The Search Ace Standing Between Baidu and Irrelevance

For much of the past two decades, Qi Lu, a search-technology whiz, waged losing battles against Google, first at Yahoo Inc. then at Microsoft Corp.'s Bing.

Four months ago, he relocated to his native China to take on a challenge that some in the tech world think is just as quixotic: reviving Baidu Inc. The company's core search engine business once made it the Google of China, but it has been beset by bad decisions, scandals and falling profits, leaving its future uncertain.

Mr. Lu says he's confident he can turn Baidu around--and take on Google once again, this time on the new battlefield of artificial intelligence.

Mr. Lu has been prone to hubris before. When he joined Microsoft in 2009, he threw down the gauntlet at Google, saying Bing would be an effective competitor.

Now, with Baidu, "it's the right time, the right place and the right people," Mr. Lu told me in an interview last week. Innovation is happening at a faster pace in China than in the U.S., he says.

The mobile internet, for example, took off among Chinese users because traditional industries like banking and retail are weaker and easier to disrupt, and, he says, Baidu's large reserve of programmers position the company to be a world leader in artificial intelligence.

Mr. Lu is the No. 2 at Baidu, behind co-founder and chief executive Robin Li. As vice chairman, group president and chief operating officer, the 55-year-old Mr. Lu has been shaking things up. He's canceled unpromising products, merged three driverless car units into one and ushered some senior executives aside.

Dressed in a dark blue polo shirt, light brown sandals and black socks on a recent day, he looks like one of the thousands of programmers at Baidu's Beijing headquarters. Still, he's known for a manic work ethic, in the office by 7 a.m. until late. He told me that he used to question why humans need to sleep.

After running Microsoft's Office and search groups, Mr. Lu was a candidate for the CEO job, which went to his onetime subordinate, Satya Nadella, people familiar with the matter say. Mr. Lu and Microsoft say they parted last September due to his health.

Mr. Lu's experience, technical expertise and diligence made him a sought-after candidate for almost all big Chinese technology companies, says Kai-Fu Lee, CEO of investment firm Sinovation Ventures and former head of Google and Microsoft China.

Mr. Lu says he turned down offers at bigger and stronger companies because those would require only 70% of his capabilities while Baidu will demand 100%.

He will need to give his all. After Google withdrew from China over censorship and hacking in 2010, Baidu became a dominant force in Chinese tech, along with e-commerce titan Alibaba Group Holding Ltd. and gaming and messaging kingpin Tencent Holdings Ltd.

Then, Baidu stumbled. It missed the mobile internet wave, belatedly pouring billions of dollars into group buying, meal delivery and other services, which are struggling. Last year, after a college student with cancer died following a treatment he found on Baidu, authorities tightened regulations on medical ads, a huge source of revenue for the search engine. Profits slumped 9.3% in the first quarter of 2017 from a year earlier.

Now Baidu's market capitalization is less than a quarter of Tencent's and Alibaba's. In the past year, share prices of Tencent and Alibaba rose by 71% and 51%. Baidu's climbed 8%.

The company needs to revamp its business, resurrect its reputation and reboot its share prices and morale.

To do that, Mr. Lu will first have to defend Baidu's core search business. Its edge is eroding as online users turn to e-commerce and social media sites. E-commerce ad revenue surpassed search-engine ads in China in 2016, according to research firm iResearch.

Mr. Lu's solution: make voice, photo and video searchable and widen search availability to cars, personal digital assistants like Amazon's Echo and other physical devices.

Then he will have to ensure Baidu's bets on the future are viable.

He's spending heavily to recruit top talent in artificial intelligence, driving up research and development expenses to 2.8 billion yuan ($412 million) in the first quarter of 2017, a 35% increase from a year earlier. That talent is being aimed at search, speech recognition and driverless car technologies.

It is in driverless cars where Mr. Lu thinks Baidu can displace Google parent Alphabet Inc. to become a world leader.

Just as Google did to popularize its Android mobile operating system, Mr. Lu announced last month that Baidu will open its self-driving car technologies to others to help develop autonomous vehicles. The company is on track, he says, to mass produce fully autonomous vehicles by early 2021.

Reaction from the government and auto makers to the initiative, called "Project Apollo," has been positive, he says. Government support and data-sharing among partners should speed along development of the technologies, Mr. Lu says: "If Apollo performs well, we will catch up with and even surpass Google."

Google declined to comment.

Write to Li Yuan at li.yuan@wsj.com

(END) Dow Jones Newswires

May 25, 2017 06:35 ET (10:35 GMT)