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Baidu (BIDU) is in the midst of an unprecedented growth spurt. After the May – June swoon based on fears about Greece and the spate of problematic Chinese companies, Baidu saw its stock price dip below $120. It’s basically now back to near all-time highs in about 2 weeks. Not too bad.
While Google (GOOG) noisily exited China last year, Baidu just kept its head down and collected money and market share.
There are rumors of a partnership with Facebook to bring the world’s biggest social networking service to the other side of the Great Chinese Firewall. Additionally, it has been rumored that Baidu will develop its own mobile operating system, although – as it is – Baidu is nearly always the default search engine for handset manufacturers in China.
Last month, I sat down with Victor Tseng, the Global head of Investor Relations, as well as Kaiser Kuo who heads up International Communications for the company. I also got a brief tour of the Baidu mega-campus in Beijing’s suburb known for its cluster of tech companies.
The company has the open concept you would see in Silicon Valley, as well as rooms that look like little igloos in the middle of various floors where employees can go and catch a cat-nap if they’re working too hard.
An edited version of our conversation is contained below:
Eric: As Google is struggling to find its growth, what are the new focuses for Baidu?
BIDU: Box computing and e-books are our new focuses, and we also focus on voice recognition. The number of apps from box computing we have has increased dramatically recently. While we are not in the same league as the Apple (AAPL) store, we are one of the biggest in terms of apps. We are seeing a lot of queries from mobile devices at the moment. Personally, we would prefer to see Google’s Android mobile operating system to become bigger because it is basically our default mobile operating system.
Eric: What is your strategy on your mobile business?
BIDU: Baidu is devoting much more energy into mobile strategy. Social networking has been huge and we’ve been playing in that space really since 2003, with the launch of Baidu PostBar. More recently, Baidu has developed an app that lets you post to different microblog platforms directly from your search box. It’s a Box Computing approach to social networking. Social related traffic is about a quarter of Baidu’s total traffic volume today.
Eric: So you think mobile business will be the future for Baidu?
BIDU: We will put more focus on it, but the major revolution in this sector will be application-driven. So we will focus on box computing, Baidu tieba, Baidu zhidao (xinzhi) and so on.
Eric: There have been rumors of cooperation with Facebook, so is that true?
BIDU: No that is just a rumor.
Eric: So how does Baidu attract more talented engineers to work for them?
BIDU: We provide a platform for developers to exercise their ingenuity, it is a win-win situation and third party programmers seem to enjoy this kind of cooperation. From last year, we have been focusing on developing more apps to increase user experience.
Eric: How do you think Google failed in China? What effect has this had on Baidu?
BIDU: it all depends on whether Google is committed to do business in China or not. They should have done a lot more studies on regulation first, and they need to have local knowledge. We are not much concerned about Google and their possible re-entry into China; we are more concerned with user stickiness and seeing more people go online. The key to our success is to develop the market and to attract advertisers to post. We need to give a good user experience and make them willing to come back.
Eric: How does Baidu find and capture new market opportunities?
BIDU: There are a lot of opportunities in sight. There are many companies buying keywords from Baidu. Baidu’s online retail category is doing well. Box computing is Baidu’s next growth catalyst from a user perspective. We want and are also looking for premium and quality partners in search to sync up more closely with our box computing initiative.
Eric: What does Baidu think about M&A?
BIDU: Baidu will consider some strategic and certain vertical M&A opportunities. We are more inclined to make small acquisition but would not rule out bigger deals.
Eric: What is Baidu’s focus geographically?
BIDU: We still focus on China. We are learning how to adapt to foreign countries; right now, we prefer to cooperate with developing countries rather than go directly into those countries.
Eric: Describe the idea generation process in Baidu, and how the company manages the IT team and execution decisions?
BIDU: Ideas are generated at the lower level, then pushed up to mid and high levels. Employees are given flexibility to develop ideas, and the committee is responsible for determining which ideas are viable to develop further.
Eric: Talk about corporate governance in China now.
BIDU: People are concerned with corporate governance. Frauds are sporadic and company-specific. Our management team is very strong and has a good track record. We need to focus on people’s search experience and anticipate user/customer-needs.
Eric: Talk about the piracy problems in China you’ve been dealing with?
BIDU: Piracy is a big problem in China, and it is still difficult to solve. When publishers send complaints to Baidu, we will take off those articles and novels. We removed 2.8 million articles in one week. If we can’t control the piracy problem, then we will shut down the bookstore.
MP3 is not highly prone to piracy. Baidu will release a new version for MP3s, the “Ting” platform. So watch for that.
For literature, Baidu won most of the cases against Shanda (SNDA), for now. Baidu doesn’t want to monetize Wenku (Baidu’s online bookstore) right now.
Eric: Box computing, how sticky is that?
BIDU: Developers like it, and users like it. Currently Baidu is not concerned about monetization in this field, other than a few ad revenues, subscriptions, and other different kinds of revenue generation. Baidu is more concerned about drawing people to Baidu. Baidu is trying to develop more apps to develop user stickiness.
We did a commercial this year. The commercials are not intended to capture more markets, but to inform and educate users that search engines can be used to improve their online experiences.
Eric: Thanks.
[At the time of publication, Jackson had a long position in BIDU and AAPL.]
