. (YCHARTS)

Regulatory Headwinds

Baidu derives an overwhelming majority of its sales from search advertising, putting the company at the whim and mercy of the Chinese Communist Party, which maintains tight control over the country’s Internet search framework.

Once a darling of the Party, Baidu has found itself increasingly marginalized by its regulatory changes. Beijing recently announced guidance requiring online advertising companies to restrict the number of advertising to less than 30 percent of each page. An additional wrinkle mandates that all online ads also must be clearly designated as such to help consumers differentiate between sponsored and true search results.

Once a darling of the Party, Baidu has found itself increasingly marginalized by its regulatory changes.

Regulatory restrictions were enacted following an investigation of Baidu earlier this year after a college student died from a cancer treatment advertised online that the student found via Baidu’s search engine. Additional limitations were placed over online advertising of healthcare services.

These constraints have put a damper on Baidu’s advertising revenue growth by “reducing the number of online clients” available to the company, CEO Robin Li said last quarter regarding the change while lowering organic growth guidance from 9 percent to 5 por cento para 2016.

The unfavorable regulatory environment has dampened some analysts’ expectations of its stock. JP Morgan’s Alex Yao holds an “underweight” rating on Baidu shares—a minority as most analysts polled last week by S&P Market Intelligence had “outperform” ratings—with a lowered price target of $164, or around 8 percent below Sept. 2 close. Nevertheless, several analysts, including those from Oppenheimer and Piper Jaffray, lowered their price targets over the last month, reflecting a downward shift in sentiment.

Advertising Shift

A big part of JP Morgan’s downbeat assessment of Baidu is due to the industry shift of advertising dollars away from search engine into social media channels.

Look no further than Tencent, which is eating Baidu’s lunch in online advertising. Tencent is China’s social media and mobile gaming king, and its surging advertising revenue growth has reflected the paradigm change in online advertising. Second quarter data showed a 60 percent increase in online advertising revenues to a record 6.5 bilhões de yuans (sobre $1 bilhão).

Part of that is due to consumers’ shift from computers to mobile, benefiting Tencent’s mobile platform Weixin/WeChat, which counts 800 million users. Tencent has leveraged the platform to distribute mobile games, video content such as Hollywood movies, and NBA basketball games.

The company has historically generated most of its mobile revenues from in-game purchases. But taking a page from Facebook’s recent success, Tencent has worked to monetize its user base by aggressively pushing mobile advertising within its WeChat app, whose functionality includes mobile chat, news, social updates, and mobile wallet.


With its bread and butter online advertising facing headwinds, Baidu is actively searching for an alternative future profit center by deploying billions into potential new technologies, with a focus on artificial intelligence (AI).

Last week, Baidu and American computer graphics media company Nvidia Corp. announced they were collaborating on a platform for semi-autonomous cars. Details were vague during the unveil at Baidu World conference on Sept. 1, but Nvidia CEO Jen-Hsun Huang said the partnership will allow “Baidu to get a self-driving taxi fleet on the road, and the same platform is also designed for use in OEM cars, tied into the same network.”

While Nvidia has dabbled in self-driving cars for years, a host of deep-pocketed companies from several sectors are all vying for a breakthrough in this platform. Technology giants such as Alphabet and Apple, car companies such as Tesla and Volvo, and taxi companies such as Uber are all aiming to bring autonomous driving technologies to market.

To help drive artificial intelligence innovation, Baidu open sourced one of its key machine learning platforms called PaddlePaddle by freely offering the software to AI experts.

Following the footsteps of Microsoft and Amazon, Baidu is releasing its toolkit to attract AI talent and in turn help shape the development of a nascent field that could underpin future consumer-based technology.

Baidu hopes its tools will catch on. Xu Wei, head of PaddlePaddle development at Baidu, told technology focused website The Verge that its AI platform needs only a quarter of the code necessary compared to rival platforms for the same machine translation software.

And some of the company’s existing efforts haven’t panned out. An example is recent cancellation of Baidu’s food delivery drone program called Baidu Takeaway, created in 2015 to provide drone-based food deliveries. But Baidu decided that the food-delivery market isn’t scalable enough to profit, given that Baidu doesn’t have manufacturing facilities for drones.

With none of the above technologies ready to bear fruit in the near future, it begs the question—can Baidu’s long view ease short and medium-term pressures on its shares?

