Baidu ends huge subsidies on smart speakers amid price wars in China

It follows years of leading Chinese smart speaker brands cutting the retail price by sometimes one-third as a tactic to grow market share.

When leading Chinese technology firm Baidu unveiled its latest smart speaker, the Xiaodu Smart Display X8 in China last week, it decided to not slash the retail price of the new product with huge subsidies like it had done in the past.

The move signifies the changing strategy of the Beijing-based company, which has decided to cease huge subsidies on its smart devices even though competition among smart speaker vendors remain stiff in China.

"It is also impossible for us to continue to subsidise [the smart speakers]," Baidu vice president Jing Kun told Chinese media 36kr.com in an interview. He said the company's decision to cease the subsidies could also be a healthy move for the entire industry.

Since companies like Baidu and Alibaba started launching their own smart speakers in China in 2017, the intensive price wars among the top brands have been ongoing and showed no signs of ending until Baidu's recent strategy change.

Baidu always sold its smart speakers at about half of its original price in China in a bid to acquire greater market share. During the November 11 shopping spree, Baidu cut in half the price of its Xiaodu Zaijia smart speaker to 299 yuan from the original price of 599 yuan, according to the 36kr.com report.

Meanwhile, Alibaba currently sells its cheapest smart speaker model, the Sugar R Smart Speaker, for only 89 yuan on Tmall.com, about 55% off from its original price tag of 199 yuan. Its popular X1 Smart Speaker was once sold only for 99 yuan, one-third of its original 299 yuan retail price.

In the second quarter this year, Baidu, Alibaba, and Xiaomi were the world's second, fourth, and fifth largest smart speaker vendor in the world respectively, according to a recent Canalys report.

While Alibaba and Xiaomi posted 38.8% and 37.5% quarter-on-quarter growth in the three-month period respectively, Baidu saw its shipment surge, after selling 4.5 million units of smart speakers during the second quarter of 2019, compared with 0.1 million shipments during the same period in 2018, said Canalys.

Like smartphones, domestic companies have conquered the smart speaker market in China, taking more than a 95% share between them, leaving relatively little room for Amazon and Google's smart speakers, as well as Apple's HomePods.

When asked whether lowering the subsidies on smart speakers in China will hurt its sales, during the the 36kr.com interview Baidu's Jing said "the period to educate consumers with price war is over", and the value of smart speakers are lifting as the devices are "always on" and are responsive to consumers at any time.

Jing added that in recognising about 50-60% of Baidu's smart speakers are currently used by young families, the company is working with online educational service providers to beef up suitable content and to strengthen control functions to prevent children from overusing its products.

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