Why Baidu & Search Engines are Becoming Less Relevant in China
Last week, a man surnamed Cheng burst onto the stage at Baidu's AI conference and upended a bottle of water over Baidu's CEO Robin Li. Cheng's bold act was applauded by many online patrons and was representative of how many Chinese consumers have become frustrated with the performance, ethics and privacy from China's leading search engine; particularly as the Googles of the world are shut out.
In 2016, Baidu was slammed by consumers and the authorities after a university student died of cancer following subpar treatment from a hospital that had paid for an elevated listing in the search engine's results. Just last month, Baidu was again censured for promoting fraudulent college application services. A state education department warned students to avoid using search engines when seeking the official university application website as they may be misdirected to an unofficial website which leaks personal information, while not even providing valid applications.
Yet it isn't just Baidu who is untrusted. Highly trafficked search engine 360 Search was also summoned by China’s Ministry of Education and Ministry of Public Security for linking to the dodgy application services from paid advertising. Just last month, popular search engine Sogou was fined $4.37 Million for ‘unfair competition’ after directing users to its own site using suggested search pop-ups on its keyboard, even when users were trying to input keywords into rival search engines.
These are just a few misdemeanours contributing to why search engines are not nearly as relevant in China as they are in other countries. Last year Google topped the BrandZ Most Valuable Global Brands and YouGov Global Brand Health Rankings, among many others. On the other hand, Baidu's market has dropped from 86% in August 2015 to 64% in May this year. Baidu reported its first net loss in Q1: nearly ¥330 million ($48 million). Following its worst performance since listing in 2005, Baidu’s CEO Robin Li began restructuring its management team. At least seven top executives have left Baidu this year including president of new business Zhang Yaqin and senior vice president of the search business Xiang Hailong.
At China Skinny, we still hear from numerous brands seeking a plan for Baidu as the key pillar of their China marketing strategy. Whilst Baidu can be an important touchpoint in the customer journey for many categories, in most cases, it is secondary to other digital channels such as WeChat, ecommerce and even relative newcomers such as Douyin.
Digital ad spending is forecast to grow 22% in 2019. While Baidu's share is shrinking, Alibaba's ad revenue is forecast to be $27.3 billion - 63% greater than total ad spending on TV. According to emarketer, digital ad spending is expected to account for 69.5% of total media ad spend this year, and Alibaba's digital advertising revenue will be more than double that of Baidu's.
Why is Alibaba's ad revenue more than twice the value of China's biggest search engine? One reason is context. When you are searching on an ecommerce platform, your target market is typically much closer to the point of purchase, so your ad spend is more likely to result in a sale. Secondly, as well as purchases, Chinese consumers use ecommerce platforms for research - often instead of search engines. This is because Chinese ecommerce pages contain so much valuable information, results contain user generated reviews, and are more organic than the paid placements on Baidu. In short, they are more trusted. In China's inherently untrusting society, whether it be ecommerce search results or KOL endorsements (even though most are dishonest), Chinese consumers are more likely to respond to sources that they can trust. Brands should aim to understand those trusted touch points and have a strong presence across them - something China Skinny can assist with.
On the subject of untrusted online sources, we have heard from a few people who have registered for the 2019 China Digital Conference advertised in Melbourne on 31 July. The site claims that China Skinny's Mark Tanner is the conference chair and the esteemed Matt McKenzie and Benjamin Sun will also be speaking. We can confirm that Matt, Ben or Mark were unaware of the conference and the advertised venue does not have a booking on the said date. We're sorry for those who purchased tickets, and hope there is a path of recourse to get your money back. China Skinny is lined up to be back speaking in Melbourne in September, so hopefully we can share some of our insights and views on the China market then.
