JD's (京东）closing price on June 26 was $43.08, raising their total market value to $61.149 billion. They are quickly approaching to Baidu's total market value of $61.973 billion at the time, thus threatening the existing group of tech giants BAT: Baidu, Alibaba, and Tencent. In comparison, Baidu is lagging behind the other two in terms of revenue, market value, market share, and future growth potential. Amid this news, some have proposed the future of these tech giants will lie in the rise of JD and "JAT".
The three companies making up the BAT, only Baidu is on a shaky ground. It was believed that the online news aggregator Toutiao (今日头条）would threaten or even replace Baidu's vaulted position. But when discussed in Chinese news reports, what is it BAT actually? What is the significance of the tech giants group? Is it their market value or brand influence?
If we place the BAT companies in paparelled dimensions, we find that they have the following common characteristics:
- Absolute monopoly with regards to their core business
- Ability to generate high revenue
- Business matrix merged into multiple development schemes
Apple, Amazon and Facebook are comparable companies. If we include this broader market, then these companies and the BAT also have the following features:
- Leading data and information resources
- Owning Top technical and service resources
- Irreplaceable in their own markets
A few years ago, Wang Xing, a serial entrepreneur and founder of Meituan（美团） discussed with Zhang Peng Of GeekPark on how three of the “Four Great Inventions” of ancient China could be seen as innovations in information technology: the compass (location), paper (storage), and printing (copy/paste). Information technology and the dominion in speech will remain as key factors in the present and the foreseeable future.
The core business of the BAT is in the deconstruction; management of their data and information resources can be labeled separately. Tencent's most profitable business is in games, but its most basic business is in social network, with its foundation based on the management of interpersonal information. Alibaba’s core business is centered on transactions (B2B, B2C, and its logistics arm Cainiao delivery service) that also enables a range of consumer information services. Baidu’s core business is in search engine, which is designed to be a portal for integrated information and providing information service guidance. They rely on keywords to relate known answers to the unknown questions.
So how far is JD from catching up to Baidu?
JD’s main business and basic services are also based on consumption, so if it were to join the BAT group, it would necessarily strike a balance with Alibaba and become an extended part of a consumer’s expenses. Tencent’s strong position is not based on its ability to earn profits off from gaming, but rather on the extent to which QQ and WeChat have become indispensable parts of the users' social lives. While Amazon’s financial performance is not entirely rosy, with several years of negative performance in revenue, its position is still stable; they have solidified the position as an indispensable part of the consumer sector as well as the cloud service sector.
Interpersonal relationships, consumption, and integrated user information can all penetrate into every dimension of our lives. But based on different scenarios, these different dimensions are used in completely different ways to solve a variety of problems. Today, as the entry point to a variety of integrated user information, Baidu still possesses its own dominant place in users’ lives.
Search engines were the first path to show us what the internet is capable of helping us find. Baidu’s early products (Tieba, Zhidao and Baike) accelerated the flow of information from offline to online, as well as facilitated the production of native online content. However, with the rise of the mobile internet, Baidu’s current generation of apps fail to protect the position Baidu enjoyed in the PC era.
In the past, if internet users wanted to better understand a person, thing, incident, song, movie, or a solution to a problem, they would employ a search engine to find the answer. But in the era of the mobile internet, the emergence of vertically integrated service apps have enabled more intuitive methods. For example, you can search on Dianping for food, use Maoyan（猫眼） or Taopiaopiao（淘票票）for movies, search Ctrip for hotels, etc. Users are more likely to skip the process of opening a browser , and instead are directly looking for answers and services, without touching the Baidu app (which still functions much like a browser).
As internet users consumption habits are migrating towards mobile phone usage, Baidu is lagging behind. But the information it possess still retains powerful relevance that can’t be easily replaced by others. First, in popular apps vertically integrated services are limited that a lay person in a certain field may still use a search engine for answers, instead of directly using the App Store or the Google Play Store to search for a relevant app. Second, search engines are able to provide broader information services. For example, the movie app Maoyan can help you learn about a movie’s summary, ticket reservations and comments, but it won’t connect you to more broadly relevant news coverage in which actors, further information and pictures can be found; you’ll still look to a search engine for that.
Today, we are still working in the world of search engines where we can use them to find other tools to solve the problems we encounter, and openly search for connections to related services that other tech companies provide. When using a vertically integrated app, some services like payments will take place outside of the app, but they tend to keep you inside the app environment; on the other hand, search engines retain the strength of openness.
Apps are heavy and sometimes users simply require a simple, light-weight service that provides the relevant information constructed by search engines; thus Wechat Mini-programs（小程序） have emerged, efficiently solving the problems of everyday life. Even if you are a heavy user of a Chinese question-and-answer website like Zhihu（知乎）, you might only be accustomed to discussing questions related to your work; but if you need to know how to wash a sweater, you would still be used to conducting a Baidu search. Of course, there’s not much to considered appealing about using Baidu as your portal. But the backend of this portal contains information and relevancy which are both worth developing.
When we are talking about the possibility of Baidu losing its proportion in the BAT, we are actually asking about the future of the search engine. Concerning the internal system of the company, as well as its problems of management and culture: although potentially fatal, these are issues that all companies face. Even Alibaba and Tencent are not perfect, and they never allow themselves to relax.
Besides dominating information resources, Zhang Yiming also covets the talent reserves of Baidu, and now BAT has hoarded all of China’s top tech and product talent. This is also a safeguard against any major turning points ahead. Despite this, why is Baidu facing crisis after crisis?
Toutiao is already a 10 billion USD rising star that has opened up areas of the unawareness of the unknown for users. But its core business still focuses on the production and distribution of content and lacks the ecosystem or business matrix of the BAT. That being said, vertically integrated apps like Toutiao, Meituan, Dianping, etc. can more directly solve most everyday problems, with search engine portals disappearing from our minds.
Returning to the issue of content distribution and AI, these are Baidu’s strategic businesses that are still being tested. Toutiao, Weibo, and WeChat are all competing in the field of content distribution. Without any significant developments, it becomes harder and harder for any of these companies to take market share away from the others.
With AI, you can intuitively understand that there remains unseen value in its applications, with the future of AI implementation remaining uncertain. The requirements and scenarios for AI use have yet to be confirmed, since it is difficult to determine its exact business value. New businesses like AI are evaluated against the strength of existing businesses, just like Bezos’ investments into media and space exploration. But if “survival” is in imminent danger, then the cynicism of capital markets is also a reflection of common sense.
With the rapid migration towards the mobile era, Baidu took hits from both the App Store and vertically integrated apps. If more vertically integrated app businesses like JD accelerate forward to the point of having its own ecosystem, Baidu will truly be decimated. If smart interactive assistants like Siri represent a new opportunity, will Baidu be able to once again enchant users and become a shiny new portal again?
Without defending its “portal,” the loss of information and the loss of dominion in speech will be inevitable. The data and information of tomorrow will be far greater in number than it is of today; in the eyes of the BAT giants, anxiety comes from the information and right of speech of its future users, and not from the stock prices of today. Whether or not the BAT will be shaken up will be determined by the next indispensable “portal.” If it will be JD, it won’t be on the track of Baidu, but rather will come as the result of a fight against Alibaba.
This article by 卓一Joye originally appeared in Huxiu and was translated by Pandaily.
Click here to read the original Chinese article.
