Photographer: Imaginechina via AP Photo

Baidu Sells Food Delivery Unit to Alibaba-Backed Startup Ele.me

Baidu Inc. sold control of its unprofitable food delivery business to a startup backed by Alibaba Group Holding Ltd. as the search engine cuts back on cash-burning ventures to focus on artificial intelligence

Baidu will become a shareholder in Ele.me after the Alibaba-backed firm completes its purchase of the Waimai business, the companies said Thursday. No price was released and it doesn’t include the group buying business Nuomi. The companies were in talks for a deal at a steep discount to the $2.5 billion Waimai was valued at in its last round of fundraising, a person familiar with the matter said last month.

Quitting its own standalone business represents a retreat for Baidu founder Robin Li, who told investors in 2015 that online-to-offline services like food delivery would come to define the company. He pledged to invest 20 billion yuan ($3 billion) over three years to make it a profitable multibillion-dollar business that used artificial intelligence to cut costs, boost service levels and dominate its rivals.

Instead, Baidu’s arch-rivals used their deeper pockets and aggressive discounting to win customers, turning the search giant’s food delivery and group-buying platforms into loss-making also-rans. Ele.me, which is 23 percent-owned by Alibaba, had 28 million monthly active users as of May and complements the e-commerce operator’s own on-demand services affiliate Koubei. Together they are vying for supremacy with Tencent-backed startup Meituan Dianping.

Waimai is the latest example of Baidu finding itself on the wrong side of costly startup battles. It backed Uber Technologies Inc. in China through years of subsidy wars before the U.S. ride-sharing giant surrendered to local rival Didi Chuxing. In 2016 profit growth fell for the first time since the company listed. 

Earlier this year Baidu hired former Microsoft Corp. executive Qi Lu as chief operating officer to help reshape the business. Under his leadership the company has focused on AI projects like its driver-less car platform Apollo and a Siri-like personal assistant called DuerOS.

— With assistance by David Ramli, and Lulu Yilun Chen

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE