Baidu Inc.'s tie-up with BAIC Motor Corp. is exactly the kind of move that the struggling Chinese internet giant needs to be making to survive the post-search era.
With a few caveats.
First, look at why it makes sense. The Beijing-based companies plan to cooperate on advanced intelligent-vehicle technology with two projects. They'll start off with the relatively easy step of installing Baidu-developed telematics into BAIC-made cars in the next six months.
From there, they aim to road test a semi-autonomous car by the end of the year, which would also include features such as high-definition maps and Baidu's CarLife operating system with associated voice and navigation assistants. I use the "semi" prefix because, according to Baidu, it will employ what the industry calls Level 3 automation. That means the system itself will do most of the car's steering and acceleration, as well as monitoring of the driving environment, but it doesn't go as far as Level 5 full automation.
Baidu is spending a lot of time and money on its automated-driving and artificial-intelligence technologies, as it should, and this has placed the company alongside if not ahead of global rivals in the race to driverless cars (among other uses of AI). Yet, like Alphabet Inc.'s work, these projects haven't contributed much to the top line. Executives might argue they have helped improve search results, but the world really doesn't need a better click-trap.
Unlike Alphabet, however, Baidu's sales and profit growth are waning, and that means shareholders can't wait much longer for these moonshots to start landing. To be convinced that its wonderful technologies are also great investments, I am going to channel Rod Tidwell from the movie Jerry Maguire and ask that Baidu show me the money.
That means it needs to start making clear to investors the business model. If BAIC cars are to act merely as an install-base for Baidu's platform in the hopes of some spinoff revenue later -- the role Android plays for Alphabet's Google search business -- then its driverless car technology risks being little more than a trophy business.
If, on the other hand, Baidu can monetize these systems through upfront licensing and continuing services revenue, then there's good reason to believe this could be a long-term winner, and could help differentiate it from rival offerings such as that being developed by Alphabet.
Another concern is whether Baidu can take the automation technology global. The search company has already hooked up with international brands including Audi, Mercedes-Benz, Hyundai and Chevrolet for its smart-vehicle system. Getting such names to go a step further and deploy Baidu's driverless technology will be an important indicator of the platform's real potential.
To date, Baidu and compatriots including Alibaba Group Holding Ltd., Tencent Holdings Ltd. and Xiaomi Corp. have been unable to export their success. With world-leading technology, Baidu, and its investors, need to ensure they seize this opportunity at the time it's most needed.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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