Hello, thank you for standing by for Baidu's second quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Juan Lin, Baidu's Director of Investor Relations. You may go ahead.
Thank you, operator. Hello, everyone, and welcome to Baidu's second quarter 2019 earnings conference call. Baidu's earnings release was distributed earlier today, and you can find a copy on our website as well as on your wire services. On the call today, we have Robin Li, our Chief Executive Officer, Herman Yu, our Chief Financial Officer, and Dou Shen, our Senior Vice President in charge of Baidu's Mobile Ecosystem Group, our search and feed business. After our prepared remarks, we will hold a Q&A session. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations.
Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC, including our annual report on Form 20-F. Baidu does not undertake any obligation to update any forward-looking statements except as required under applicable law. Earlier press release and this call include discussions of certain unaudited non-GAAP financial measures. We have made minor adjustments to our non-GAAP measures and thus will activate our financial measures for comparison purposes. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures and is available on our IR website at ir.baidu.com. As a reminder, this conference is recorded. In addition, a webcast of this conference call will be available on the Baidu IR website. I will now turn the call over to our CEO, Robin Li.
Hello, everybody, and thank you for joining our call today. Baidu's second quarter revenue reached RMB 26.3 billion, above our guidance midpoint of RMB 25.8 billion. This can be attributed to Baidu Core performing better than our original expectations. Baidu's Q2 revenues grow 9% sequentially, and Baidu Core revenues grow 12% quarter-over-quarter, in spite of the impact from industry-specific policies, self-directed healthcare initiatives, and slowing macro environment. Even with the significant influx of ad inventory into the market, we are seeing an upward trend for Baidu's revenues on a sequential basis. Our monetization foundation is strengthening with strong traffic growth, such as Baidu App DAU, in-app search queries, and feed time spent, and strong growth of content and services on Baidu's platform. As our mobile ecosystem expands, we are able to better understand user behavior, with users navigating the many pages on Baidu's platform.
Over time, this deepening user insight will allow us to further improve Baidu's user experience and ad conversion for our marketing customers. On today's call, I'll share recent developments on our search and feed business and highlight the progress that we have made on our AI business. In early July, we held our annual AI developer conference, Baidu Create, in Beijing, which drew approximately 7,000 developers and partners from around the world and was concurrently broadcasted from the internet. We released the Baidu Brain 5.0, which includes industrial applications of Baidu AI technology. Baidu Brain is the common AI engine that powers all of our ventures, from search and feed to DuerOS, Apollo, cloud, and IC. Developers can access the AI capabilities of Baidu Brain through Baidu AI Open Platform, with cloud developer accounts reaching 1.3 million in June, up 37% in the first half of this year.
Enabling a large developer community is important in the world of AI computing as our Baidu Cloud ecosystem and capability mix. At Baidu Create, we also expanded our strategic alliance with top industry players, including Nvidia Auto, Huawei, and Intel. Let's begin our operational review with MEG, our Mobile Ecosystem Group. In June, average daily users on Baidu App continued to see robust growth, reaching 188 million, up 27% year-over-year, contributed by the synergy generated when search is combined with feed. Search and feed provide Baidu two strong traffic engines. Baidu's search is an indispensable means by which people find more objective and reliable information. Our feed is powered by Baidu's AI algorithms, formulated with Baidu's unmatched intent-driven user insight.
Our relentless focus on strengthening Baidu's mobile ecosystem by enabling new feeds and short videos searchable through Baidu App, and information and services found in third-party apps searchable through Baidu Smart Mini Programs. It's driving more usage scenarios for Baidu Ads. In June, user time spent on feed grew 33% year-over-year, and in-app search queries grew over 20% year-over-year. In addition to Baidu App, total time spent on our feed and short video apps together grew robustly, up 67% year-over-year in June. Baidu is the premier go-to destination in China to find knowledge-based content and long-tail information. To supplement information on third-party sites, we have spent years developing an expansive knowledge-based content ecosystem, such as Baidu Baike, Baidu Post Bar, and Baidu Knows, to make useful, sought-after knowledge readily accessible. As we focus on strengthening Baidu's mobile ecosystem, Chinese users are becoming more dependent on Baidu for knowledge content.
For example, in June, daily time spent per user on Baidu Knows in Baidu App grew 65% sequentially. Daily video views of Baidu Baike grew 80% year-over-year, and membership services revenue for Baidu Wenku grew 61% year-over-year. Baidu's mobile ecosystem is drawing new feed and short video content creators to Baijiahao accounts. We saw publisher accounts reaching 2.2 million in June, up 83% year-over-year. App developers are also making their services and information available through Baidu Smart Mini Programs. We saw MAUs accelerate to 270 million in June, up 49% sequentially. The number of Smart Mini Programs improved more than sixfold in the last three months. Baidu's Smart Mini Program offers our users richer content and services selection and provides traffic to app developers without requiring users to download their app.