Here are this week's news and highlights for China:
Chinese Consumers
Revised Demographic Forecasts for China: Key Takeaways: China's peak population of 1.41 billion will come earlier than forecast in 2024 due to lower fertility rates according to the EIU. An average of 15.7 million babies will be born each year between now and 2030. By 2030, 17.8% of China's population is expected to be above 65 years of age, up from 12.1% in 2018, with China's three north-eastern provinces (Jilin, Heilongjiang and Liaoning) having a higher ratio due to the outflow of the working-age population. China's working-age population will have fallen by 70 million to 923 million. A previous trend of population migration from inland regions to the eastern coast has slowed and, in some cases, reversed in areas like Anhui, Sichuan and Henan. This is due to the relocation of industrial capacity away from costly coastal regions. Some city clusters will prosper, some will not. The Central Plains cluster in Henan province is expected to record the strongest increase in population by 2030, at around 14 million, with the Chengdu-Chongqing, Yangtze Mid-River Delta, Greater Bay Area and Jing-Jin-Ji clusters also expecting to record a strong increase in population.
Soy Milk, Toothbrushes and Hair Conditioner are Biggest Winners as More Chinese Consumers Opt for Premium Brands, Says Study: Chocolate, soy milk, electric toothbrushes, toothpaste and hair conditioner are among the biggest beneficiaries of China’s consumption upgrade according to Bain. The sales value of fast-moving consumer goods, including packaged food, beverages, personal care and home care items, grew 5.2% in 2018, slightly higher than the 4.7% gain in 2017. The increase was driven mainly by the 4.6% growth in average selling prices. Soy milk, mouthwash, oyster sauce and pet food saw the greatest value growth.
Digital China
Baidu Censured for Promoting Fraudulent College Application Services: China’s Ministry of Education and Ministry of Public Security requested a meeting with two of China's most popular search engines - Baidu and 360 Search - about the search results for official university sites and applications. A state education department in northern Shanxi Province has warned students to avoid using search engines when seeking the official university application website as the search engine may misdirect visitors to an unofficial website which leaks personal information, while not even providing valid applications.
China’s Second-Largest Search Engine Fined $4.37 Million for ‘Unfair Competition’: Sogou unfairly directed users to its own site using suggested search pop-ups on its keyboard, even when users were trying to input keywords into rival search engines. As a result, it must pay ¥5 million ($730K) to both Qihoo 360 and Baidu, and over ¥20 million ($2.9 million) to UC and Shenma. Sogou holds around 6% of the domestic market.
Tmall Ups Shopping Experience with New Flagship Stores: Tmall is planning a pre-Double 11 (Singles' Day) launch of its new format Flagship Store 2.0, designed to feature more personalised experiences such as recommending likely purchases on pages including algorithms that collect vouchers and cash-back promotions to calculate the best prices-after-discount. Updated stores will also cater content offerings to individual preferences such as whether shoppers prefer short-form video or livestreams. AR, VR and 3D features are included, a new tab highlighting the closest brick & mortar store and its offline perks and services, plus brand-loyalty scores and the 'loft' feature: a pull down window from the top of the screen allowing brands to engage with users through visual storytelling and interactive features. Tmall Global is also upping its game launching an English-language website to streamline the onboarding process for international brands that want to sell on the platform, with successful applicants contacted within 72 hours, when the previous process could take many months.
WeChat Mini Programs Now Support Augmented Reality: WeChat has now enabled augmented reality (AR) for its mini program platform. The first mini program using AR is an Armani cosmetics app, which lets users test the appearance of different makeup, like various shades of lipstick, through their self-facing camera.
Apple to Launch Tailored iPhone for Chinese Consumers Due To Cost Pressure: Report: Apple is reported launching a new iPhone replacing Face ID with an under-display fingerprint function to "save on costs." Apple shipped just 9% of China's smartphones in the first quarter, behind Huawei's 34%, Vivo's 19%, Oppo's 18% and Xiaomi's 12%. The average price of smartphones sold in China in 2018 was ¥2,523 ($367) , and products worth over ¥4,000 ($582) took 13% of the market. China is expected to account for one third of 5G smartphones globally by 2023.
Food & Beverage
Online Grocery Shopping, the Latest Battlefield for Ecommerce Giants: Grocery delivery is growing 40% annually, coming in at ¥194.78 billion ($28.3 billion) in 2017. In addition to Alibaba's Hema and JD's 7Fresh, Meituan launched its grocery stores and shopping app this year, and Suning started leveraging its storefronts as pick-up locations for online grocery shoppers with promises of fresher produce. Consumers aged 26-35 are most likely to use grocery delivery services. Families with monthly income over ¥30,000 ($4,370) use the service four times or more per week. The average size of online orders is ¥85 ($12) compared ¥120 ($17) in physical stores.
