Baidu Create – Steady showing

Hangs onto the global No. 2 slot.

• Baidu’s developer conference kicked-off with a demonstration of the company’s supremacy in Chinese AI but stopped short of providing convincing data that would foster the belief that it is in a position to mount a challenge outside of China.
  • First, autonomous driving. In China, the little data that is available puts Baidu in a strong position.
  • Baidu claims to have driven 2 million km in 300 vehicles in 13 cities within China.
  • Despite a strong showing, it was keen to talk down its ability to launch a wide-ranging robotaxi service with no humans in the vehicles anytime soon.
  • What it did demonstrate was a valet capability where the vehicles arrives when it is summoned with an app from the parking and where the vehicle can be abandoned on the way to the parking lot and the vehicle goes and parks itself.
  • 30% of time in Chinese vehicles is spent looking for parking making this potentially a very valuable function in a vehicle.
  • However, the demonstration was very limited as it only works in two of Baidu’s parking lots meaning that it will be some time before one can randomly abandon the vehicle in the middle of the city and leave the vehicle to fend for itself.
  • Despite the limitations, commitment to the self-driving Apollo platform is good with numerous providers of vehicles, buses, shuttles, and vehicles have all signed up to use it.
  • Autonomous driving in China remains a two horse race between Pony.ai (see here) and Baidu.
  • Apollo also remains Baidu’s best shot at improving its presence overseas as its other services and AI activities are very China-centric.
  • Second, Duer OS has improved enough to maintain its position as the global No. 2 when it comes to digital assistants.
  • This is greatly helped by the fact that privacy in China still seems to have no importance whatsoever.
  • The assistant is now capable of being woken once and remaining alert to user commands.
  • This means that the assistant can tell when commands are being directed at it rather than as part of a regular conversation without the use of the wake word.
  • This is something that Amazon should take note of as Alexa constantly interrupts conversations and conference calls in RFM’s offices.
  • Duer OS has also shown good progress in terms of its cross-device capabilities where cars can switch on air conditioners and home appliances and visa versa without the devices themselves being aware of each other in any way.
  • This serves to improve the functionality that it offers which in combination with the quality of its search function has allowed it to claim the No. 1 slot in Q1 2019 smart speaker shipments (Canalys) with Alibaba and Xiaomi hot on its heels.
  • Alibaba still holds the No. 1 slot in terms of installed devices which Baidu should be able to take given the superiority of its product.
  • Support across the smart home is also showing good traction indicating that Baidu may be able to pull off what Google could not (see here).
  • Third, Mini programs: Baidu’s first attempt at building an ecosystem was to collate a series of assets such as iQiyi and Nuomi to provide a suite of applications where users would spend a large part of their digital lives.
  • Unfortunately, these services took a massive toll on profitability from search and had to be cut back following the clamp-down on healthcare advertising after a student death in 2016.
  • This is what led to the listing of iQiyi on the NYSE and a reduction of Baidu’s exposure to this asset.
  • Tencent’s move to add functionality within WeChat has been a great success and Baidu and Facebook, in particular, have followed.
  • Baidu has added a news feed capability to its search app as well as the ability to browse and buy products from partners.
  • ZOL is a market place that helps offline businesses (still 70% of China’s retail spend) sell their products online directly within the Baidu app.
  • There are currently a total of 150,000 developers and 250m of Baidu’s search users also use its mini program functionality on a monthly basis.
  • This helps increase time spent which in turn will increase Baidu’s ability to monetise its users.
• Baidu’s credentials as a leader in Chinese AI remain pretty solid as it has a base (Baidu Brain) from which it is able to generate a whole portfolio of abilities from conversational assistants to self-driving cars.
• This is in contrast to other AI companies like Sensetime which predominantly focuses on facial recognition and video processing.
• This puts in a good position to push the boundaries of AI capability forward and remain ahead of its peers.
• Consequently, I still rank Baidu as the global No. 2 in AI and woes in other areas have made it one of the cheapest and best investments in AI currently available.
• The risk of course that these woes continue to plague the valuation making the timing of entry a tricky decision.