This native app-like model improves user experience and will ultimately improve app conversion and expand the monetization potential of Baidu's marketing services platform. Baidu Smart Mini Program is attracting well-known apps such as Weibo, Meituan, and JD, as well as services with lower frequency usage. On the latter, for example, the Shanghai Auto Show is held every two years in China. This past April, the event host created a mini program on Baidu and WeChat and leveraged other online sites to promote their event. In one month's time, the Shanghai Auto Show attracted 2 million users to its Baidu Smart Mini Program, which offered indoor event navigation, ticket purchase, electronic event pass. In the end, Baidu was Shanghai Auto Show's largest third-party channel for ticket sales.
Whereas other mini programs allow users to search the titles of mini programs, Baidu Smart Mini Program allows our users to search the massive content within those mini programs to locate the most relevant information and services. Similarly, our Top One capabilities, which recently satisfied 51% of the queries, allow users to search the massive content on the internet and satisfy users' intent with Baidu's first recommendation. From the developer's point of view, Baidu's Smart Mini Program helps service providers attract higher quality users with Baidu's intent-focused user base. Consistent with Baidu's search and feed philosophy, we offer an open ecosystem that embraces and promotes a wide array of Smart Mini Program developers, which provides more options to our users.
For example, long-form video apps who have joined Baidu Smart Mini Programs include Youku, iQIYI, Bilibili, and China Mobile's Migu Video, as well as traditional media, such as Guangdong Satellite TV. Baidu Managed Page is another area that we are strengthening our mobile content ecosystem and is one of the options by which we are enabling industry-specific merchants to more effectively reach and engage with users. In lieu of HTML5 sites, industry-specific content or industry-specific merchants can provide their information on Baidu Managed Page, which is open and freely accessible by other traffic sources. Since the merchant's content resides on Baidu's platform, we are better equipped to ensure greater reliability and trustworthiness of the information offered by the merchant. Structured data for healthcare industry is a form of Managed Page.
In March, we required our healthcare marketing services customers to switch over from their H5 page to Baidu Managed Page for the landing pages of their mobile app. In July, we expanded the requirement to healthcare PC ads. Baidu Managed Page for the healthcare industry allows us to monitor the healthcare provider's information and communication with users while enabling our Managed Page platform to continuously add new functionality. For example, live chat and call features with the healthcare provider, integrated caller ID to protect user information, and consumer protection program for added consumer comfort. We are seeing significant improvement in user experience with Managed Page, and search queries on healthcare are growing faster than before. The increase in traffic, improvement in healthcare content quality, and added functionality are generating new pull-ups in customer needs for healthcare providers on Managed Page.
While our self-directed healthcare initiative has dragged down our recent revenue growth and optimized make it that much more difficult to implement in the current macro environment as the lower quality healthcare providers are going elsewhere, we believe improving user experience, better management of healthcare information, and lead conversion for our healthcare customers will generate greater value for Baidu over time. Aside from healthcare, we are adopting Managed Page for home services such as moving companies and home repair. In July, we began to offer attorneys, which has a fragmented body, has fragmented online presence, and an easy way to promote their business in a card format in Baidu's search results. From the card search results, users can access an attorney's educational background, legal credentials, and legal cases handled, as well as social features such as user commentaries and ratings.
Managed Page give us the opportunity to build industry-specific solutions to empower SMEs and allow them to better leverage web traffic and engage with users without having to maintain an IT department and keep pace with internet infrastructure and technology. SMEs can simply run a business using Baidu's Managed Page, and we will continue to add tools, services, and features to Baidu's platform over time to improve their user engagement and lead conversion. Extending Managed Page into new industries could further expand Baidu's revenue growth opportunity. Looking forward, we are excited about MEG's market position and monetization opportunities. With traffic growing robustly, our mobile content ecosystem expanding, and different monetization plans in the work, including the recent launch of Baidu CRM in July, especially when we step out of the weak macro environment. Moving to DuerOS.
In the second quarter, DuerOS voice assistant continued to gain momentum through the use of Baidu's leading technology in speech, natural language processing, and search. DuerOS install base surpassed 400 million, up 4.5-fold year-over-year, and monthly voice queries surpassed 3.6 billion, up 7.5-fold year-over-year in June. DuerOS first-party smart devices is experiencing strong sales momentum. Market research firms Canalys and Strategy Analytics ranked Baidu's Xiaodu smart speaker number 1 in shipment in China for the first quarter, which is quite an incredible achievement considering Baidu launched its Xiaodu smart devices only last year, and compared to our peers who have online distribution and hardware management distribution advantages.
Xiaodu smart display, with average selling price of approximately $50 per unit, is becoming a sweet spot for us as it penetrates not only tier 1 and tier 2 cities, but also lower-tier cities in China, becoming an important computing device for affordable internet connectivity. Average time spent on a smart display has reached about two hours a day. Sales volume of smart speaker in China is forecasted to reach over 35 million units this year. Similar to the expected decline in smartphone unit sales in China, making AI-powered smart speakers an indispensable internet channel for content and service providers, especially with mobile internet users and time spent growing, slowing in China. The rise of smart speaker seems to mirror the rise of smartphones a decade ago, when smartphones took over feature phones with the advent of iOS and Android app stores.
