Weekly Chinese Internet Notes: Baidu’s Latest Moves
In our Chinese Internet note this week we take a look at online search giant Baidu‘s (NASDAQ: BIDU) latest moves. Baidu announced a research breakthrough in voice-based search that improves accuracy in transcription. It also confirmed its investment in Uber. Additionally, it partnered with Nokia to obtain access to Nokia’s Here maps for Baidu users when they travel outside China.
We have a price estimate of $211 for Baidu’s stock, compared to a market price of $232. Our estimate for Baidu’s revenue in 2014 is $7.7 billion, slightly lower than the consensus estimate of $7.9 billion.
Research Breakthrough Improves Transcription Accuracy
We estimate that over two-thirds of Baidu’s value comes from search advertising. Within the domain of online search, there has been a significant shift from text-based search to voice-based search. This is especially true in China, where many some time users of low-cost smart phones are illiterate. Improving the accuracy of voice based search can therefore enhance the user base as well as the searches per user for Baidu among such consumers. [1]
In a development that takes Baidu one step closer to enhancing the voice search experience, its research team has unveiled a more accurate transcription software. Accurate transcription of voice input is an important first step in searching for relevant data on the web. Often, noise from surroundings makes it difficult for the software to correctly interpret what the user is saying. Baidu has leveraged its competency in deep learning to simplify the earlier method of identifying words spoken by users in noisy surroundings. This gave the system an accuracy of 81% in various simulated loud environments such as restaurants. This was a marked improvement over the systems of other leading search players such as Google and Microsoft. The accuracy of these rival systems was at most 65%. [2]
Baidu Users Can Now Use Nokia’s Maps Service When Abroad
Baidu has partnered with Nokia to use its Here mapping services on its maps apps for desktop and mobile. To start with, the facility will be available to tourists visiting Taiwan. It will be later extended to other international locations. [3] International travel has picked up in a big way in China, following its rapid economic growth. It is forecast that 116 million Chinese tourists will travel abroad in 2014. Collectively, they will spend about $155 billion, although most of this spending will be on luxury goods to take home. Lodging fees and restaurant meals are also an important part of this spending. [4] This gives Baidu an opportunity to offer advertising services to the providers of such goods and services. Thus, having a larger user base that actively uses its apps during international travel can enhance advertising revenues for Baidu.
There is also the possibility that Baidu may shift its map data sourcing to Nokia within mainland China as well. Baidu currently uses Alibaba (NYSE: BABA) owned Autonavi’s maps within China. The competition between Baidu and Alibaba in all aspects of Online-to-Offline (O2O) commerce is intense. ((Baidu To Take On Alibaba)) This creates the need for Baidu to seek out alternate map data service providers for its maps service within China.
Investment In Uber Confirmed
Baidu confirmed its investment in ride sharing company Uber this week. Some analysts have pegged the size of this investment at between $200-250 million. [5] Others have suggested it could be as high as $600 million. [6] Uber’s valuation was most recently estimated at over $40 billion.
Although it does business in 50 countries, Uber’s business model has come under scrutiny lately. Various taxi driver’s organizations have protested Uber’s impact on their business. They have secured bans on Uber in various countries. [7] Uber’s security has also come under scrutiny after reports came out of users having been attacked by drivers.
This new investment also pits Baidu squarely in the path of rival Alibaba. Alibaba’s Kuaidi ride sharing app has 150 million users spread across 350 cities. [8] Also competing for a larger share of the ride-sharing market is Tencent backed Didi Dache, which raised $700 million last week. [9] Baidu is expected to leverage its user base and competency in online search to facilitate the growth of Uber in China as a rival to these services. [10]
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Notes:
- Baidu’s Ng On Deep Learning [↩]
- Baidu Claims Breakthrough With Deep Search [↩]
- Baidu Partners With Nokia [↩]
- China’s Legions Of Tourists [↩]
- Uber Cleans Up Under Shower Of Cash From Baidu [↩]
- Baidu Confirms Investment In Uber [↩]
- Paris Bans Uber [↩]
- China Ride Sharing [↩]
- Didi Dache Raises $700 Million [↩]
- Will Baidu Help Uber Conquer China [↩]