Can Augmented Reality Be The Next Growth Driver For Baidu?

As its search business reels under pressure from new regulations, impacting revenues negatively, Baidu (NASDAQ:BIDU) is working to take the user experience of its mobile apps to the next level of delight. The company recently unveiled an AR (augmented reality) platform called DuSee that will allow China’s mobile users to test smartphone augmented reality on their existing devices.  The company also plans to integrate this technology directly into its flagship apps, including the Mobile Baidu Search app and Baidu maps. As per our estimates, “Search Services” accounts for nearly 75% of Baidu’s valuation.  And while Baidu has a significant share in the Chinese search engine market, AR technology to improve user experience significantly and make it more immersive can ensure that this share is retained and grows over the long term.

See our complete analysis of Baidu here

Integrating The Technology With Baidu’s Apps Can Be A Game Changer

Baidu’s AR platform does not require any additional headset to experience the technology. Dusee makes use of the smartphone’s single camera , using computer vision software to detect and interpret what it sees in order to add a layer of extra information for the user. While this technology is not as advanced as Google’s Tango, it has the ability to bring AR to millions of users who are already using Baidu’s mobile apps. Integrating the AR experience with Baidu’s apps can change the way consumers use these apps, paving a new way for advertisers to reach their audiences thus providing Baidu with a huge competitive edge.

We estimate Search Services to be the most valuable segment for Baidu, accounting for more than 75% of its valuation. Search services revenue per user and monthly active Baidu users are the two key drivers for this segment and we expect both these numbers to increase steadily over our forecast period.

As Baidu looks to improve user experience through augmented reality, the immersive experience should attract more advertisers to its platform, in our view, especially since Baidu’s technology does not require use of any additional devices to view the content. A better viewing experience on its apps can also attract more users, thus impacting both revenue and user growth positively. Other players in China are also looking to bank on this technology for growth. Recently, Chinese e-commerce giant Alibaba launched Buy+, a virtual reality based shopping experience on its Taobao e-commerce platform. However, Baidu’s DuSee is seen as the first mature AR product in China, giving the company an advantage over other players. While China still waits for an AR revolution, Baidu’s strategy to use smartphone’s apps instead of additional hardware to support this technology can lead to a faster expansion of AR in the region.  We believe Baidu’s innovation is its strength and as the company looks at newer growth opportunities, AR can provide the necessary boost to its business in the long term.

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