This shift was spurred by the change in input modality and the superior experience of mobile apps. Far-field conversational AI is making it easier for users to interact with smart speakers. Xiaodu stands out from the competition with leading speech recognition and natural language processing abilities. For example, recently added full-duplex continuous conversation feature enables continuous dialogue with Xiaodu smart devices without wake words. While Xiaodu intelligently distinguishes between voice queries directed at Xiaodu versus dialogues directed at humans. In July, we announced the development of Baidu Honghu, an energy-efficient AI chipset to power voice interaction in homes and autos to further improve Xiaodu's conversational AI capabilities while driving down unit economics. We are gradually seeing time spent on skills surpassing time spent on music and videos on smart speakers.
This is quite exciting, with the number of skills on DuerOS Skill Store doubling sequentially to over 2,400 and DuerOS developer community growing to about 33,000. Seven car models were recently released with DuerOS-powered infotainment, and 30 car models are in the pipeline, scheduled to be released with DuerOS pre-installed. Turning to Apollo. We are excited that Apollo continues to be the leading autonomous driving solution in China, with over 150 leading OEMs, tier 1 suppliers, key components, and other partners. In June, Apollo's test fleet of over 200 vehicles accumulated more than 2 million tested km across 13 cities.
As of July, Baidu has received almost half of the 204 autonomous driving pilot licenses granted in China. Baidu became the only company in China to receive T4 licenses, the highest level of autonomous driving test license issued by Beijing Municipal Commission of Transport, which permits autonomous vehicles to operate in complex driving conditions, including urban roads, tunnels, school zones, and other scenarios. Also in July, First Automotive Works announced commercial production of level 4 autonomous passenger vehicles to support Apollo-powered robotaxi pilot program, which is scheduled to be deployed in Changsha, the capital city of Hunan Province, along Baidu's V2X solutions later this year. Turning to Baidu Cloud. We continue to see momentum of our cloud business, with revenues reaching RMB 1.6 billion in second quarter, up 92% year-over-year. Baidu Cloud leverages AI capabilities of Baidu Brain to enable enterprises a better way to do business.
For example, Baidu Cloud worked with a hardware manufacturer to integrate Baidu AI capabilities into their screening solution that helps smartphone component OEMs automate the quality assurance process, achieving faster throughput while reducing overhead costs. Baidu AI-powered hardware and software integrated solutions can take a snapshot of a finished smartphone component from 18 angles simultaneously and determine whether the component satisfies the designated QA criteria of the OEM customer. Unlike human screening, Baidu AI-powered QA screening allows OEM customers to access the data of screening results for an added comfort of quality compliance. We are excited about the opportunities of Baidu's computer vision capabilities to help Baidu Cloud enterprise customers in sectors like consumer electronics, metal, auto to improve their business. Turning to iQIYI. iQIYI continued to see solid subscriber growth, with membership reaching 100.5 million in June.
That's up 15% year-over-year, which provides a strong foundation for iQIYI to offer blockbuster original entertainment content. Long-form video content from iQIYI enrich Baidu's search and feed offerings and improve Baidu's user experience. With that, let me turn the call over to Herman to go through our financial highlights.
Thanks, Robin. Hello, everyone. Welcome to Baidu's second quarter 2019 call. All monetary amounts that I'll be discussing are used in RMB, unless stated otherwise. It's now time to review second quarter 2019 financial highlights. Total revenue reached RMB 26.3 billion, up 6% year-over-year, excluding spin-off revenue, and up 9% quarter-over-quarter. Revenue earned by Baidu Core was RMB 19.5 billion, up 3% year-over-year, excluding spin-off revenue, and up 12% quarter-over-quarter. Let me give you more color on Baidu Core revenue. Baidu's marketing services revenue is well-diversified, with the top 12 industry sectors making up two-thirds of Baidu Core revenue. Half of the 12 sectors saw year-over-year sales decline, including healthcare, online gaming, financial services, and auto logistics. Excluding these poor performing sectors, Baidu Core revenues would have grown in the mid-teens year-over-year in the second quarter.
The increase of ad inventory in the market has impacted the overall growth rate of our marketing services, it's fair to say that bigger part of our revenue slowdown can be attributed to Self-directed healthcare initiatives and the softening of macroeconomic conditions. Additionally, revenue derived from Baidu's union partners contributed to a 3% drag on Baidu Core year-over-year revenue growth, which is in sync with our goal to optimize profit on CAC revenues versus bidding for incremental revenue at negative margins. Total margin services customers in the second quarter was approximately 330,000, down 4% year-over-year and up 5% quarter-over-quarter. Please note that this customer number excludes warming customers and other calculation policy adjustments that we have made internally, such as excluding customers with minimal daily spending. Our new AI businesses continue to see flat growth. I'm sorry.
Our new AI businesses continue to see fast growth, particularly Baidu Cloud, which generated RMB 1.6 billion revenues in Q2, up 92% year-over-year. iQIYI revenue reached RMB 7.1 billion, up 15% year-over-year. Membership revenue continues to see strong growth, up 38% year-over-year. iQIYI's ad business was down 15% year-over-year, mainly due to slowing macro, delay of top content launches, and slower-than-expected recovery of food advertising. Turning to cost of sales. Excluding stock compensation and intangible asset amortization, cost of sales was RMB 15.9 billion, up 32% year-over-year. Content, bandwidth, and other cost of revenues increased to support Baidu's traffic growth, greater video consumption and new AI businesses, including bandwidth and depreciation expenses for Baidu Cloud, cost of goods sold related to Xiaodu smart speakers. CAC increased 27% year-over-year as a result of higher CAC revenue here and spending into offline connected screens and other areas.
SG&A expenses excluding stock compensation were RMB 4.7 billion, up 13% year-over-year, primarily due to the increase in channel and promotional marketing, mainly for Baidu family of apps. On a sequential basis, SG&A expenses were down 14% as we scaled back on marketing spending that did not meet our stringent ROI criteria. This has hampered the sequential growth of our apps, including Haokan Video and streaming flash video. We plan to continue to manage our marketing dollars with a strong, disciplined ROI approach. R&D expenses excluding stock compensation were RMB 3.7 billion, up 13% year-over-year, primarily due to increased personnel-related expenses and up 5% on a sequential basis. Non-GAAP operating income was RMB 2 billion and non-GAAP operating margin was 7% compared to 2% last quarter. Non-GAAP operating income for Baidu Core was RMB 3.5 billion or $508 million, down 55% year-over-year and up 65% quarter-over-quarter.
On a non-GAAP basis, total expenditure for Baidu Core were approximately RMB 700 million sequentially, less than RMB 1 billion that we had planned at the beginning of the year. Since our last earnings call, we have been reviewing our businesses for operational efficiencies and have made significant progress in implementing spending discipline while making investments in future revenue growth in our three-year plan. Non-GAAP operating margin for Baidu Core was 18% in the second quarter compared to 12% last quarter. We expect Baidu Core's incremental revenue growth to have higher margins and non-GAAP operating margin to rise above 20% in the third quarter. As an internet platform, a big part of Baidu Core's cost structure is fixed, such as approximately 2,000 scientists and engineers at Baidu's AI labs and our large server network and other infrastructure equipment. The expected growth of our revenues will likely bring about higher margins.
Total other income was RMB 1.2 billion, which included equity method income of RMB 429 million compared to equity method loss of RMB 360 million last quarter. Income tax was RMB 416 million, an effective tax rate of 28% compared to 18% in Q2 last year, primarily due to the lower pre-tax income generated from Baidu Core and through IG not being able to recognize tax benefits from its losses in the current period. Non-GAAP net income attributed to Baidu was RMB 3.6 billion and non-GAAP net margin was 14%. Non-GAAP net income attributed to Baidu Core was RMB 4.7 billion or $690 million, down 46% year-over-year and up 150% quarter-over-quarter. Non-GAAP net margin for Baidu Core was 24% compared to 10% last quarter. Adjusted EBITDA was RMB 3.4 billion or $505 million. Adjusted EBITDA margin was 13%.
Adjusted EBITDA for Baidu Core was RMB 4.8 billion or $694 million USD, and Adjusted EBITDA margin for Baidu Core was 24% in the second quarter compared to 19% last quarter. As of June 2019, cash and short-term investments was RMB 137.3 billion, or $20 billion US. Excluding iQIYI, cash and short-term investments for Baidu Core was RMB 120.9 billion, or $17.6 billion US. Free cash flow was RMB 5.6 billion, and free cash flow for Baidu Core was RMB 4.9 billion, or $710 million US. Total employees at Baidu Core was approximately 29,900. Turning to third quarter guidance. We expect total revenue to be between RMB 26.9 billion and RMB 28.5 billion, representing a decrease of 5% to an increase of 1% year-over-year, or a decrease of 1% to 5% increase year-over-year, excluding spin-off revenues of RMB 1 billion for the third quarter of 2019.
This also means a 2%-8% on a quarter-over-quarter basis. Excluding spin-off revenues, our guidance assumes Baidu Core will grow between -3%-8% year-over-year, and between 2%-9% quarter-over-quarter. These forecasts are current and preliminary views and are subject to change. Before I turn the call over to the operator, let me summarize Baidu's second quarter. We have made strong progress with our Search and Feed business. Traffic growth remains robust for Baidu apps daily use, with double-digit growth in in-app searches and continued robust growth on daily time spent. User experience is significantly upgraded with content and services providers offering native app-like experience on Baidu's Mobile Platforms. Our emphasis on improving Search and Feed monetization is in progress. We witnessed double-digit sequential revenue growth in the second quarter and expect further sequential growth into the third quarter.
