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- [00:00]
Commercial Narrator
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- [00:32]
Henry He (Baidu CFO)
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Commercial Narrator
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Henry He (Baidu CFO)
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Commercial Narrator
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Henry He (Baidu CFO)
What would you like the power to do?
- [00:50]
Commercial Narrator
Bank of America Open or enroll your account@bankofamerica.com B of A rewards bank of
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Henry He (Baidu CFO)
America Corporation All Rights Reserve Small businesses
- [01:01]
Tracy Alloway
are the pulse of every community. They bring people together, create opportunities and drive growth. Chase for Business helps business owners like you with personalized guidance and convenient digital tools all in one place. With that guidance and your determination, you can take your business farther and help build a brighter future for your community. Learn more@chase.com business chase for business Make More of what's yours the Chase Mobile app is available for select mobile devices. Message and data rates. May apply JP Morgan Chase Bank NA Member FDIC Copyright 2026 JPMorgan Chase Co.
- [01:40]
Henry He (Baidu CFO)
Bloomberg Audio Studios Podcasts Radio.
- [01:56]
Joe Weisenthal
Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.
- [02:00]
Tracy Alloway
And I'm Tracy Alloway.
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Joe Weisenthal
So we were in Hong Kong recently. That was a lot of fun.
- [02:03]
Tracy Alloway
I love to see you back. Yeah, I haven't been back for four years. Yeah, not much has changed. Actually. I was kind of surprised than you expected. Less than I expected. But I am really glad we went back because obviously one of the big talking points in markets right now is competition between us versus Chinese AI. Yeah, and we finally got a chance to talk to a couple high level executives of Chinese tech companies who are actually making all the big capital allocation decisions when it comes to the AI race.
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Joe Weisenthal
Right. It felt like we're in this moment where there's been the, I mean the way I think about it, there's been Chinese Internet giants but they concentrated on China.
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Tracy Alloway
Right.
- [02:41]
Joe Weisenthal
There's been American Internet giants that basically had the rest of the world and whether we're talking about AI or self driving cars or going to see the first sort of like real head to head battle in Internet companies specifically and where they're like competing for playing the same game on Some of the same markets. And of course we know American companies can use AI models built by China, et cetera. And so there are all kinds of options for people. So it's like really interesting to see, like, okay, this clash is actually like it's happening.
- [03:09]
Tracy Alloway
It's a good time to talk to a Chinese tech executive for sure.
- [03:12]
Joe Weisenthal
That's right. So the reason we were back in Hong Kong is because we were at the Bloomberg Invest conference. Though we also threw an Odd lot trivia while we were in Hong Kong.
- [03:20]
Tracy Alloway
Our first non US overseas. All thoughts, quiz night.
- [03:23]
Joe Weisenthal
Yeah, that was a lot of fun and I'm sure we'll come back and do that again. But we were at the Bloomberg Invest conference and so we had the chance to speak with the CFO of Baidu Henry He. So check it out. We truly have the perfect guest. We're going to be speaking with Baidu CFO Henry He. So Henry, thank you so much for coming on Odd Lot.
- [03:42]
Henry He (Baidu CFO)
Thanks for having me. And it's great season, I think Hong Kong and definitely it's great to see both Joe and Tracy.
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Joe Weisenthal
Thank you. Very nice of you to say. So why don't we start with this? Obviously I feel like half the conversations are probably about AI these days, but within AI, Baidu is a full stack player, right? You have cloud, you have the application layer, you have your own chips and of course your own model. As the cfo, you might have to think about prioritization, et cetera. Is there one layer of the stack that you feel is a must win for Baidu? When you think about resource allocation, is there a layer where it's like, okay, this is an area where we have to win.
- [04:23]
Henry He (Baidu CFO)
Thank you so much. And I think you'll probably put the tough question in end, but I think it's probably the most difficult question to start with. So I think the very unique thing today is I think the entire AI has been shifting from infrastructure to applications and from model to agents. I think that's actually the backdrop. I think within that, frankly speaking, right now it's very difficult to say at this moment which part is the must have because in my view the chip is infrastructures. You need to have a great model to bridge the capability. The cloud is a deployment of that capability. And obviously the monetization and all the ROI questions, especially for the people like me as cfo, we focus on that is on application layers. So without any of that, this IOI cannot work. So to answer your question, I think the key thing, if I have to pick one, is Cloud because cloud at this moment is a platform you can not only hosting earning which is our own model but also I can work very open to hosting other models and my chip which connecting to my cloud platform can also help on inference because right now the pre training is important but 80% of the incremental demand today on a token inference related. I think this part of the full picture is what I want to emphasize but given a tough question if I want to pick one as a student A, B C D I want to pick number C which is my cloud.
- [05:45]
Tracy Alloway
I'm going to ask a question which I think is going to become standard for financial journalists in the same way we ask about headcount and expansion plans. What's your token budget? Is it bigger than Joe's?
