BAT Mobile Strategy Analysis 1 — Baidu
Baidu’s Mobile Product Strategy
BAT- Baidu, Alibaba, and Tencent, are top 3 internet companies in China. They are so big and powerful that they overshadow almost all other companies in China, including those multi-nation companies .
In this 3-part series , we will analyze BAT’s mobile strategies and see how they stack up against each other.
Overview of Baidu’s Business
Baidu, a $5.3 B revenue company, competes in almost every aspect of internet business in China. It’s business grows very fast: an average 66% Y-Y growth rate! And it’s also highly profitable: 35% of profit margin!
At the core, however, Baidu is still a Chinese search company. 99.6% of revenue comes from China, and 99.5% of revenue comes from “Online Marketing Services”, and most of that is from “pay for performance”.
In Q3 2014, Baidu’s mobile traffic surpassed PC traffic. At the same time, Revenue from mobile business grows fast. The amazing thing about Baidu is that mobile business doesn’t cannibalize PC business. Both business grow very well.
PC and Mobile Revenue from the past quarters
If the trend goes on, we will see revenue and profits from mobile surpass those of PC business in the near future.
As a result, it’s important to visit the mobile strategy for Baidu.
Baidu thinks its business opportunities in 5 strategic areas: search, mobile and cloud, location based service, consumer product and international operation.
The reason to grow business out of search and China is very simple: Search contribute 99.5% of total revenue, and China market accounts for 99.6% revenue. It is well penetrated. To grow the business, Baidu must expand to other markets, and to other business.
But to understand the other strategic focus areas, we need to examine current product lines.
I list all of Baidu’s current product portfolio. It is organized into 7 product lines: Search, SNS, UGC, LBS, Entertainment, Security, and Mobile.
Among all these products, basically only search makes money. The other products contribute traffic. The two biggest traffic drivers are Baidu Map and 91 wireless + mobile assitant. Each of three star products( search, map and mobile distribution) has more than 100m DAUs, far more than other products. So the question is: what do you do with those 100m DAUs?
How can you make users search Baidu on mobile devices? You might need a search app, or a browser, or a launcher, so that you can control the entry to mobile internet.
What they search on mobile? Do users search restaurant, movie theater, transportation? You might need a vertical search product, such as traveling, daily deal app etc.
How do users conduct mobile search? Do they search through text or voice? Do they search on the go or search in some places? Do they search on tablet, phone, or TV, or watch? You might need voice speed recognition technology, smart devices.
How do users do Maps? How location service can help users solve their problems? You might need a yelp-like app, a uber-like app, or a tripadvisor app, etc.
How do you distribution apps and games more effectively? How do you help developers promote their apps or games? You might need in-app search technology, mobile ads network, DSP, etc.
How can developers more effectively develop apps or games on your platform? How do you demonstrate your platform’s value to developers? You might need some back-end systems to support developers. An app engine, a cloud-based development environment, a location based service to serve app developers.
Through these lens, we find that mobile completely shifts the internet ecosystem from PC to mobile. To build a mobile business, serveal things are very important:
search: how do you organize information on mobile? how do you adpat your search to other types of mobile devices?
back-end infrastructure: do you have enough resource to support thousands of millions mobile users?
location-based service: can you provide on-the-go service and experience to users?
distribution: how do you distribute content to users?
traffic: in the long run, will you have enough mobile traffic?
Now it’s easy to understand why Baidu puts search, mobile and cloud, location based service, consumer product and international operation as top priorities.
Let’s dive deep to take a look at the three star products within the whole portfolio.
Mobile search / 91 wireless + Mobile assistant: These products have a monopoly in the market.
Mobile Search: 80% of market share in China
91 wirelss + mobile assistant: 43% market share (91: 30% market share, 100m + download/ day, ( 360 22.7%, tencent 21.5%, snappea 7.3%) Mobile Assitant: 13% market share.
Baidu Map: 64% market share. 100+m DAU
Baidu has really great products and great market share. It positions very well in the market.
