Talks Swirls on Baidu’s Lekutian 百度乐酷天拟走“日系风格”

By newsdoug on April 10, 2012

Baidu (Nasdaq: BIDU) has been phenomenally successful in its core online search business, but it’s had a much harder time diversifying into other areas like social networking and e-commerce. The company called it quits in microblogging last year after a late arrival and half-hearted effort in the space (previous post), and now its latest e-commerce initiative, called Lekutian, appears to also be suffering from its own identity crisis. Lekutian is Baidu’s second major attempt at getting into the lucrative but highly competitive e-commerce space, following its failed effort with another site, called You’a, last year. With Lekutian, Baidu was hoping to avoid the same fate by setting up the business as a joint venture with Rakuten (Tokyo: 4755), one of Japan’s a leading e-commerce companies. Signs that the venture wasn’t progressing as quickly as planned first emerged late last year when domestic media reported that Baidu was halting its new investment in the business — reports that Lekutian denied. Now a new flurry of reports have again emerged on Lekutian, with some saying the venture is making a major directional shift while others are saying the site is implementing major layoffs. (English article; Chinese article) Not surprisingly, Lekutian is denying the layoff reports, though it is also talking openly about the directional shift. One report cites a company spokeswoman saying the site wants to take advantage of its Japan connections to transform itself into an e-commerce platform with a distinctly Japanese flavor, including Japanese brand products and a more Japanese look and feel. The site will also emphasize a more mall-like business model, similar to Alibaba’s Tianmao, which operates a platform on which other retailers can open online stores rather than selling merchandise directly itself. Frankly speaking, this move by Lekutian smells a bit of desperation to me, and hints that the site isn’t doing very well and could easily end up with a similar fate to the failed You’a. At the same time, I should commend Baidu this time for realizing that it is a latecomer to the e-commerce game, and will have to develop a more niche product as it clearly can’t compete with much bigger and more established giants like Tianmaol, 360Buy and Dangdang (NYSE: DANG), as well as sites operated and invested by big foreign names like Amazon (Nasdaq: AMZN) and Wal-Mart (NYSE: WMT). I do question whether the “Japanese experience” niche that Lekutian is pursuing will find a big audience in China, and suspect the site will ultimately end up as a small player that will later get quietly shut down. Not all of Baidu’s non-core investments have done so badly, with a big bet last year on an online travel site called Qunar looking like it could have good potential. (previous post) If Baidu is smart, it might be advised to invest in more existing companies like Qunar that already have a strong operating record, rather than trying to start its own new businesses, where its record is decidedly not so good.

Bottom line: A major directional shift by Baidu-invested e-commerce site Lekutian hints at troubles at the joint venture, which could end up as a niche player at best.

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