BEIJING (BLOOMBERG) - For more than a decade, Baidu Inc.'s Robin Li has been the top provider of search services for China's Internet population. Now he wants to help them get laundry delivered, book a doctor's appointment or hire a chef to cook in their homes.
The future, as Mr Li sees it, is not in search but in services, connecting people through the Web to thousands of entrepreneurs and businesses in the real world. He's betting billions of dollars on the untested vision, risking revolt among investors as he sacrifices profit today for future growth.
The significance of the effort was made clear last week when Mr Li took the stage at Baidu's annual conference in Beijing. Internet search, which generates virtually all company profit, barely rated a mention.
Instead, the Baidu founder declared his top priority is the online-to-offline push, known in geek-speak as O2O.
"We are actually transforming the company from connecting people with information to connecting people with services," said Mr Li, 46, in an hour-long interview after the presentation.
To Mr Li, the math is simple. While search advertising is big, the services and retail market is much bigger. The initiative will "definitely" eclipse search revenue over time, he said.
In cities like Beijing, the vision is already taking shape. Click an application on your smartphone and someone will stop by your home to wash and walk your dog. A few more taps and someone will deliver groceries or medicine. One fashionable new service is the chef app, where you pick a specialist in home style Chinese or spicy Sichuanese. They'll even bring the ingredients and wash the dishes when you're done.
Xie Yufeng, a 30-year-old who works at an entertainment company, likes the convenience of ordering meals on Baidu.
"I can check the location of the delivery man in the online map, then estimate when he will arrive," she said.
Investors are skeptical all this will pay off. Baidu shares have tumbled 37 per cent this year as Mr Li has poured money into the initiative and driven operating margins down to 21 per cent in the second quarter from 52 per cent three years earlier. The drop has been compounded by broader weakness in the Chinese economy.
"Baidu's weak outlook couldn't have come at a worse time," said Brendan Ahern, managing director of Krane Fund Advisors LLC whose KraneShares CSI China Internet ETF has shares in Baidu and competitor Alibaba Group Holding Ltd. "China sentiment among U.S. investors is poor."
Mr Li, Baidu's chief executive officer, says many U.S. investors just don't appreciate the changes in China, where O2O services are taking off fast because of new smartphone technology, cheap labor and terrible traffic. He's concerned Baidu, which trades on Nasdaq, is being penalized because shareholders don't see the opportunity.
"It's kind of difficult for a typical U.S. public market investor to really understand why Baidu is losing so much money on those unproven businesses," Mr Li said. "We have a better understanding of this market. We think this kind of investment will pay off. So there's a little bit of education needed."
Mr Li has plenty of competition in China. Dozens of startups swarm into each niche as it takes off, and Baidu is playing catchup in several. Alibaba and Tencent Holdings Ltd., the other two giants of China's Internet, also are investing aggressively.
Still, Mr Li is determined to grab the lead in what he calls "high-frequency" services like food delivery, movie tickets and car rides. Though profits are minimal or nonexistent now, he argues these services will train consumers for more profitable activities in the future.
"We need to win the high-frequency war," he said. "It's really important for Baidu to grab the opportunity."
