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Baidu Looks Beyond Search with AI Acquisition

Purchase of Raven Tech gives it a presence in digital home assistants

February 17, 2017

Chinese search engine Baidu made news this week when it announced it had acquired Raven Tech, an artificial-intelligence-focused startup developing a voice recognition assistant. Baidu did not reveal the terms of its purchase.

Baidu has been making moves in recent months to expand its portfolio beyond just search: In January, it hired former Microsoft executive Qi Lu—widely considered a leading expert in the emerging field of artificial intelligence (AI)—and made him its group president and COO. That same month, the company opened a new augmented reality (AR) lab, following the launch in September 2016 of a $200 million venture capital fund dedicated to AI and AR.

Raven Tech fits in squarely with those initiatives. The company comes with an impressive pedigree, having already passed through the vaunted Silicon Valley startup accelerator program Y Combinator. Raven Tech has largely focused on the technology underpinning smart-home devices, with comparisons often made between its work and Amazon’s Alexa device. It also launched a mobile voice assistant app, named Flow, that hasn’t yet gained much of an audience among users in China.

The company comes to Baidu with a good-sized pot of cash, having already raised $18 million in funding, which it has poured into Flow and a voice-assisted hardware device designed for the home—the Raven H-1—that has yet to come to market. Baidu executives will likely be searching for ways to integrate Raven Tech’s products into its own digital assistant service, Duer.

Digital Ad Revenue Share in China, by Company, Q4 2016 (% of total)

Baidu’s pivot toward services like Raven Tech is likely motivated in part by recent troubles it has faced with its search revenues. The company came under widespread criticism in China following the April 2016 death of a student with cancer, who had used an experimental treatment he discovered through a paid search ad on the search engine. Months after the incident, Chinese regulators imposed new rules on the placement and content of healthcare-related search ads, as well as on the bidding process underpinning how they are served.

As a result, Baidu’s search revenues took a hit, and it reported its first-ever decline in quarterly revenues in Q3 2016. Despite the drop, Baidu still commanded a 23.3% share of digital ad revenues in China in Q4 2016, according to Analysys International Enfodesk, behind only ecommerce giant Alibaba.

Despite its strong position in China, Baidu will have to look beyond search in order to expand to other markets, where Google already has a lock on search ads. With Alibaba the dominant player in ecommerce and Tencent’s WeChat in firm control of messaging, Baidu’s ongoing investments in AI and AR seem to be a possible way for the company to re-establish itself in China—with an eye to expanding into other countries.

—Rahul Chadha

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