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Henry He (Baidu CFO)
You mean the token.
- [05:59]
Tracy Alloway
The token budget for Baidu?
- [06:01]
Henry He (Baidu CFO)
Yes.
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Tracy Alloway
Or how do you measure? I'll ask it in a slightly different way. How do you measure what you're gaining from your token spend? How do you measure productivity?
- [06:09]
Henry He (Baidu CFO)
Yeah sure I want to categorize probably in two buckets. One is we consume computing power to reach a higher level technology standard. You know the AGI, how good model perform and also how harness can be designed to deliver better results. So these are R and D efforts. However as also a tech house we also deliver those know how to our external clients with different verticals. I think if I'm measuring our internal consumption of the token I really want to look at how better and how efficient our technology can be developed. So that's on one side. However on the other end what I think the ROI is more relevant is how many real tasks that now openclaw and for example our own application called Doomate also is a real agent human digit and other things can do the task. So I think these two different measurements are important in a way that right now there are two things better than last year. One is a foundation model getting much better and number two is the framework that is OpenCloud and other things can link up the foundation model capability to the real world task. From chatting on something to doing something and completing on something. I think completion part of the tokens is more important today and I think consumption internally will actually encourage the people do that. But think about that. Even last year or year before everyone is actually beefing up the R and D budgets. I think that budget is always there but the completion new task is more important.
- [07:41]
Joe Weisenthal
But let me just press you on this question a little bit further. So let's say Tracy and I are say we worked for Baidu in the same department, I don't know, some department of yours, would we have identical token budgets or would you have one way of saying, you know what, Joe, Tracy is actually finding ways to get more value out of AI than you are. So I'm going to increase her budget. Like do you make decisions like that and do you have measurement techniques to see? Like this person really should get 10 times the token budget of another person because they have figured out how to get a lot of juice from the squeeze, so to speak.
- [08:19]
Henry He (Baidu CFO)
You know, Joe, giving the question asking, I think probably next time I'll give you more tokens. I think right now the technology evolves very fast. I think that's the beauty part of AI. So we don't want to constrain by ourselves by before thinking through something, we just install certain policy by saying, you know, these are the employees. We define the token number by the titles or the seniorities. I don't think that's a way works. Okay. So I think we want to more open and more nimble in a way that given enough token to the individuals to empower their internal R and D efforts. But on the other end we do have a lot of efforts to make sure the token costs become dramatically coming down. I think the cost is coming down very fast before you even think about getting a policy. Maybe the unit cost is coming down half in like a few weeks. So we need to think about the speed and the cost and output efficiency. These three parameters as a package not only on the number of tokens, that's one thing. On the other end you feel very interesting facts. So right now we are recruiting a lot of younger talents today, even for Baidu, which is 20 plus years listed a public company. So my feeling is the kids actually getting smarter than people expected. So they will not waste the tokens you give to them. So they have a sensible judgment about what are the tasks they need to prioritize because they are working on agents and the models. The model actually helping them also prioritize all the tasks they have. So I think the power of the technology today is it is not only the tools. So that's actually the key concept I want to mention. It is not only a tool, it's a mindset. And the mindset become automatic and more intelligent that if people can work on that well and have a new relationship with agents and with a model, some of the old questions we kind of struggle ourselves will be kind of diminished and less important.
- [10:08]
Tracy Alloway
Okay, so no token maxing at Baidu. But since you brought up Talent. One thing I'm very curious about is we know the competition for the top engineers is so intense right now. And in the US we see these headlines where engineers are treated like sports stars. You know, they're being traded for millions of dollars or whatever. What is Baidu's pitch to top talent? Like if you're trying to attract someone to the company, what is it you say to them that makes them want to work for Baidu versus another top tech firm?
- [10:38]
Henry He (Baidu CFO)
Yes, great question. So that's bring a different perspective. I think we are a technology company previously. I think the priority is we empower our clients to be more intelligent. We give them more technology tools to help them to remove a move from the traditional IT to the cloud environment such as that. But right now I think AI, especially for the big corporation like us, also change us as well. We need to think about the cultural change, organization change not only as organization and a company, but also how AI empower ourselves. So it's actually equally important to do something for clients versus think about new tools affecting ourselves. So Tracy is right. I think there are a few things we actually make a lot of different thinkings and some of the new initiatives. First of all, we are probably among a few companies in China still very open at even increasing the campus recruiting and the focus on the younger talents. And number two, recently we also tasked the senior people not only look at the current reporting structure but also in the real mentor relationship with the younger growing piece of the human capital in a company. But more importantly, I think it's really about giving people more autonomy to work in the company. So more trust and more autonomy and give them more real work. And you know, there's a one concept called a one person company, right? So we are very happy to work with one person company because they actually use our AI tool very nicely and they're willing to pay a lot of revenue to our products given the quality. However, within the company we also encourage people to be the one person team so they can actually use the agents to work on a lot of internal tasks. So internally we have this little tool called Dudu, right in Chinese, a very kind of nickname which is actually our internal kind of open cloud similar tools and which actually enhancing people's efficiency and the tool point. I think give me more people, more autonomy, more trust and more room to grow and attracting new talents. I think equally all kind of very important to change ourself. But also reporting lines and organization structure need to come with it to make sure that people can deliver the the results and the last note I want to mention, the key thing is that people see the application is important, they can work on the full stack in Baidu, which is very unique value in the China tech space.