Our focus is to diversify away from past traffic and grow search revenues through in-app Search and Feed. It's proving to be a dominant search model, as in-app services allow us to gain more user insights across vast domains of knowledge, content, and services, and continuously improve on user engagement for both Baidu and our marketing services customers. We are making significant strides in the area of voice assistant, Baidu Cloud, and smart transportation, which will be critical revenue drivers as we look out one to three years. On the content management side, we will be diligent on reining in our expenditures with 50% ROI implementation, while balancing the need for near-term and long-term revenue growth. iQIYI is weathering the challenging macro environment with strong membership growth and diversification of its revenue streams. Operators, with that, the call is open to questions.
The question and answer session of this conference call will start in a moment. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, please request to join the question queue again after your first question has been addressed. Your first question comes from the line of Gregory Zhao from Barclays. You may ask your question.
Hi, Robin. Thanks a lot. Thanks for taking my question. If you exclude iQIYI, recently Baidu's actually, I know that also the content cost growth has been substantial down during the quarter. It's a very big contrast to your investment during the Chinese New Year around Q1. Just wanted to understand your marketing and the promotional strategies for your product portfolio, like the short video and also the mobile Baidu App, and also the content cost trend in the rest of the year. Thank you.
Thanks, Greg, for the question. As we mentioned on the prepared remarks, our estimates, mainly our marketing expenses, are very ROI-driven. When we are doing this panel cost and other marketing programs, we are looking at the lifetime value that we can get from it. When the economy is good and we think that this will generate more revenue, compared to the cost that we're incurring, then we'll spend more money. Because we're transitioning from a TAC model to a in-app services model, TAC, we get revenue in the quarter that we spent, but in the panel cost and marketing program, in-app services, we're spending expense in that one quarter, and we might be deriving revenue from the users in the quarters after that. There's a lag. Even with that, we are very disciplined and calculated on ROI.
You see us spending more after spending more than Q1 when we see higher ROIs. With current macro conditions and some of the issues that we talked about in prepared remarks, the ROI has come down, and as a result, we've been very diligent in trimming out the marketing cost that has a low ROI. We'll be looking at that continuously, very closely as we move forward for the remainder of the year. With regards to our content cost, I think it's been growing on a year-over-year basis. Recognize that Baidu Core content cost is not that significant. For example, in the second quarter, we're talking about maybe half a billion RMB per quarter.
Although the increase is significant on a percentage basis, but the total cost was just not happening. When we're increasing user engagement, because the base is very small, I don't think it's going to have a significant impact on overall expenditures.
Thank you.
Your next question comes from the line of Alicia Yap from Citigroup. Your line is open.
Hi. Thank you. Good morning, Robin, Herman, Sam, thanks for taking my questions. My questions is related to the mini programs. With increasing applications and services tapping into Baidu mini program ecosystem, I think management also commented on some positive developments on the progress and traction earlier. How should we think about the traction of these mini programs to translate into monetization upside over time? Any update on the upcoming rollout of the CRM initiative? Thank you.
Alicia, I'll have Dou answer your question.
Thanks for your question. As we just said, Smart Mini Programs have attracted a lot of attention from the developers. We see the benefit of the Smart Mini Program already, like for the users, the better Smart Mini Program offers them richer content and service selection. For developers, the Smart Mini Programs use our AI-powered algorithms to clean the massive content at the Smart Mini Program and recommend the relevant content and service to the users based on their proactive search for information and service. This Smart Mini Program already helps the developers to acquire users and in turn to enhance better user experience on the Baidu platform. Actually, as you may already have seen, Baidu Smart Mini Program has attracted some well-known apps like Weibo, Meituan, Jingdong, as well as services with lower frequency of usage, like the Shanghai Auto Show.
That's why we also have our customers from different industry sectors. We have tried the Baidu Smart Mini Programs as their landing page for their campaigns. We see pretty significant ROI lift for all those who try these Baidu Smart Mini Programs. Actually, the Baidu Smart Mini Programs also offer our customers and the developers much more options to engage the users in their service. With that, we find the ROI would be further improved. That is how we are going to see how Baidu Smart Mini Programs is going to help us to strengthen our monetization capabilities actually. As to CRM, I believe this is a start, and because we gathered that most of our customers, they have the leads generated from Baidu platform.
Combined with CRM, we have more ways to help the customers to engage with their users better, and to explore the leads in a better way to improve the effectiveness and also clearly improve the ROI. That's why we are using the CRM to help the campaigns on our platform first, and then the next level, we're going to provide more valuable features to the customers to further explore the potential of the CRM.
Thank you.
Let me add a point. For the Baidu Smart Mini Programs, I think from a service provider, there's a couple points that key for them. First is, as the number of smartphones in China itself is declining, and we saw that last year, we saw that first half of this year, it costs more and more to actually leverage App stores in order to have an installation of their app. The economics is much better than App stores because App stores you have to spend the channel cost and you're not sure if you're going to get the ROI. Whereas Baidu Smart Mini Programs, because we're in the business of search, these are natural results to be influenced. Rather than searching this and directing the traffic over to your app, you have to first take a channel app.
