How Did Baidu, Which Once Challenged Tencent, End Up Falling Behind Tencent Music?

On the afternoon of June 12, just two days after announcing the acquisition of Himalaya, Tencent Music’s market value surpassed that of Baidu. On July 7, Tencent Music’s market value hit $30.188 billion, making it one of the top 10 Chinese internet companies by market value.Twenty years ago, both Tencent and Baidu entered the capital markets. In 2004, Tencent went public on the Hong Kong Stock Exchange, with its initial market value at around HK$7.3 billion (approximately $930 million USD). In 2005, Baidu debuted on NASDAQ, with a first-day market value of $3.958 billion—back then, Baidu was worth nearly four times Tencent. Fast forward to today, and the tables have completely turned. As of the publication date (July 25), Tencent’s market value is approximately $642.9 billion, Tencent Music’s market value stands at $33.078 billion, while Baidu’s is just $31.048 billion—meaning Tencent is now worth 20 times Baidu.If Tencent’s success today can still be attributed to its massive social networking moat—WeChat has over 1.3 billion daily active users and forms the foundation of China’s internet infrastructure—Tencent Music is just a subsidiary focusing on entertainment content. Its main business revolves around paid music services and online performances, with fewer than one-fifth of the employees of Baidu and without the same technological glow.

So, why is Baidu, under the BAT banner, now trailing even Tencent Music? Why are capital markets willing to back Tencent Music?For investors, a company’s value is not only determined by its current earnings but also by its future business potential and whether its growth is sustainable. Comparing Baidu and Tencent Music, in the first quarter of this year, Baidu’s net profit was ¥7.818 billion, higher than Tencent Music’s ¥4.291 billion for the same period. However, Baidu’s net profit margin was just 24.09%, less than half of Tencent Music’s. Tencent Music’s price-to-book ratio (P/B ratio) is 3.27, while Baidu’s is only 0.83. This difference reflects the stark contrast in their business models.Baidu’s challenges stem from two main factors. On the one hand, its “cash cow” businesses—such as search ads and information flow ads—are facing increased competition from platforms like TikTok, Kuaishou, and Xiaohongshu, which are eating into its traffic. On the other hand, its heavy investments in new business lines, like autonomous driving, AI large models, and smart cloud, are lowering overall profitability. None of these have yet proven to be profitable ventures. Simply put, Baidu’s future is far less predictable.In contrast, Tencent Music enjoys highly predictable cash flow and a steadily expanding paid ecosystem. By the first quarter of 2025, Tencent Music’s paid online music subscribers reached 122.9 million, with ARPPU (average revenue per paying user) at ¥11.4, and Super VIP subscription revenue grew by 16.6% year-on-year.

Online music accounted for 76.55% of its total revenue. Music, as a high-frequency, low-decision emotional consumption product, has strong user retention once a habit is formed. Additionally, for high-value users, Tencent Music offers exclusive concert ticket privileges and digital album rights, further boosting ARPPU. For free users, they provide an “ad-supported music listening” option to expand B2B ad revenue.Content-wise, Tencent Music invested in SM Entertainment in 2024 to strengthen upstream content production and copyright capabilities, and in 2025 it acquired Himalaya to enter the long-form audio sector. Combining Tencent’s online literature, animation, and IP resources, it expanded its auditory content offerings into a matrix covering music, long-form audio, and various IPs. Tencent Music provides a clear growth path: a stable paid user base, diverse monetization channels, and an ever-expanding content ecosystem. This level of predictability offers it a significant advantage in the eyes of capital markets.Baidu, on the other hand, has repeatedly disappointed the market. The issue has never been a lack of foresight, but a lack of strategic consistency—it fails to sustain investments in the right directions over time. Baidu often identifies the right trends but gets overtaken by competitors. Looking back at Baidu’s moves, its foresight has never been inferior to that of any other Chinese internet company, but it has repeatedly made the mistake of entering markets too early, only to see others surpass it later.

For example, Baidu launched the C2C e-commerce platform “Youa” in October 2008, vowing to “defeat Taobao within three years,” but by March 2011, the platform was shut down. Similarly, in 2015, Baidu launched three e-commerce projects—“Baidu Future Store,” “Baidu VIP,” and “Baidu Mall”—all of which were abandoned within two years. In O2O (online-to-offline), Baidu bought Nuomi in January 2014 and vowed to invest ¥20 billion into it, only to abandon it by 2016. In food delivery, Baidu launched Baidu Waimai in May 2014 but sold it to Ele.me for $800 million by 2017. It missed the chance to compete in the local life services market, where traffic and scenarios converge.Even in the short video space, Baidu’s “Haokan Video” came out before TikTok, and its project once expanded to a thousand-person team with billions in promotion costs. But Baidu failed to find a unique positioning and was eventually overshadowed by TikTok. Baidu’s community products, such as Baidu Tieba, were once the core UGC community on Chinese internet, but they failed to capture the mobile and interest-based social transformation, allowing platforms like Xiaohongshu and Douban to surpass them.In AI, Baidu’s Wenxin Yiyan was one of China’s first large language model products, and Baidu is one of the few companies to have full-stack self-developed solutions in chips, frameworks, and models.

However, in just one year, its technology advantages were eroded by DeepSeek and newer competitors like Alibaba, ByteDance, and Zhizhu AI, causing Baidu to lose market share and product experience.Baidu’s strengths and weaknesses are both glaring: while it can spot trends and act quickly, it often burns through capital, only to retreat when short-term results aren’t visible. Baidu’s failure lies in its inability to follow through, not because it’s wrong but because it doesn’t finish what it starts. Each pivot drains management’s energy and investor patience.Baidu must change. The problem is that the company is stuck in its comfort zone. Its advertising business has been its core for over 20 years, providing stable cash flow, but if Baidu wants to become an AI-driven company, it needs to move away from its traditional strengths. Li Yanhong, Baidu’s CEO, has long realized this issue. In May 2021, he publicly stated that non-advertising revenues would surpass advertising revenue in the next three years. But in 2022, 2023, and 2024, Baidu’s advertising income still accounted for over 70% of its core revenue.To truly transition, Baidu must abandon its advertising-driven cash cows to pave the way for AI growth. This is incredibly difficult for a mature company, as its advertising business forms the foundation of its incentives, resources, and organizational structure. Changing this is more than just a business pivot—it requires a complete organizational restructure.