- [12:58]
Joe Weisenthal
You know, it just occurred to me American companies are kind of becoming more Chinese in the sense that they're doing more vertical integration. Like that's sort of a long history here of sort of the whole thing. And now we see one of this phenomenon is that every American company like they want to even start designing and selling their own chips, their own silicon, which is something that you're doing, you have your own business and you've had it for a while. And I'm trying to wrap my head like what is the rationale? How much is it about just wanting to be able to control your own fate more and so wanting to like control more of the supply chain versus having a chip that optimally aligns with the model that you're working on because those are distinct priorities. So what is the real rationale for having custom silicon?
- [13:48]
Henry He (Baidu CFO)
Yeah, I think thanks for the tech trend in the past kind of year and 2. So if you look at entire computing power consumed, for example last year, most of the consumptions actually relating to the pre training of large foundation model. But right now, Joe, you know, many of them go into the inference and complete tasks. And if you look at the different stacks, I think right now we are actually fitting to an incremental growing piece of the market which is well defined with a clear boundary, which is not focused on pre training for a very super scale foundation model. However, the inference application is important. So to your point, I think our chip product supporting our cloud, focusing on the inference and application is a unique way of we see the positive network effects. I think that's where the area we want to invest. And also given the issue you mentioned, I think within that defined areas we feel pretty confident regarding all the issues you mentioned. And because on the supply and demand side we can find the good match within the emerging market category within the inference and application markets.
- [15:09]
Commercial Narrator
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- [15:40]
Henry He (Baidu CFO)
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- [16:08]
Commercial Narrator
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Tracy Alloway
could try to do everything right, the full stack. And I guess the capital investment you would need to do that is also hypothetically unlimited at this moment in time. And we hear these crazy numbers in the US about the hyperscalers spending hundreds of billions of dollars this year alone. But when you're looking at the different parts of the business, so you have a very mature Internet search business and then you have everything that you're doing with AI, including infrastructure. How are you actually allocating capital and then how are you actually, I guess balancing that with returning capital at the same time to shareholders?
- [17:57]
Henry He (Baidu CFO)
Yeah, so I called it impossible Triangle. So I kind of scratch my head every few months, every few weeks depends on I also see headline numbers on Bloomberg News with other peers as well. So sometimes I make a little bit kind of hesitating to make a statement, but I just want to tell the facts and tell the views. I want to separate them out. So in the recent quarter earnings we, you know, we mentioned we actually solved partially on this impossible triangles. One is our operating profit increase almost doubled on the Q on Q base and number two, our cloud revenue grew about 79% on a Y o Y basis which is almost double of the Y o y growth rate for the cloud market in China. And number three is since Q3 last year, our operating cash flow has turned positive. So positive operating cash flow, incremental operating profits and the higher growth in the market. However, my capex is not seeing kind of double even third multiple times. So I think the way of resolving that is as a CFO or as a management team of a heavy CapEx invested AI tech company right now, need to find a way on one hand really drive the growth but also keep the density of the investment into AI in a reasonable pacing. However, when you do that, you need to keep a conscious regarding the ROI and ROE in mind. To look at entire cash cycle. For example, every dollar we spend today we probably need to wait for another probably 20, 30, 40 months, depends on the category to get full cash back. And during that frame obviously there's a price hikes on memories, there's difficulty on IDC centers and a huge spending on servers. So my point is as a CFO on every project you need to look at the entire lifecycle not only at one time, but also the pacing important because the foundation model R and D always taking a few months. Right. So these are the things you need to keep in mind. But my statement today is as Baidu, we want to invest probably in a more responsible manner to the shareholders, but do not diminish our ambitious investment into AI. Keep the right density is important, but given the results for this quarter, I think we kind of resolve that at least for this quarter. So hopefully we can keep on working on that and maybe half year later when we check on this point, we can still keep on the same pattern. High growth, less dollar spent, but better ioi. I think that's probably the angle we want to achieve.
- [20:14]
Joe Weisenthal
Can I ask you about something I'm very curious about? I'd say the heads of the American AI labs maybe have varying degrees of AI psychosis. They have a lot of worries that what they would call alignment, research, et cetera. Do you work on similar things or do you have the same concerns and
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Tracy Alloway
you also have AI psychosis?