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Morality and conscience cannot be bought and sold on the market like a commodity, and at the same time, properly functioning market economies must be based on a certain code of ethics. Claro, people and enterprises have sold out their principles for profit for centuries—the process is usually secretive, not subject to legal sanctions or easily definable in legal terms, and in most cases relies on the self-discipline of market participants.
Selling counterfeit drugs, por exemplo, is illegal and immoral. Contudo, if vendors who sell counterfeit drugs extend benefits for advertising for them, stating the drugs they sell are very good, then I can sell my morality by running these ads, even though I may not directly be breaking the law.
Baidu Profits by Selling Out
Baidu has been excoriated by the public after the college student Wei Zexi died after paying for a course of treatment that had no chance of success. Indeed, it’s known that Wei Zexi suffered from an incurable disease, and the possibility of curing him was not high—but this is not an excuse for private hospitals run by the Putian clan, a group of unscrupulous entrepreneurs from Fujian Province, to sell him counterfeit drugs at a high price and profit from someone about to die. Why are fake drugs so marketable? Because there’s a platform for them: Baidu. Baidu allows sellers to bid for the rank at which their search results appear, and it has created an enormous market for those who sell fake drugs. As long as you have money, Baidu can put you right on top of the search results.
Baidu’s 2014 annual report showed that online marketing revenue was 48.495 bilhões de yuans ($7.41 bilhão). Putian City Party Secretary Liang Jianyong once said in public: “Baidu’s total advertising revenue in 2013 estava 26 bilhões de yuans ($3.97 bilhão); Putian’s private hospitals spent 12 bilhões de yuans ($1.83 bilhão) advertising on Baidu.” Assume they spent the same amount of money in 2014; it accounted for 25 percent of their marketing revenue. We cannot say that all drugs made by Putian hospitals were fake, but based on most of those exposed Putian hospitals, the proportion of false advertising is extremely high.
Maybe Baidu isn’t responsible or equipped to discern the authenticity of all the advertising on its platform. And the same goes for Google. But Google isn’t allowed to do what Baidu is making so much money doing. [Nota do editor: Google was forced by the U.S. Department of Justice in 2011 to disgorge $500 million earned from advertising counterfeit drugs.]
Moral Economics
If morality can be traded, then human morality will be lost and society will eventually collapse. Despite the sale of ethics occurring from time to time, the moral bottom line cannot be traded—it’s priceless, and can’t be put out on the market for an exchange value. The concept of a “moral bottom line” concerns major principles related to human existence; once human beings are controlled by selfishness, society will lose balance. This view is the core of moral economics.
The British economist E.P. Thompson touched on morality in economics in writing about the changes in the United Kingdom during the 18th century, and the dimension of “moral economics” he introduced served as a counterpoint to the economic determinism set forth in Adam Smith’s “Wealth of Nations.” It set limits to economic development based on egoism: On major issues of public interest, it forbade selfishness and the violation of moral bottom lines.
Thompson wrote in his book “Customs in Common” that the reason society has been able to maintain balanced development for so long is not because of the power of money, but because people followed social moral norms.
The Idea of the ‘Moral Baseline’
Thompson wrote in his “Customs in Common” that the idea of a moral baseline refers to habits and norms that are passed down through tradition, based on social consensus.
The idea that children should have the right to education, por exemplo, did not stem from laws in the first place, but is part of the cultural heritage of mankind. Almost everyone agrees with this view. portanto, the denial of this right to children violates a moral baseline.
These moral baselines shouldn’t differ between cultures or economic systems, and should be a basic consensus among humans. It is the most basic achievement of human civilization, and the basic spiritual element to ensure human society continues forward.
This moral baseline also constrains and determines our conduct: Saving lives, por exemplo, is a basic norm. Medicines are supposed to be used to cure illness and save lives, thus we should not sell counterfeit drugs and kill for profit; food is used to sustain life and health, so we cannot sell toxic and harmful food; prices should not be jacked up during natural disasters; education is for people to learn the unknown, to innovate and open the door to the future, not to brainwash and mislead, and so on.
How China Lost Its Moral Baseline
Today’s China looks very wealthy and powerful on the surface. But what about inside? Our moral baseline is broken: toxic food, counterfeit drugs, education as business, GDP bought with blood, forced demolitions and relocations, lying as a habit, the refusal to help others, the intertwining of money and power, and more. Baidu is not the cause of these vices; it simply followed the trend to make money.
portanto, we can see that Baidu publicly trades in morality. How many businesses in China truly maintain a moral baseline? Is money more expensive than morality? Is wealth more important than conscience? In the face of these questions, we’ve already lost our bearings.
Fan Di is an independent economist and part-time professor at Peking University and Sun Yat-sen University. Ele obteve um Ph.D. at the University of California–Berkeley, supervisionada por Li Yining da Universidade de Pequim e ganhador do Prêmio Nobel George Arthur Akerlof. Fan tem sido um executivo sênior e consultor em grandes bancos, empresas financeiras, e grandes empresas.

