Baidu Takes Revenue Hit, Points To New Search Advertising Law And Vetting Process

China has a new law prohibiting online promotions of prescription medication, tobacco and other similar products. It went into effect in September. This restriction will have a "short-term impact" on revenue for the business, which means less paid-search ads running across Baidu's advertising network, Robin Li, CEO at China's top Internet search engine, told analysts during the company's third-quarter earnings call Friday.

Li said the government restrictions along with Baidu's new "tougher vetting process" for advertisers buying paid-search advertisements running across the search engine network is the reason the company reported lower-than-expected revenue of $18.25 billion yuan ($2.74 billion), down 0.7% from the year-ago quarter. 

In the long run, Li said the changes will help Baidu do a better job of providing content to those who search for information across its engine.

Advertisements for the medical industry are prevalent on Baidu's engine. The company also built a chat bot that build on its Baidu Doctor app launched in 2015.

In October 2016, Baidu announced that it would introduce an artificial intelligence-powered chat bot named Melody, which gathers information, responds to patients about medical conditions and gives feedback to the real-life doctors. The goal is not to supplant doctors, but to add to the information provided.

Andrew Ng, chief scientist at Baidu and founder of Google's Brain project, told Inc. that AI is the new electricity that is transforming multiple industries.

The AI allows users to converse with Melody through speech. "At Baidu during the last 18 months, we have seen a tripling of daily speech use across all Baidu properties," Ng said. "We're seeing more people use speech."

Melody can ask questions about other symptoms not mentioned by the patient, but that may provide extra insight to help the doctor get a complete picture of the patient and make a more informed decision by using deep learning and natural language processing developed by Baidu.

Despite the innovation with chat bots, Li said the fourth quarter of 2016 -- typically the best quarter for retailers-- will become the search engine's lowest point for this year and that the quality control policies will prove positive for Baidu in the long term.

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