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Joe Weisenthal
No, but like do you like, you know, for speaking of like trying to make money, like do you invest in or how much do you invest in what they would call AI safety or alignment and essentially making sure that the models that you're building don't go rogue and always work on behalf of human flourishing. Is that a thing that you allocate capital to?
- [20:59]
Henry He (Baidu CFO)
Yeah, it's a great question. So there's an emerging area for example in this data sanity and all the kind of post training efforts need to work on that. You know, alignment obviously is one of that. But my point is if you look at this new concept of harness, right. It's not only about pre training and getting model on the leaderboard but also more importantly to measure the robustness and all the things you mentioned, I think in the context in China tech sector the engineering has to be and has been a good competitive advantage. So the harness from the data flywheel to the alignment to the data quality and the labeling, I think the entire ecosystem has been robust for if you think about even in the mobile Internet work, right. So as simple as data labeling to the alignment checks and of post training and sft, I think this kind of the full chain of the capability in terms of the talents and the pool of resources and the cost of data sanity and all the tracks has been in my view a little bit kind of more efficient in the way that the ecosystem has been in place there. So the cost efficiency has been there. So my view is this is engineering, not a theoretical quantum leap, right? So on that the engineering capability from the China tech world and industry has been there with the key elements I mentioned, right? Talents, lower cost, more efficient. I think these are the few things I just want to point out actually can help solve the issue. But as I mentioned, the things evolve very quickly so we don't worry too much about the issue. You mentioned in local market.
- [22:35]
Joe Weisenthal
Yeah, so this is interesting. I want to press further on this because the American AI lab seemed very anxious about this and they published these model reports and it says things that in the chain of thought we were able to see that 4% of the time the model was able to identify that it was being tested and therefore it changed its behavior in response to recognizing that it was tested. And this is a sign of potential misalignment. Are you doing the same sort of research and spending to establish that again the models work for people and don't have a rogue goal, so to speak.
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Henry He (Baidu CFO)
Yeah, sure. I think right now if you look at this right, so we are also part of the open source community. So many of the good model, especially publishing recently, also will publish their thoughts.
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Joe Weisenthal
That makes sense.
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Henry He (Baidu CFO)
So we kind of follow the newest thoughts, but also doing our own tests as well. So overall I think people in the open source community today, in my view it's very collegial. So people still want to do a better model, frontier model for everyone globally, not really on one country or two. Two different places. Yeah.
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Tracy Alloway
So actually related to this, I'm going to ask something, maybe it's slightly sensitive, but I think it's very important. So in the us the AI companies, even as they talk about safety, they're basically self regulating, right? Like they choose to put out these reports and judge their own models and things like that. In China, tell me if I'm wrong, but it feels very different. It feels like the government is more hands on when it comes to AI. China has been very explicit, explicit about this as an area national security, national strategy. So you're operating in an environment where you're firmly embedded in China's technological and industrial policy. How does that influence the development of your AI models and your broader tech?
- [24:23]
Henry He (Baidu CFO)
So obviously we're not in a position to comment on public policy, but I definitely happy to share some of my thoughts. I have, I think in the world, in the China AI today we believe we have a great group of very superior talents. Not only the engineers, but also people actually design the framework. So that's actually very important because it's not only about algorithm itself, it's about the whole system regarding infrastructures, regarding the data regulation, regarding the model and the cloud. I think given the past 10, 20 years in China, given this entire infrastructure has been upgraded to a level that is kind of we're leading, I think the policy supporting to getting the moment we have today is already proven. We have a proven path to leading not only the technology renovation and innovation but also the way monitor that into the stage we already have today. So that's my first point. My second point is I think today the technology is growing very fast and the checks on the performance and on the data transparency and the rules regarding the data regulation and Even without the AI model, even on the cloud age in the past 10, 20 years or five years has been getting more robust. Because if you think about that in a cloud environment, you have almost a similar issues, right? Who own the data, who use the data, who can access that. But today it's a new tool to actually cover all the things we are doing. So I think it is not a new concept for the policymaker to think about is a new model, it is a new thing, it is really a new and better tools to utilize and access the resources we're already building. And the existing resources will have been building on existing platforms which has been 100% compliant. But also we have a lot of support, you know, from the policymakers, industry, practitioners, academia, they actually all contributed to that. So overall my feeling Is it's a very transparent and open environment. Not only China, but also globally and academias and industry practitioners actually contributing quite a lot of the good conversations to this environment. And my feeling is the policymakers through different channels has been very open also listening to the new frontier issues and questions.
- [26:34]
Joe Weisenthal
I know this is a business conference and we want to keep things very professional here and not engage in gossip, et cetera. But I have like one sort of I'm just curious about something which is if the American AI CEOs the most hawkish on the sort of like chip exports on China stuff is Dario who used to be a Baidu employee. Do you ever hear things in the office do people ever say like oh, I remember that guy. He was, you know, is there any Dario gossip that people talk about in the office from his stinted Baidu?