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Faced with a long line for dialysis treatment, 29-year-old Li Qing turned to Baidu, China’s largest search engine, for an alternative medical treatment. Now a private hospital is trying to buy Li’s silence after her condition worsened under their care.
The case of Li Qing came under scrutiny from Chinese internet users in light of the recent death of a college student who used an unproven medical treatment that a hospital advertised on Baidu. Baidu was found to have ranked paid advertisements higher on its search list without prominently distinguishing them from other content.
Li was first diagnosed with uremiaa result of kidney diseaseat a provincial-level hospital in Xi’an, the capital of Shaanxi Province in central China, in April last year, according to a Hua Shang Daily report on May 18. Because the hospital had a long waiting list for dialysis treatment, Li and her family did a search on Baidu for other options, and decided to try the treatment ranked first on the search list.
Qikang Hospital of Chinese and Western Medicine advertised that it could treat uremia with minimal dialysis treatment and stem cell injections. No kidney transplants were necessary, the ad read.
So on April 6, Li started medical treatment at Qikang Hospital. She went for dialysis three times a week, received stem cell injections, and other treatment methods. A Dr. Zhao promised Li that she wouldn’t need dialysis in six months due to the stem cell injections.
But Li’s condition worsened, and she visited a public hospital in Xi’an for another checkup. The Xi’an hospital told her that the Qikang Hospital’s treatment was not medically provenstem cell treatment hasn’t been shown to have any effect, and uremia patients will always have to undergo dialysis.
After Li and her elder brother confronted Dr. Zhao with the facts, he told them that Li should continue with the treatment. Besides, Dr. Zhao said, other patients have paid more to stay on the treatment; by then, Li had already spent about 300,000 yuan (sobre $46,000).
Li put her story online, and it attracted much attention from Chinese internet users and the media, having taken place right after the recent death of student Wei Zexi, a 21-year-old from Shaanxi Province who perished of cancer after receiving unproven medical treatment from a Chinese military hospital. Wei’s death prompted a public inquest into Baidu’s ethical standards, and questions about military hospitals, which are considered to offer quality medical treatment.  
Hua Shang Daily reported that Dr. Zhao has been actively seeking out Li Qing and her brother to offer 20,000 yuan (sobre $3,000) in reimbursement money for medication she hasn’t taken.
“What is this 20,000 yuan for? To silence me?” Li told Dr. Zhao over the phone, according to Hua Shang Daily.
Qikang Hospital is also trying to get Li to sign an agreement that she would not speak out about her treatment after accepting compensation, and that she wouldn’t mention anything about their stem cell treatment.
Netizens on Sina Weibo, China’s popular microblogging website, wondered who was really to be blame for the incident.
“All I can say is that the medical supervisory body, not Baidu, should bear the biggest responsibility,” wrote “letonfrom Liaoning Province.
Others complained about the lack of transparency by the Chinese regime.
“0 Feng Huang 0from Guangdong wrote: “When attention on Wei Zexi subsided, those psoriasis-like ads begin to resurface a few days later, and are now everywhere. The authorities only reported what they had uncovered, without issuing any punishment or token policy. There’s no follow up. It’s just a going through of motions aimed at appeasing us stupid citizens.

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  • Autor: <a href="" rel="author">Frank fang</uma>, <a href="" title="Epoch Times" rel="publisher">epoch Times</uma>
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Beijing and Shanghai may lie almost 1,000 miles apart, but their metro riders share one thing in common. Each morning, commuters hunch over smartphones or tablets to watch the latest Chinese or Korean TV drama or Hollywood movies downloaded from the internet.
Chances are, those videos are downloaded or streamed for freevia legal means or pirated.
But that may be set to change. Internet and media giants are making massive bets in content and technologies, aiming to disrupt China’s longstanding culture of free web entertainment.
Their goal: encourage people to pay for content.
Appetite for Videos
China’s online video market is expected to reach RMB 36.8 bilhão (US$5.8 billion) dentro 2015, uma 50 percent increase from 2014, according to iResearch, a Chinese internet consultancy. Around RMB 15.2 billion of that figure comes from online video advertising, with the remainder consisting of subscriptions and purchases.
While that’s seems high, online video is still a small portion of the RMB 209 bilhão (US$32.9 billion) Chinese internet users expect to spend in overall online entertainment, which includes music and games.
This fragmented environment cemented China’s reputation as a market where copyrights go to die.

