Baidu Is Building Its Mobile Strategy But Says Don’t Discount PC Yet

Baidu shares have fallen 18% over the last quarter as investors worry that the search giant won’t be able to monetize its mobile business quickly enough to outpace domestic competitors like Qihoo 360 and Tencent Holdings. But Baidu, known as China’s Google, is confident that it will be able to remake itself as a platform provider for both mobile and PC.

Though it may be a couple years until Baidu can close the monetization gap with mobile, the company’s director of international communications, Kaiser Kuo, said the company is on target to reach its goal of having Baidu’s new browser installed in 80 percent of Android smartphones in China by the end of this year. China is currently the world’s largest smartphone market and, like Google, Baidu has been building up its mobile assets to maintain its position. The company announced last Tuesday that it is raising $1.5 billion in a two-part bond sale to write down debt and build its war chest. Part of the proceeds from the sale will be used for acquisitions both in China and abroad.

Baidu is currently pouring 25% of its research and development budget into mobile and cloud computing (it has announced plans to invest US$1.6 billion in a new cloud-computing center). It now counts over 100,000 developers in its mobile ecosystem.

The goal is to build a smartphone ecosystem that will allow users to “seamlessly migrate from PC to mobile,” said Kuo.

The company’s open data platform, Project Aladdin, launched in December 2008, supports developers providing structured data, including sports scores, travel schedules and currency conversions. For Baidu’s PC users, “the chances of having some kind of resource delivered to you in a Chinese-language search result from a third-party developer is about 70%, some kind of Aladdin-driven result,” said Kuo.

Project Aladdin’s objective, he added, is “at the heart of what we are doing in mobile. We believe that in the future, search will come to supplant operating systems today.”

Perks offered to domestic and international mobile app developers by Baidu include free access to Baidu’s API, search products, location-based services, cloud storage that can be passed down to their users and a mobile test center.

But while investors are currently focused on Baidu’s mobile business, Kuo said they are making a mistake by discounting PC-based search.

“There has been a lot of reporting that we’re only looking at mobile things and that’s just not true,” he said. “We want to be at different points of access. We will be interested in any M&A activity that helps drive Baidu dominance at various access points to the Internet.”

“Our bread-and-butter is small and medium enterprises. It’s still shy of 300,000 paying customers in a typical quarter,” he added. “There are something like 40 million small and medium enterprises in China, so in a quarter we are touching less than one percent of them and there is still a lot of room to build our customer base.”

Though much recent analysis and reporting of Baidu pits it against Qihoo 360, an antivirus software company that launched its own search engine in August, the company refused to comment on its rival.

“All I can said is as with any competition, we are not sitting on our hands,” said Kuo.

He added that Baidu is confident that it will shape China’s emerging Android app market.

“It’s a different environment, but I think it’s similar enough that we can adopt a lot of the best practices in more developed markets and we are very actively studying how other companies have done this,” Kuo said. “We are pretty good at figuring out the idiosyncrasies and bizarre topography of the Chinese Internet landscape.”