- [27:10]
Henry He (Baidu CFO)
So that's why I want to put the back to your court. I want to share another gossip which you probably want to hear. So probably in the past 100 days it's open cloud become very popular and educated market about how AI is really getting to the real task and the real world. Obviously in China there are different way. You have a new way calling not only the Claw but other Nicky names.
- [27:33]
Joe Weisenthal
Right.
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Henry He (Baidu CFO)
So one day I saw Peter, who is the founder of the community where which drive the open cloud to be prevail put I think Instagram saying he actually want to work with Spydu because open cloud is a tool. But the tool is kind of eating up all the capacity that is the skills. So everyone is contributing to the skills and the cloud is actually grab all the skills and do the work. So I think one day we are pretty happy. CEO Peter, drop us a note very in a positive way because he kind of on one side noticed that the search is important capability of the skills. That is the skills in the open cloud environment. So actually he asked him Baidu to work with him to beef up the search skills in order for open cloud to do a better work to accessing the real time information. Because today the foundation models one kind of carve out is every few months you train a new model and the model itself in his mindset doesn't have the real time information. For example, the foundation model yesterday doesn't capture Joe and Tracy. We're talking about today. You need to have a new skills accessing the odds lots what is happening in real time.
- [28:47]
Joe Weisenthal
That's right.
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Henry He (Baidu CFO)
So I think Google globally and Baidu for China they are the powerhouse for searching the real time information. So it has to be linking to the open cloud. So I think that's actually one of the things we pretty much happy to about. So next day we asked our engineers to link up with Peter and we actually part of this skill marketplace doing pretty okay. And right now I just want to share our foundation model called earning 5.1. Right now it's ranked as the globally number one in a tax format of the global RM arena and globally number five in the search skill capabilities globally in the RM arena as well. So I think that's want to give you another gossip so but for the previous one probably can talk with you after this open session.
- [29:27]
Joe Weisenthal
Yeah, I know you didn't give us any Dario gossip but implicitly because I know that the Open Claw guy, you know it was originally called Open Claude and then Anthropic sued him and also he got kind of annoyed because they didn't let the API users get full access. So I think that fellow who created openclaw is not the biggest fan of Daario's approach. So by giving us that answer you at least gave us a little drama there. Thank you.
- [29:55]
Tracy Alloway
You mentioned search a number of times already and data is obviously very important to AI. We spoke with Grace Xiao earlier in the week. She writes about AI on her substack and I asked her if China has an edge when it comes to data collection and she said she thought not really because a lot of the data that's been collected was unstructured and so it was hard to harness for AI model training and inference purposes. Can you talk a little bit more about how you did that at Baidu because you've got a lot of data you're using it for. Ernie, how is that transition process actually carried out?
- [30:33]
Henry He (Baidu CFO)
Yeah, sure. I probably will talk about something the market has not noticed enough and I'll talk about what's the real challenge. Right. So it's always two sides of the story. I think I'm very happy to talk about Google versus what we think about Baidu in some certain formats. A few things. I think the markets, not only the capital markets but but also the industry has kind of on the value a little bit regarding the same components we actually matching with the same structure. Google is monetizing and have this integrated capacity. So first of all Google has its own TPU which power that cloud. So the GCP growth, the Google cloud is growing faster which is part of the reason it's a tpu. And so Baidu we have our own chip department and based on the public information we recently did the public filing want to spin off these assets. So the chip we have the theme with Google for the foundation model. We have our earnings as mentioned however in the physical AI called applications or called work model. So we have our robotaxi called Apollo Go. Just want to share one number. I think in the market sometimes I tell even my friends it's kind of surprised that each week, including San Francisco and including all the cities, Austin, Texas and US, Waymo from Google deliver about 500,000 trips per week. And in the last quarter Baidu's Apollo go in globally 27 cities deliver about 350,000 trips, which is only about 25% fewer than Google. The part of that is not only about robotaxis, about how we using the data, empower our own foundations, models, trainings and also do inference, but also have a lot of know how regarding the multimodal contents and all the different things. And more importantly, if you look at the traditional search right now on this quarter also the market didn't notice that. Even my friends telling me, oh Henry, congratulations for that, for your earnings. But your search is probably still 80, 90% of the revenue. But the truth is for this quarter is declined to about 48% so it's already below 50%. So the new growing area, for example the digital humans and also our application software is becoming a powerhouse and growing very fast. So my point on that is if you look at key components or the blocks from the chip, cloud, robotaxi for AI, physical AI applications and the software. And also one more thing I want to mention is Google linking with YouTube for the multimodal contents. And we actually have our control the subsidy called Iqiyiq in China, which is actually over 50% of market share in China for certain long form contents in China as well. So we also have our closed loop of the data flywell as well, probably at a different scale, but I think it's still in the same format and the same model. So my view is yes, I think on one side it is right that certain data and elements are in their own kind of pockets. But however, for Baidu we still have access to those pockets, probably better than other peers. But I want to also very honest admit, right? Given Joe is my good friend, I still own him a little bit kind of gossip after this session. Just want to share my own challenge. Obviously in China you have different camps, right? Different camps. They kind of don't open up enough to share the data which is reality known to the market for everyone. But my point is right now this, you know, the agents and the foundation model become super smart and it has a great push to move everything to a public cloud. It's actually help resolving that issue to be accessing more information. Last note I want to share is before AI can the public car penetration in China is about 2030% versus in US is kind of 90%. So that's why your comments I can totally understand because without AI the gap is like this but right now it's actually getting closer but still there's a gap. But my confidence coming from this gap will further narrow because everything will be on cloud environment everyone access real time information. But also for Baidu web we have a full stack and each components given the Google path has been proven to be right and more efficient. We just want to follow the same pattern and access and the benefits from the different layer of the data itself.