Walmart to Invest $1.2 Billion in China to Boost Logistics: The US retail giant plans to invest around ¥8 billion ($1.2 billion) in distribution centres in China over the next two decades to boost grocery delivery as it faces growing competition from local rivals and online retailers. Walmart is also rolling out QR Codes to verify fresh produce, with traceability incorporated into 50% of all packaged fresh meat sales, along with 40% of packaged vegetables and 12.5% of seafood by 2020.
Dairy Preferences Diverge with Age: Most Chinese adults consume yogurt and milk, while teenagers tend to like cheese. More than half of consumers born in the 60s and 70s don't like the taste of cheese, worry about gaining weight and consider cheese expensive. Kids born after 2010 like cheese the most. More than 23% of respondents said they love eating cheese. About 10% of those born between 1980 and 2010 don't like cheese. China's annual per-capita consumption of dairy products in China has reached 36kg, much higher than the 6kg two decades ago, but the volume is still less than half of Asia and less than a third of the world average.
How I’m Educating Chinese Consumers About Sustainable Seafood: China is the largest market for seafood products in the world, but popular awareness of the environmental costs of fishing and aquaculture remains low.
Chinese Tourists
Chinese Tourism Hit by Trade War and Renminbi Depreciation: Chinese people made 150 million border crossings last year accounting for about a fifth of tourism spending worldwide, but in the first quarter of this year they spent 10% less outside the country compared to the same period last year. They are increasingly favouring domestic travel or downgrading to cheaper trips. Vietnam and Thailand have seen a small drop in visits, Australia saw a 6% decline in April and New Zealand - even given the China-New Zealand Year of Tourism - saw 21% less visitors from the same month a year earlier. On the other hand, Japan has continued to see double-digit growth. Chinese visitor arrivals at its 20 most important destination countries grew 6% in the first quarter [paywall]. While not mentioned in the article, increasing nationalism and feeling let down by some western government stances is likely to be contributing, in addition to the tightening of real estate purchasing rules in countries like Australia and NZ which will reduce the 'real estate travellers'.
Chinese Tourists Still Love Los Angeles Despite Overall Decline in Visits to US: Although Chinese visitors to the US dropped 5.7% last year, visits to LA grew by nearly 7%. The share of the Chinese tourists to the US who visited Los Angeles County grew from 35% in 2017 to 41% last year. The way Chinese tourists spend their time in the City of Angels has also evolved in the last few years to include more cultural excursions and sightseeing tours in small groups and fewer visits to shopping malls in tour buses. Visits to see NBA games and museums have become popular among Chinese visitors, tourism officials say. The Dolby Theatre, home to the annual Academy Awards ceremony, recently added Mandarin-spoken tours to meet the requests of Chinese visitors.
Beauty
K-Beauty: Is China Falling Out of Love with Korean Cosmetics?: Exports of South Korean cosmetics to China rose just 20% to $1.3 billion in the first nine months of 2018 – a sharp slowdown from the annual average of 66% growth recorded in the five years earlier. Total cosmetics sales in South Korea also decreased by 15% last year, attributed to the 50% fall in Chinese tourism following geopolitical tensions. Chinese consumers have ditched the one-size-fits-all aesthetic of Korean cosmetics to embrace individual looks. Home-grown brands and those from Japan are growing ever more popular with mainland consumers. Last year, 72% of Chinese brands incorporated the term “Made in China” into their profiles on online retailer Tmall, an increase of 50% from 2017.
Sport
Alipay is Investing $145 Million to Grow Women's Soccer in China: Alipay has committed ¥1 billion ($145 million) to women's football over the next decade to bring "technology, funds and resources to better support the development of women's soccer in China". Alipay claims that it is not a sponsorship, so it comes with "no commercial strings attached." Last November the company struck a €200 million ($225 million) sponsorship deal with European football body UEFA to be its official global payment partner.
That’s the Skinny for the week! See previous newsletters here. Contact China Skinny for marketing strategy, research and digital advice and implementation.
