Weekly Chinese Internet Note: Three Challenges Faced By Baidu
In our Chinese Internet note this week, we take a look at three challenges facing Baidu (NASDAQ:BIDU). Baidu is facing stiff competition from other large Chinese Internet companies in attracting developers to its platform. Its travel website Qunar has been asked to pay fines to rival eLong over the breach of a business contract, while the founder of another Chinese software company has lashed out against it, alleging unfair business practices by Baidu.
We have a price estimate of $211 for Baidu, about 7% less than the market price of $228.
See our complete analysis of Baidu here
Market For Developers Is Heating Up
The war between Baidu, Alibaba (NYSE:BABA) and Tencent (HKG: 0700) for outside software developers is becoming more intense. After going on acquisition sprees to round up talent, these companies are now looking to lure freelancers into their fold. Baidu intends to spend 7 billion yuan on outside developers for their help in increasing monetization of its mobile platform. Alibaba arranged a conference that gathered more than 7000 developers, and also announced a broader opening up of its own platform to facilitate developer involvement.
For Baidu, app developers play an important role in routing traffic to its advertising customers’ websites. Through its service Baidu Union, the company provides customers the flexibility to channel their advertisements to apps and websites that are classified by categories. So a company targeting one category of customers can opt to buy services that channel their ads only to a matching category of apps. By displaying ads of Baidu’s customers on their apps, the developers help drive user traffic to the Baidu customer’s site. To facilitate the increase in the number of developers participating in the Baidu Union program, the company is providing them with services such as loans. Baidu is also aiming to make improvements to its platform using big data tools and other technological innovations, to make it more appealing to developers. [1]
Travel Arm Gets A Slap On The Wrist
Qunar, the online travel portal of Baidu, was asked to pay Expedia (NYSE:EXPE) owned eLong $8.5 million for the breach of a business agreement. Further, if Qunar fails to reach the hotel room target of 450,000 PRC domestic hotel room nights per quarter to be channeled to eLong as per the original agreement, it must pay Qunar RMB 27 per room night. In what is probably a silver lining for Qunar in all of this, the court asked eLong to pay it $1.3 million in commissions due. Both companies have been given a window of 15 days within which they can appeal the verdict. [2] We estimate that Qunar constitutes 1% of Baidu’s value.
Rival Lashes Out Against Baidu
The founder of Qihoo 360 (NYSE: QIHU), Zhou Hongyi, took to the Internet with some harsh criticism leveled at Baidu’s business practices. Zhou alleged that Baidu used its search engine to lead users to its security software,. He also claimed that this software is nearly impossible to uninstall. In an earlier article we wrote on the revenue potential of Baidu’s security software, which is currently distributed for free (See Market Potential For Baidu’s Software). Qihoo has also faced allegations of similar opaque business practices, especially of using its antivirus to install other apps and software without the permission of users. [3]
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