Challenges for Mobile and LBS Product Lines
There are, however, several key challenges need to be addressed
Mobile Search Monetization: Mobile search is quite different from web search. (1)On a PC, users spend a lot of time on internet explorer. On mobile devices, howevers, users only spend 14% of their time on a mobile browser. The attention you get from users is different on mobile. (2)What’s more, the small sceeen size proposes another challenges. Unlike a web seach, mobile search has a challenges displaying Ads associated with search results. On a PC, you have search result page, you have paid placement page, you also have keywords page. But on a mobile browser, it’s really hard to show paid placement and Ads keywords pages.(3)Apps dominate mobile world. But those apps arenot interconnected. Each app contains itsown information that cannot be access or crawled from outside. You cannot search something within an app.
There are also other challenges. Since it’s hard to monetize search traffic like on pc, how do you connect information? If I search a nearby coffee shop or a nearby bus stop, how do you monetize this type of search query? Can you give more relevant, more precise Ads info?
Mobile distribution: As I’ve written in “A primer on app store economy”, currently app store is basically a game distribution platform and gaming is a hit driven business. Game accounts for 65% of total revenue in app store and top 100 games take around 90+% game revenue. So that’s top 10 games take 60% of total app store revenue. How do you help developers break through competition within your store? How do you help users to find good content? When users search in your store, how do you give the best search results? Other than apps, games, what other contents can you distribute?
LBS ecosystem: how to form an ecosystem around the core product and service — Map? It’s much easier to make money through other products and service within ecosystem than through LBS product itself.
Internet of Things: As more and more devices, such as smartphone, PC, appliance, car, fitness product, 3D printer, or even your luggage bag, how does Baidu play an important role in this area?
Baidu’s Mobile Strategies
To address those challenges and to be better prepared for mobile, Baidu uses the following strategies to grow its mobile business:
(1)Form ecosystem around the 3 core products to retain and grow user base
(2)Selectively forward integrate mobile value-chains ( O2O) to monetize mobile traffic
(3)Strategicly get into device business to take important position on value chain
Form ecosystem around the 3 core products to retain and grow user base
Mobile search: Undoubtly, Baidu has the best mobile search ecosystem in China. However, it still needs to build a mobile ads ecosystem so that search traffic can be monetized. The overall structure of mobile search from Google and Baidu is similar. DSP and SSP are tools so they are kind of low value in the whole system. There will be a lot consolidation in this area.
The competitive advantage will come from the product quality: relevancy, quality score, analytic tools, key words, key words trend, re-targeting, etc.
91 wireless+mobile assistant: Already having 43% market share, Baidu needs to integrate upstream and downstream of mobile distribution. Build strong mobile ads exchanges to support app discovery. better app search engine to help app discovery; increase mobile store penetration rate for low end smartphone. Enrich content, books, videos on mobile store. In this area, I think Xiaomi is a big competitor. A company like Chartboost can be a great acquisition target.
Maps: user open platform and free model to attract more developers and users. Push the map usage or integration in key verticals, such as food, trip, etc. Focus on location based service ecosystem.
Selectively forward integrate mobile value-chains ( O2O) to monetize mobile traffic
The big question for Baidu is still how to monetize the huge traffic in mobile era. While building ecosystem around the core products, Baidu should also integrate its businss to downstream value chain. Currently good verticals are finance, travel, retail, healthcare, publishing, daily deal. Verticals fit for Baidu should have the follow characteristics: high transaction volume( not necessary revenue), high frequency usage, can leverage baidu’s core competency to profoundly help build ecosystem.
Strategically get into device business to take important position on value chain: Owning the installation base is still a competitive advantage in mobile industry, as we see in Apple, Samsung, Google, Amazon, Xiaomi. Baidu is not in the device business, can get into that by investing, partnering or even acquiring. Also, the device should not be limited to mobile device, but to expend to other device categories, such as watch, bike, car, appliance, etc.
If we review Baidu’s prodct development and M&A activities in the past few year, we will find Baidu follows these strategies very well, especially on product catogories that can leverage its core competency.
In the next part, we will examine Tencent’s mobile strategy.
market share info
Mobile browser(third party browser): 20% market share(US 40%, QQ 20%)
Google Maps, a similar product, monetize from the following sources:
API Licencing: Google provides an API with which you can use their maps service on your site for free provided it loads less than 25k times per day. After that, it will cost you
Sponsored Map Icon
Sponsored Links: Google AdWords can also pay for placement next to Google Maps searches
Google Offers:Discount vouchers, specials, etc. are localised and displayed across Google Offers, Google Maps and Google Wallet.