On November 12, 2024, during the Baidu World Conference, CEO Robin Li boldly proclaimed the company's ambition to become the "flag bearer" of artificial intelligence (AI) in China, addressing an audience comprised of numerous media representatives, partners, and developersThis ambitious statement signified Baidu's commitment to spearheading advancements in AI technology, highlighting the company's intention to lead the charge in an increasingly competitive field.

However, just two months later, the landscape took a dramatic turn with the emergence of DeepSeek, a new AI platform that captivated global attention and provoked a flurry of interest from other leading firms eager to capitalize on this revolutionary technologyThis rapid development has put Baidu's earlier claim of being the AI front-runner into a somewhat awkward position, examining whether it can maintain its lead amidst such swift competition.

In response to the sensational rise of DeepSeek, Robin Li commented on February 16, indicating the necessity for Baidu to adapt to the constant and rapid changes in innovation that are omnipresent in their industryFollowing this, Baidu Search announced a full integration of DeepSeek, signaling to the market that the company was not only aware of the competitive landscape but also willing to adjust its strategies accordingly.

With its aspirations of being a leader in AI, Baidu now finds itself in a curious situation; from a "flag bearer" to a mere observer, its recent performance in the AI sector has raised questions about its strategic direction and operational effectiveness.

The financial repercussions of this evolving narrative became evident on February 18, when Baidu released its quarterly earnings report for the last quarter of 2024. The figures revealed that despite some impressive metrics—such as the Wenxin big model's daily invocation amounting to 1.65 billion and close to 94 million monthly active users for Baidu Wenku's AI features—these accomplishments paled in comparison to the explosive success of DeepSeek, which topped app store charts and achieved a record-breaking 30 million daily active users in a mere timeframe.

Financially, the report painted a concerning picture, as Baidu disclosed a year-on-year decline in both quarterly and overall revenue and gross profit

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Core income displayed stagnation with just a 1% increase, and notably, the online marketing sector exhibited a significant downturn.

Since last October, Baidu's stock price has been on a downward spiral, even hitting a near two-year low mid-February with shares closing at $90.16, reflecting a 7.51% drop on that day aloneThis continual decline underscores the broader implications for the company amid shifting market dynamics.

In late November of the previous year, during Baidu's Q3 earnings announcement, the company stressed its ongoing commitment to a "long-term strategy" of gradually introducing AI innovationsYet, this measured pace seems ill-suited to the fast-moving realm of AI, where competitors are rapidly adopting faster, more flexible approaches that overshadow Baidu's slower-paced strategyThe market is evolving, and Baidu's delays have allowed others, like DeepSeek, to leapfrog the competition.

Recognizing the urgency of the situation, Baidu emphasized during the earnings call that AI-driven innovation is still in its nascent phase, and while no single application has emerged as a definitive market leader, the focus is on cultivating a dynamic and decisive trajectory toward rapid developmentBaidu possesses a wealth of technological experience and foresight but seems to be lagging in the race that AI demands.

The financial results shared provide a crucial insight into Baidu's various business units, revealing notable shortcomingsThe recent earnings report indicates Baidu's total revenues reached approximately 133.1 billion yuan in 2024, representing a 1% year-on-year decreaseCorrespondingly, gross profit amounted to 67.02 billion yuan, down 3.66% year-on-year, while net income attributable to Baidu saw a modest rise of 17% at 23.76 billion yuanHowever, the picture was even grimmer for non-GAAP net income, which fell by 6%.

Furthermore, examining the income structure elucidates Baidu's struggles—the core revenue of 104.7 billion yuan only observed a 1% increase versus previous years, spotlighting the continuous weakness seen in the online marketing sector, which fell by 3% to 73 billion yuan

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In contrast, non-online marketing revenue showed an impressive 12% rise to 31.7 billion yuan, buoyed by Baidu's burgeoning smart cloud sector.

The revenue challenges are exacerbated by intense competition, leading to decreased profit marginsEven as Baidu's smart cloud division exhibited a 26% year-on-year increase, this growth remains insufficient to fully counterbalance the decline emanating from its core advertising revenues.

In the current and foreseen future of AI rivalry, Baidu faces unprecedented pressuresGiven how deeply entrenched its advertising business is with small to medium enterprises, any economic fluctuations could significantly affect performanceAs emerging social media platforms like Douyin and Xiaohongshu continue to siphon traffic away from traditional search engines, Baidu's stronghold appears increasingly fragileMeanwhile, the explosive rise of AI-based native search tools has started to reshape the advertising dynamic within the search engine paradigm.

For Baidu, AI-driven search is transforming into an integrated platform that can not only provide intelligent answers but can also guide users through comprehensive processes ranging from inquiry to analysis, task completion, and ultimate service deliveryRecent surveys indicate a clear preference shift, with 59% of users now relying more heavily on AI search tools compared to only 22% for traditional search enginesWith the race to embed DeepSeek technology well underway, the traditional search landscape risks a thorough reshuffle as AI capabilities increasingly dominate.

At a time when about 22% of search results pages incorporate AI-generated content, the pressure mounts for Baidu to leverage Wenxin AI to diversify content delivery, tailoring search experiences through various multimedia formats such as video layouts, live streams, and product showcasesThis rapid integration aims to foster personalized interactions, enhancing user experience.

Despite its past anticipative strategies, analysts warn that Baidu's core search operations might face significant disruption from generative AI technologies, particularly as competition from entities like Tencent and ByteDance intensifies

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Although Baidu was one of the first to roll out its Wenxin series, the reality over the past year demonstrates that its growth has not met expectations, especially as new competitive entities broaden their functionalities.

In a year marked by the rise of rivals like Kimi, Doubao, Alibaba's Tongyi, and a slew of applications based on DeepSeek, Wenxin's advancements have not translated into a robust competitive advantage as it struggles to attract and retain paying customers while suffering from decelerating growthA recent ranking placed Google's Gemini ahead of DeepSeek in global traffic, with Wenxin trailing far behind.

In responding to DeepSeek's surprising ascent, Robin Li acknowledged the importance of open-source initiatives, asserting that offering the best models openly to users greatly enhances their applicability and reachBaidu plans to launch the Wenxin 4.5 series in the upcoming months, along with full open-source provisions starting June 30, marking a hopeful push towards reclaiming competitive ground by making their offerings more user-friendly and accessible.

As Baidu steadily advances into increasingly complex terrain in the AI battlefield, the pressure to sustain and evolve its technological prowess escalatesThe company's core objective remains focused on enhancing AI capabilities across its product line, especially within search operationsAdditionally, Baidu aims to stimulate enterprise adoption of AI infrastructure, the PaddlePaddle deep learning platform, and Wenxin offerings to satisfy the growing demand for AI products and solutions in the marketThe road ahead will require Baidu to refine its approach, strategically expand its smart driving initiatives, and explore novel operational models both domestically and internationally.

In conclusion, as we look to 2025, Baidu faces a multifaceted set of challenges in both performance and its operational modelFrom the technological intricacies and strategic alignments to practical applications and continued innovations, the so-called "model war" has reached a critical threshold, with Baidu yet to establish a sustainable competitive advantage amidst a wave of encroaching rivals

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