- [35:01]
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Henry He (Baidu CFO)
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Tracy Alloway
like I never liked being told oh wow, you look so good for your age. Like why even bother saying that?
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Henry He (Baidu CFO)
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Joe Weisenthal
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Joe Weisenthal
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- [37:14]
Joe Weisenthal
Auto Pacific segmentation 2026 Rogue vs latest in market Competitors in the EX SUV mainstream midsize class and excluding electrical vehicles based on manufacturer websites. So I am very glad that you brought up the robo taxis because first of all, I just love robo taxis, period. They're very fun to ride in.
- [37:33]
Tracy Alloway
You took me on my first Waymo ride, I remember.
- [37:36]
Joe Weisenthal
And I was a big. I was like, Tracey, you gotta ride in a Waymo. You gotta ride in a Waymo. And I think you were convinced they're pretty cool.
- [37:40]
Tracy Alloway
Now we have to ride in a Apollo Go, right?
- [37:43]
Joe Weisenthal
But here's another. Besides, I'm also excited about them as a business story for a very specific reason, which is that when I think of like Baidu, people call it the Google of China, et cetera, but you know, separate markets, right? Google isn't in China. People in the US don't by and large use Baidu as far as I know. But there's going to be cities now where there's going to be direct competition between Waymo and Apollo, including London I think is going to be the first city where there's going to be head to head battle. And so this is exciting because I feel like, okay, the consumer facing Internet giants of the US and the consumer facing Internet giants of China are for the first time going to really be competing in certain identical consumer markets. And so what I'm curious about is not who you think is going to win. I presume you think you're going to win, but what is the dimension upon which the winner will emerge? Will it be the quality of the application? Will it be who can produce and secure automobiles in volume? What is the most important dimension that will determine the winner either globally or in a specific city.
- [38:54]
Henry He (Baidu CFO)
So before getting there just, you know, also the car is one of my hobby too. Just, you know, Joe probably know I'm actually a race car driver. So I got my race car license as well. So every time I actually drive a little bit. So it's quite nice. Enjoyable because I think that probably the remaining car, you can still use gasoline and dry yourself probably 20 years from now. So before getting there, I think the key word is change the car ownership.
- [39:20]
Joe Weisenthal
Okay.
- [39:21]
Henry He (Baidu CFO)
My view is in my own Calculation in US as an example, right now, each mile including insurance, gas price, parkings on average is about 60 to 80 cents per mile is the tipping points between rent a car versus owner car. Okay, so if it's cheaper than that, people will buy a car, but more expensive people will rent a car. Right? So right now for global player, I don't want to name name but the average robotaxi cost today because the scale is still very small, it's about 1 to 2.5 dollars per mile. There's a range about 1 to 2 dollars. So my point is this curve, just like agents getting more prevailing is coming down very fast. So assuming at some point, you know, five years, six years, whatever, 10 years, if globally the robo tax could deliver average price per mile coming down to let's say 60, 80 cents US per mile, then many people were thinking buying a car because today it's very simple. You know Joe and Tracy, you're probably in Hong Kong, you know, the parking is so expensive, even more expensive than the gas and the gas in Hong Kong also very expensive expensive. So first of all, the car right now is all EV drive. Car number two, you don't have the parking because you and me can drive and the car can go out. And number three, while we're having this 40 minutes, my car actually can go up, pick up passengers and it can make some money for me, right? So it's a new agent. So that's why I'm saying it's a physical AI agents on the road to making money for myself. So my view is robo taxi will change the human behavior getting out in terms of behavior, pattern of transportation, that's one thing, right? So we and Waymo and all other players globally are going to that direction. So that's my vision for the market going forward. However, as you mentioned about the market as a player in the near term competition, my view is right now the market is due very early and the TAM is very high. So in the last quarter we shipped our car in London and as you know both Waymo and us starting open the market London, hopefully next year you will see a car and you know we have good partner with both Uber and the Lyft and also with grab in southeast countries. So next time you probably call a car from Uber or Lyft apps you will get a Baidu's car. So I think it's actually helping increasing the services because one interesting note is the human driver probably don't work in the midnight, right in certain cities. But right now the Car actually can work 24 hours. So expanding a new market and right now it's still a very low percentage of penetration. So still couldn't have a lot of room to go on the other end. To your question about the success factor, I think the two things, one is a technology need to cutting edge and improving and number two is operation efficiency. Right. So it's actually have a lot of work need to be operational driven, for example, how many locations you pick up passengers to be more efficient. Right. The charging stations and all the different network designs is actually very important. But given we are working on this business for kind of 13 years so far. And I can tell you one interesting fact. Globally there are only two cities right now have over thousand cars in that scale which is San Francisco and one city in China which is Google operating in San Francisco and Apollo go from Baidu operating one city in China. But I think our partnership with both a Lyft and and Uber globally with different cities I think has been very collegial because the demand is much higher than the supply.
