Baidu to Look into Long Term Gains due to Rapid Growth of Online to Offline Business
Even with the slump in the third quarter profit, Baidu Inc. the largest Internet search company will likely to convert it short term pain into long term gains because of the rapid growth of its heavily invested online to offline business. The Beijing based company has reported an operating profit of 2.51 billion a 35.9 percent decrease compared to the same period a year earlier due to investments that was made to move away from the traditional search advertising business. But Baidu investments is not in vain as the company stated its O2O service transactions from group buying site Baidu Nuomi and takeaway delivery site Baidu Waimai and the online travel agency Qunar Cayman Islands Ltd surged to 60.2 billion yuan in the third quarter compared with 40.5 billion in the previous quarter.
The momentum in transaction services give the confidence to continue investing adding that they will be investing in ways that will leverage the company’s competitive advantages. An independent analyst that specializes in Internet research said that Baidu’s profits has been it due to the transformation in the O2O business and still one of the fastest growing Internet companies in China. The Nasdaq listed Baidu stated that in June it will be investing 20 billion yuan in its group buying site Nuomi that will transform itself into a O2O service platform on which mobile Internet users can book or purchase nearby offline services, such as taxi bookings, meals and tickets. Company’s total revenue in the third quarter increased to 36 percent year on year or 18 billion yuan and Baidu is on it way in making the business transformation.
A financial report came several days after Baidu announced a deal that saw a take a 25 percent stake in online travel agency Ctrip.com that deal that made the Nadaq listed company the biggest player in China’s online travel industry. Analysts expected the deal to cut down Baidu’s costs in supporting Nuomi’s in red online travel business. The O2O sector is a cash burning sector with investors to pour money to offer incentives to get users and is expected to boost Baidu’s profitability in the next quarter. The O2O sector provides people with a location based service that is expected to be a trillion yuan market in China in the near future.
The decision to transform into an O2O business coming from Baidu’s desire to achieve a stronger growth in the future as the traditional search advertising business is seeing signs of flattening. Baidu is a company that matched information with search requests and now it wants to get closer to end users by matching services directly with their search requests. Also the transformation can also leverage the strength of Baidu’s existing business such as it payment and map services. Although a lot of China’s O2O companies even the small ones became bankrupt because of the fierce competition and unclear business models paired with huge investment programs.