There's usually more steps, for example, to convert a sale from our Smart Mini Programs to within an app versus if you're native on Baidu's platform and can move it directly to that buy page on the Smart Mini Program. I think first of all, you're able to see that result right away. You don't need the user to download the app. Secondly, I think what the cases that Zhou had explained would help drive up conversion. Obviously, with a better conversion, marketing customers are usually focused on better conversion, looking at ROI. With better conversion, we believe over time, more people developing Smart Mini Programs so that when they have better search results, you have better conversion.
I think from a user perspective, you'll probably have users over time rely more and more on searching within Baidu because of that native app experience directly with the mini program.
Thank you.
Your next question comes from the line of John Ho from KeyBanc Capital. You may ask your question.
Robin, Herman, and Juan Lin. The question is related to the Baidu's efforts in content building. As you guys aggressively developing speech business, you guys also need to build a very healthy content. In addition to your Baijiahao content team so far, recently, we saw from the news you acquired some stakes in Zhihu, and also, I think yesterday, you put money in the Guokr. I wonder Zhihu and Guokr, in which way they help you in the content ecosystem building and also in the going forward, what are some other content area you see you need to continue to build up? Is there any other potential content investment on the horizon? That's the question.
This is Joe, actually. Let me answer this question first. For sure, the content is extremely important for our whole business. As we already shown you in the past, for the Baijiahao, so we see the creators on Baijiahao grow significantly over year-over-year, reaching like 2.2 million creators already. That is truly not enough for us because users come to Baidu for not only information, but also service. That's why we're just discussing how we are launching the Smart Mini Programs to provide further information and service, which we see significant growth as well. In addition to both Baijiahao and the Smart Mini Programs, we also are working with even wider collaborators to providing those valuable information. As you have noticed, we invest in Zhihu, with that Zhihu providing additional information, complementary information to Baidu's Zhidao.
We see our users interest in our search queries. They have strong interest in reading content. That's why we invested in those. Along with that, we are trying to looking for and trying to pick for more and more content which can better fit our users' interest. In short, to sum up, we will keep looking for the better content. As we know, the content is extremely important for the whole business today. We are developing our own platform to generate content. We are looking for partners to get more useful information and service as well. Since Ken let me to give the answer, I will comment.
I think our content strategy is pretty much to adopt the overall user experience to the new mobile ecosystem, meaning that we will make or strike partnerships or investment if that deal can help us to improve the user experience. The content may be available on the open web or on the PC internet, but if we can have a deal that enhances the mobile user experience with that kind of content, we will do it. If that kind of content is not available on the open web or not available on the PC internet, if we can acquire that content, we will also do it. Basically, the content strategy is to either make the experiences better or make something that was not available to become available to our internet users. I'll just add one more thing on that.
As Robin just mentioned, that we're looking for better user experience. Actually, when we link Baidu Zhidao and Baidu Knows to the Smart Mini Programs in our platform, we see significant user 10 times growth actually. For Zhihu, now most of the content are presented in the form of a H5. With this deal, so we're going to convert all the Zhihu content in Baidu's platform to Smart Mini Programs, and this will be another good example to show how we are going to improve the user experience through the Smart Mini Programs actually. Just to add, John, you asked which area we would be interested in. When you look at our content, Baidu as a whole, there's really two categories of our content. We're looking at a content that's knowledge-based, in this case, Zhihu or in case of Baidu Knows, that would be one.
We're looking at, for example, the vast amount of services and information that are in apps today and making that basically having a mobile app experience. Services is very important. Thirdly, we're looking at industry verticals where right now it is fragmented on the internet, if we can concentrate it within Baidu's content platform so that they have better conversion, so that they can build user engagement and have better user experiences. Three areas, knowledge, services, and industry vertical information.
It's very helpful. Thank you, guys.
Your next question comes from the line of Eddie Leung from Bank of America Merrill Lynch. You may ask your question.
Good morning, guys. Could you share with us your thoughts on the recent news of potential new entrants? Are you going to see any difference this time? Just a quick follow-up on Herman's comments on some of the advertising industries. Given the recent business in some of the verticals, could you remind us what the top, for example, three or five verticals we have right now? Thanks.
I'll answer your first question, and then Herman will answer the second one.
Okay. For the new players, it's not new, actually. Search business is a pretty profitable business, as we all know. We have players trying to enter into this business in the past decades. Actually, search still has a very high entering barrier, actually, because users come to a search engine with a very specific information need. We need to locate the information out of hundreds of billions of web pages to get the information located. This is quite different from other business like food, because for food, we usually just show general interest, and then the engines to match the user's general interest. It's not easy to tell right or wrong. For search, a user has a very strict demand and strict criteria to judge the performance.
That's why we see, for us, and I know we are actually the only one successful training engine model with both search and feed so far in the world. In our experience, we see it is relatively easy to switch from search to feed because we can generalize the user interest out of the queries, but not the other way. We're not surprised to see new players in this market, and we have seen this many times. That's why we're happy to see new players. With the Baidu and the Smart Mini Programs, we are strengthening our mobile ecosystem, and we see we are providing very good experience to the users at this point.