The gap is apparent when taken into context with how users spend their time online. As of June 2015, Chinese Internet users spent 33 percent of their time on the web on online videos. That’s by far the biggest chunk of time spent on online entertainment activitiessocial networking was 10.6 por cento, and online gaming was only 5.9 por cento. The remainder was spent on non-entertainment online activities.
Em outras palavras, revenues from online videos aren’t commensurate with usage demand. China has more than 650 million internet users, and monetizing the online video market has become an arms race between domestic internet giants.
Wild Wild West
The question is, how to convince millions of Chinese web users to pay for content?
In the United States, Hollywood movies generally follow the same distribution model. Films are shown in cinemas first, followed by DVD, Blu-ray, and streaming/on-demand platforms. Netflix,, and Hulu are the major players in online paid streaming video.
Media and entertainment giants view China as the new frontier. And in many ways, it’s still akin to the “Wild Wild West.
No specific distribution channel is customary for domestic Chinese movie releases. Studios may choose to debut films and TV shows on any number of distribution channels including online and mobile. Legal streaming services are numerous and fragmented, coexisting with a number of sites streaming low-quality pirated content.
This fragmented, free-for-all environment encouraged the rampant piracy that has plagued Chinese entertainment industry in recent decades, and cemented China’s reputation as a market where copyrights go to die.
Arms Race
There are new sheriffs in town. The impending culture shift is led by the “BAT,” China’s big three internet giants of Baidu, Alibaba, and Tencent.
Their strategy is to create online platforms with libraries of high-quality and desirable content in high definition, able to be streamed or downloaded on-the-go. With a compelling product, theyand Hollywood studioshope some users would move from illegal sites to these paid platforms. The services will be promoted alongside the internet giantsexisting productsthink Taobao, WeChat, and QQwhich already dominate the social lives of Chinese internet users.
“The generation of users born post 1990 understands the value of content. They are cash-rich, but time-poor. They are willing to pay for the convenience of accessing quality without having to go through the complications of finding illegal content,” Yang Xianghua, senior VP of iQIYI, said in an interview with Variety magazine.
Alibaba, which runs e-retailer Taobao and its namesake internet wholesaler website, is spending billions in this effort. em novembro. 6, Alibaba agreed to pay around US$4.4 billion to purchase the remaining stake of Youku Tudou it doesn’t already own. Youkua Chinese cross between YouTube and Huluhosts a number of well-known video bloggers, has a huge user base, and can drive traffic to Alibaba’s more lucrative online video ventures.
One service standing to benefit is Tmall Box Office, a streaming service launched by Alibaba earlier this year. Similar to Netflix, it requires monthly or annual subscriptions and offers a mix of Chinese and foreign movies and TV shows. Payments (around US$6 for the monthly plan) can be conveniently made viayou guessed itAlipay, the company’s online payment service.
Taking a page out of Netflix’s playbook, Alibaba is also turning itself into a movie studio. Hong Kong-based Alibaba Pictures was launched in March 2015 to produce Chinese-language TV shows and movies. It also invests in large-scale Hollywood productionsin June Alibaba signed a deal to invest an undisclosed amount in the next “Mission: Impossiblefilm. Last year the company obtained rights from Lionsgate to broadcast and stream movies such as “The Twilight Sagaand TV shows such as “Mad Menand “Weeds” na China.
Baidu, China’s No. 1 search engine, also built its online video platform iQIYI into a major player in content streaming. Last month, iQIYI signed an agreement with Comcast Corp. to become the exclusive online distributor of Universal Studiosnew and existing films in China.
comc, which owns China’s biggest social media platforms QQ and WeChat, reached an agreement last week to become the exclusive online distributor of Paramount Picturesfuture releases including “Star Trek Beyond,” set to debut in 2016. The company also acquired online distribution rights to Metro-Goldwyn-Mayer’s James Bond franchise, including the newly released “Spectre.
It already has a war chest of popular western films. Tencent owns online distribution rights to Walt Disney’s “Star Warsfranchise, Time Warner’s HBO properties, and recently acquired an equity stake in the upcoming movie adaptation of video game “Warcraft.
For Hollywood studios, China has long been a flawed market. Studios frequently face off against Beijing’s censorship police, which demands content alterations before release. Even after films are approved, box-office receipts are the only material form of revenues for studios. DVD and Blu-ray sales are virtually nonexistent due to rampant piracy.
To make up for this gap, NOS. studios see digital distribution as a potential new revenue stream in China. Timing will largely follow the U.S. distribution model. Por exemplo, MGM’s latest Bond film “Spectrewill be

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