- [42:47]
Tracy Alloway
Joe, I'm going to admit something slightly embarrassing actually you already know this but I never learned to drive partly because I grew up in Tokyo and then I moved to a bunch of other big cities and so I never needed to and now I always joke that I'm basically I'm never going to learn, I'm just going to hold out for the self driving cars. So you know, fingers crossed it's coming. I hope so. I wanted to ask something about. You know, you've mentioned agents a number of times and this seems to be becoming the hot new thing in AI. And I know your CEO has talked about how one of the key metrics for Baidu is daily active agents. And my question is how does that actually turn into revenue or return from a CFO's perspective? Because I understand with search, you know, you type something in, you see the ads, advertisers are paying you for that. But I'm very unclear how it works if the agent is actually going out and doing something. Yeah.
- [43:42]
Henry He (Baidu CFO)
So in the mobile Internet where you know, everyone look at for example the dau, the daily active users because that either fulfill information, query demand and individual are the primary users for many of the mobile applications in app stores. So the DAU was the primary matrix to measure that. However, in the recent conference our chairman and founder of Baidu, Robin mentioned, I think based on his thought leadership that daa, which is the daily active agents, are the new kind of matrix to defining the success of agents. So I kind of very much agree on that. The reason is if you look at the tasks, it's actually spread out into different verticals, right? So. So right now it's very difficult to find a new way to identify how much people using especially how much value coming out from using AI. So the agents today is basically can deliver a final task not only using as a tool for human beings, the agent is smart enough, can think about planning the task and completing the task. And obviously in the way of interacting with human beings, it actually become more smarter and in a way that working with more efficient planning of that. So Tristan, to your question. Overall my thinking is the DAA will measure not only how many people using that, but also how difficult it is to your question. The result driven payment is coming up in the near trend. So I just want to share a few things. For example, right now we have three or four different key products. One of them in China called Famo. It's really solving complicated issues for enterprises. It's very similar to AlphaGo which actually in the previous years planning. But right now it's actually coming to the real world. So we install this agent to one of the biggest port in China and help them deploy and planning for the shipments and the logistics. It is saving the cost of the idle time and improving the revenue of their pots. So the port actually willing to share a certain profit generation with us. So the key things I'm observing is in the previous meetings, even I'm the cfo. But actually I'm attending a lot of the meetings to meet with client in the previous meeting without AI. Most of the meetings we are talking with is the CTO and the CIO of that company because it was a tool, it was a cost center. So they need to find a budget internally. Joe, you know it's not easy, right? So they have their CFO and their CEO. But right now most of the meeting we are having today is with the CEO himself. Because AI right now is not only about Baidu, it's really about helping our clients. So the client has to be a top down level of the initiatives to really drive AI internally. So I think our sales process become relatively more efficient in the way that we getting to the number one decision makers. He has a budget and he knows that driving the pot efficiency is important for his task. So he's willing to share certain economics with us. I think the customization is also diminished because right now the agents can be used different parts. You can repeating that success lower the unit basis of the cost. And the agents become more real and the clients see the value and the profits so they have a higher willingness to pay and high ability to achieve that payment. So I think these four cycles actually in the AI world is very different with traditional it.
- [47:07]
Joe Weisenthal
This is actually an interesting question because I've seen debate on this within AI about what does revenue look like or what is, you know, a sales price look like? Because another thing people talk about is for example, using an AI agent to say, resolve an insurance claim or something like that. And then the AI provider gets paid on say like you know, the number of successful claims resolved, et cetera. Are you bullish on that basic model where the payment is as you said, okay, maybe they'll share revenue with you because they can measure that savings. Is that the model that you see across a range of AI applications where it's like a sort of per task or sort of very clearly linked to the efficiency gain?