Yeah. Eddie, with regards to our top healthcare, as you guys know, is a top interest. The other industries are much smaller. Two-thirds of industries are all less than 1% of the total revenue, and those that include industries such as finance and education.
Thank you.
Your next question comes from the line of James Lee. That's from UBS Securities. You may ask your question.
Great. Thanks for taking my questions here. Two, if I may. First, Robin, you can talk about, you sound pretty excited about the cross-cycle dual operating system and voice search going to next year. Maybe you can help us understand the roadmap in terms of commercial roadmap going to 2020, maybe help us understand what verticals that you weren't able to monetize on text search now you're able to monetize in voice, also what verticals that you could optimize potentially with voice search over text search. Also second question on Herman, on 4Q, revenue growth, is that going to be similar to your guidance in 3Q? Also in operating expenses, because you're stepping up about RMB 400 million in games and total expenses in 3Q. We expect very similar expense in 4Q as well. Thanks.
On the DuerOS, it's a whole new ecosystem. It's fully leveraged by those investments in search and in AI technologies for the past many, many years, and we are offering a better and better user experience. It does lower this barrier to entry significantly. I talked about it during the prepared remarks that we are entering lower cities with more affordable devices. We are also able to accessing people at very young age or very old age, because it's just a lot easier to use. We see strong momentum continue to grow into the time for maybe the coming years. Talking about the potential based on the big successes, right now it's in an very early stage. We are seriously trying to monetize this product, we see a huge potential in many fronts.
For example, in education, it's very natural for kids to learn things through the kind of new devices. Games, it can offer a very different experience than mobile games, because for mobile, you have to hold your handset, but therefore for the smart display, your hands are free, and we have cameras can capture users' behavior intelligently. There are many possible biz models, including the app model, including the subscription model for all kinds of content and services. This is a whole new era for entertainment, for education, and for the smart life of many people who may not spend a lot of time with mobile phones.
James, the question you asked about revenue and expenses. We typically do not give guidance out two quarters. With the current macro situation, it's hard to predict what's going to happen in two quarters. I would use a reference, for example, if you look at last year, Q2 to Q4 had very minimal sequential growth. If the economy keeps pace and so forth, we will probably have similar trends, but I can't comment at this point given that we don't have as much visibility in current macro situation. When we set our expenditures for the second half, we're cognizant of the current revenue situation and the economic condition. From an expenditure perspective, in terms of total expenditures for Baidu Core, cost of sales plus operating expenses, we're going to try to keep pace with our total expenditures for Q2.
We cannot see too significant increase from the second quarter level. Mind you that this would adjust if, for example, our revenue, for example, improves significantly and so forth. That's our current thinking right now.
Right. Thank you.
The next question comes from the line of Natalie Wu from CICC. You may ask your question.
Hi, good morning. Thanks for taking my question. I have a question regarding your CRM open platform. How do we understand the related financial impact in near term and longer term? What kind of incentives are you going to provide to attract developers to your platform? If I may, I am still curious about the Smart Mini Programs. Just wondering what kind of sectors are the most frequent users for your Smart Mini Programs administrators. Do you observe the change of ad budget on your platform of those frequent Smart Mini Program users? It would appreciated if management can elaborate more on the difference you have observed among different sectors for the Mini Program users. Thank you.
Natalie, on the financial impact of CRM, we currently try to do and integrate with the solution for our clients and customers. They already spend a lot of money to try to acquire potential customers for their products and services, and we help them to better manage this process and achieve better conversion. We think longer term, this CRM offering will be able to provide independent product value, and we will be able to charge a significant amount of money for this. To do this, we'd like to help our advertisers and customers to think in a more holistic way. They usually acquire traffic from the Baidu channel, and we help them to better manage the traffic or better manage the users, and that helps them to improve the overall efficiency of their whole marketing funnel. That's the difference between our CRM and the independent CRM products.
Dou, can you talk about.
Okay. For the Smart Mini Programs, let me take on a few new things. Actually, the users, as I already said, for the users who come to Baidu, not only for information but also for service. With Smart Mini Programs, we provide both information and service to the users. That's why we're seeing a growth for Smart Mini Programs in quite a few different verticals.
Right, including the travel, real estate, education, and all that stuff. say for weibo , right? In general, we can do provide information to users. For this type of a Smart Mini Program, we see usage of them has a few millions of users. Daily active users, actually, in Baidu's platform, their Smart Mini Program. The Smart Mini Program is very valuable to developers with launch information and data as users are constantly just really looking for some launch information and data. New users, because the users come here for actually to identify or locate some information. For this type of business, they're also good players for the Smart Mini Programs. We see more customers adopting Smart Mini Programs as their landing page. We see examples from travel-like services, from real estate, from education, like , right?
All of those customers, we do see their performance, project performance are getting better through different traffics. These are just some examples we see, and we are expanding the coverage of the landing pages through Smart Mini Programs. Down the road, maybe we can see more good examples into sharing with the community.
