China’s leading internet search engine operator Baidu has cut hefty subsidies on its smart speaker products as it gains market share in the country’s smart speaker market.

Baidu launched its latest smart speaker Xiaodu Zaijia X8 – which features a built-in touch screen – on December 12, the date of the “Double 12” shopping festival which is one of China's most celebrated online shopping days.

At the product launch, the official price of 599 yuan (US$86) remained onscreen the entire time; unlike at previous launch events, Baidu vice-president Jing Kun did not step forward to announce a massive discount toward the end.

The Beijing-based company and fellow Chinese tech giants Alibaba and Xiaomi all launched their first smart speakers in the second half of 2017. With the product still relatively novel to Chinese consumers despite the debut of Amazon’s Echo three years before, the companies used heavy subsidies to attract users and gain market share from the start. The price war continued for some time – last year, Alibaba’s cheapest smart speaker model sold for as low as 99 yuan, while Baidu offered a model at 50% off the original price of 599 yuan. (Alibaba is the parent company of the South China Morning Post.)

But Baidu’s recent change in strategy may be a signal that the battle for market share at any cost is cooling, and companies are starting to look to increase revenue instead.

Baidu's newest smart speaker, Xiaodu Zaijia X8, was announced without the steep discounts that came with previous product launches. (Picture: Baidu)

“At the start we needed huge discounts for users to accept smart speakers,” Jing said last week at a media briefing. “Often, price is a barrier for consumers when they do not understand the value of a product. But when you understand its value, the price is no longer a barrier.”

Jing added that it was “impossible” for the company to keep subsidizing products, and cutting down on the subsidies was also healthier for the industry.

With the industry more mature, Jing said Baidu is shifting its focus for subsidies to its content, such as offering Xiaodu smart speaker buyers free membership for its video streaming service iQIYI, rather than subsidizing the smart speakers themselves.

The move comes as Baidu rapidly gains market share in the global smart speaker market, overtaking tech titan Google as well as local smartphone company Xiaomi. The search engine operator shipped 3.7 million smart speakers in the third quarter of 2019, compared to one million during the same period last year, according to a report last month by market analyst firm Canalys. This represents a rise of market share from 4.9% during the third quarter of last year to 13.1% this year.

As of the latest quarter, Baidu ranks third worldwide in terms of smart speaker shipments, behind only Amazon and Alibaba in first and second place respectively.

With regard to low-priced devices, Canalys senior analyst Jason Low said in the November report: “It is crucial, especially for Chinese vendors, to avoid falling victim to the sunk-cost fallacy… They have to stop money-burning to achieve shipment goals, but instead focus on their overall business objectives and to generate revenue soon.”