- [47:54]
Henry He (Baidu CFO)
Yeah, we have another kind of line of business we call the digital employees which you know, Joe, probably you have the similar experience that if you have one season of the podcast, you probably it's very energetic, right. If you do that like 10, 20 times in two weeks, it's very exhaustive. Right. Because you need to think about, Wait,
- [48:13]
Joe Weisenthal
you're saying we're going to be replaced?
- [48:14]
Henry He (Baidu CFO)
Let me share my views. Right?
- [48:15]
Joe Weisenthal
Wait, is that what you're insinuated? We're going to get replaced because we get exhausted, but the AI agent won't get exhausted.
- [48:22]
Henry He (Baidu CFO)
So my point is the humans, they're the motivation and the knowledge base, have their own kind of territory, to be frank. But if you look at the conversation, look at the quality of the know how if you really tap in a good manner, of course the digital human actually can deliver efficiency and a better execution quality. So one example I just want to share is E commerce is a big industry in China.
- [48:48]
Joe Weisenthal
Yeah.
- [48:49]
Henry He (Baidu CFO)
And a lot of live performance is really selling the products.
- [48:52]
Joe Weisenthal
Yeah, it looks fun but you know,
- [48:53]
Henry He (Baidu CFO)
the come out is the KOL cannot work like 24 hours and people cannot buy stuff like 24 hours. But if you think about you have a great quality of the human employee can help the merchant owners to sell into different time zones and also can speak Chinese, speak English and for the different parts of audience to have the little jokes from their own countries, it actually can help the E commerce revenue. So that's why we have their own kind of product called digital Employees. We actually help our merchant and E commerce store owners to really push on that and selling all the goods and it actually can Perform pretty well because on the, you know, the Q and A sessions on the questions is actually reacting to the random users asking a wide range of questions. That knowledge actually is very fluent in a way that for the foundation model, it is the way it works. Right. So I think that actually have different user case and we actually monetize by charging, for example, the result improvement and all the different things.
- [49:54]
Tracy Alloway
I've tried to buy things for 24 hours straight before. I think when I first used Taobao, I think I had Taobao psychosis or something. And that's how my husband and I ended up with three couches in our apartment that was about 500 square feet large.
- [50:08]
Henry He (Baidu CFO)
So my little suggestion, you need to have another agent help you to select the right products. So that's another way you probably can monetize on that.
- [50:14]
Tracy Alloway
Are you going to spin out the chips business? We're at Bloomberg Invest. It's our first live recording of Odd lots. Let's break some news.
- [50:21]
Henry He (Baidu CFO)
All right, so it's coming to the money part. So I was not, to be frank, I was not even trained by finance. I become CFO by accident. So actually my both bachelor and master training was a chip designer myself. So I think after joining Baidu, I definitely realized that Baidu's chip product has been really, really high quality quality and really good for the inference, for the, for the. All the things we talk about helping our DAA to grow as well. So based on the public information, we already filed the confidential filing for spin off of our trip assets in Hong Kong and we are doing that and processing that process on track. And that is one part of the assets we try to unlock at this moment. But however, as I mentioned, the cloud foundation model, they are all very important. So after spin off, we hopefully can enhance that ecosystem. And as you know, chip is not only the hardware I deeply understand, it is about ecosystems. We need to work pretty well with our customers and the suppliers and the software developers all at one goal. And I think to be a separatistic public company that will help to achieve that goal not only as hardware, but also the entire ecosystem as well. And our customer will view our chip products more neutral and independent products that can actually do more testing and more usage on their own cases.
- [51:45]
Joe Weisenthal
Yeah, I seem to recall reading that you figured out a way that developers can easily port over their CUDA stack over to your stack without much trouble. Henry, thank you so much for coming on ablot. Our first live recording anywhere in Asia. Really appreciate it. Again, perfect guest.
- [52:03]
Henry He (Baidu CFO)
Yeah, again, thanks for having me. Thank you Joe. Thank you Tracy. Thank you.
- [52:19]
Tracy Alloway
That was our conversation with Henry Hut, the CFO of Baidu, recorded live at Bloomberg Asia Invest. I'm Tracy Alloway. You can follow me at Tracee Alloway
- [52:29]
Joe Weisenthal
and I'm Joe Weisenthal. You can follow me at the store Alwort. Follow our producers Carmen Rodriguez at Carmen Erman, dashiell Bennett at Dashbot, Kale Brooks Cale Brooks and Kevin Lozano at Kevin Lloyd Lozano. And for more Odd Lots content go to bloomberg.com oddlots we have a daily newsletter and all of our episodes and you can chat about all of these topics 24. 7 in our Discord Discord GG oddlots.
- [52:52]
Tracy Alloway
And if you enjoy Oddlots, if you like it when we talk to Chinese tech executives, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.
- [53:44]
Joe Weisenthal
Okay tech leaders, Word on the street
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Joe Weisenthal
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Welcome to the history books.
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