Thanks.
Your next question comes from the line of Jerry Yong from UBS. You may ask your question. Mr. Jerry Yong, you may ask your question.
Hey, sorry about that. Put myself on mute. Apologies again. Just on the Mini Programs again, wanted to go back into the healthcare vertical, where we are on bringing everyone up to speed. At the same time, you were also talking about moving more of the other verticals into the Mini Program. On the traction of that. That's my first question. We'll start there. We'll stop there. I'll follow up with the second question. Thanks.
Okay. Thanks for the question. Actually, as we mentioned in the remarks, right? Smart Mini Programs and the Managed Pages are two formats we are using for the landing pages. For the marketing customers, you do not have to specifically use Smart Mini Programs, but you can use it in a lighter version, Managed Pages. As for the healthcare vertical or industry, as Robin has already mentioned, all the marketing customers, we have moved from H5 to Managed Pages. In this way, we can not only guarantee the quality of the content and the information, correctness for the landing page, we can also help the marketing customers to engage in a better way with their users. You can put Smart Mini Programs as another way or a relatively heavy way with even stronger capabilities to guarantee the engagement.
That's why for all the services which we may know are relatively complicated interactions to prove to users in use and so on. For those types of business, Smart Mini Programs are a better way to do this. Down the road, to guarantee the quality of the landing page, as well as the correctness of the information, we will strongly recommend the marketing customers to use either Managed Pages or Smart Mini Programs. In the meanwhile, since we see most of the cases, if not all, using Smart Mini Programs or Managed Pages, the customers already see the lift in their ROI. We believe they will then stay sweet even by themselves. I think that's what I can offer now. Yeah. Okay.
Great.
Yeah.
Go ahead.
Yeah. In terms of sector in addition to healthcare, we are also making the moving companies, home repair, attorneys, they are all using Managed Pages these days.
Got it. One just follow up. I remember just the last time you guys had a healthcare clean up in, like, in 2015, there was a little bit of a drop-off in terms of the number of advertisers not being able to qualify. You said in this time around that a lot of the marketers have moved over. Have you seen the overall TAM, or actually the number of advertisers be able to drop off this time as well? Are you seeing that some of these advertisers are not able to qualify, and is that anything material?
Jerry, your question is, are we seeing the number of healthcare marketing services customers drop off?
Yeah. That's right. Being not able to qualify or not able to make the transition, because I think that happened a little bit in 2015, correct?
Yeah. When you look at the number of customers from the healthcare sector, we see them started to drop off at the beginning of the year, and we've seen that consistently into Q2. As Robin mentioned earlier, because once they use Managed Pages, we're able to screen the content using our AI. We're installing, for example, live call capabilities and messaging capabilities. We use our AI to also screen the communication with users to make sure that they're providing content and information that's more secure and more trustworthy. As a result of that, it's a filtering system for the lower quality healthcare providers. Those are probably going to go elsewhere, probably going to drive revenue for other people. For us, we're basically turning away the lower quality customers in healthcare.
Got it. Great. Thanks so much.
Your next question comes from the line of Piyush Mubayi from Goldman Sachs. You may ask your question.
Thank you for the additional color on traffic growth rates in the second quarter. I wonder if you could just take us through what you think are the drivers of the acceleration in that number from the first quarter. Could we expect that to potentially continue, at least based on the July and August data that we've seen currently? My second question is, I know you've talked about the medical vertical quite a bit, but can I ask what the number would have been or the growth rate would have been for the Baidu Core if you excluded the medical vertical? Also on medical, could you talk about what % of traffic is on your Managed Pages and what the initial feedback is? Thank you.
Can you answer the traffic question first?
Actually, I think we have touched this question previously. The user acquisition efficiency is getting higher and higher actually. As Robin just mentioned, we are spending the marketing budget in a smarter way to see more about ROI. That's why nowadays, when we look at the new users we acquire, their lifetime spend on Baidu is growing at pretty significant increase actually. Also because of the content quality and also the service provided by Smart Mini Programs, we can see even super engagement between the users and our service. All that together, that's why we can explain the traffic is growing significantly. For sure, summer is also a good time for traffic in general. That's another reason we see the growth.
In general, I'd say with the better content that we just mentioned, run by the Smart Mini Programs and also the strong collaboration with the partners to provide better content and service, we can see the engagement between users and the platform is generally increasing.
Okay. With regards to the questions on the numbers, a few verticals that helped us grow sequentially are retail and e-commerce. Education, travel did very well, too. Service-related industries. These are some of the highlights for second quarter. With regards to healthcare revenue, we're seeing double-digit declines in healthcare revenue. When you look at the second quarter as a percentage of total Baidu Core revenues, we're talking about less than one-seventh of our revenue. That has declined pretty significantly when we look at it from last year. I think for the long term, it's better for us because we're now having a better way to ensure better quality of the content, both looking at the landing page and also monitoring the kind of communication between the merchants with the users.
We are now approaching the end of the conference call. Thank you for your participation in today's conference. You may now disconnect. Good day.