China’s 1 billion mobile phone users are ready for an upgrade. In the biggest mobile market in the world, consumers are switching in droves from feature phones to smartphones. As these consumers start relying on their phones for Web access, Baidu, the Internet company often called the Google of China, is making a serious play to capture the mobile search market. The company has introduced its own mobile operating system for smartphones and says it’s now working on projects with about 20 phone makers. The OS, of course, puts Baidu search and other Baidu services front and center. China’s other major Internet companies are also jockeying for a piece of the mobile OS market, but the stakes are higher for Baidu.
Baidu’s imperative is obvious: The company dominates PC-based Internet searches in China but commands only 34 percent of mobile searches, according to Analysys International, a Chinese IT research firm. To stay relevant, the company must adapt.
In late 2011 Baidu first offered its OS, which it was then calling Baidu Yi, on a Dell smartphone. That phone hasn’t become popular, but Wang Jing, Baidu’s vice president of engineering, says it was a useful way to “test the water.” Then, in May 2012, the company announced a collaboration with the Chinese electronics maker Changhong to sell a smartphone for 899 yuan (US $141) running the Baidu OS, which is now called the Baidu Cloud Mobile Platform.
Wang, who oversees Baidu’s mobile Internet division, says the OS will be used on both highend and low-end phones, but he acknowledges that the biggest market opportunity is in phones that cost less than 1000 yuan ($157). “That’s the white-hot area, and it’s caught a lot of attention,” he says.
Baidu Cloud was designed to help manufacturers keep costs down so they can offer cheaper phones. “We provide 100 gigabytes of free cloud storage,” says Wang. That free service allows manufacturers to save money by building in less memory, he says. The company also shares with handset makers the revenue generated by mobile search ads.
Baidu Cloud is an Android “fork”—it’s derived from Google’s open-source Android OS but was adapted to meet local needs. Android-based phones dominate the Chinese smartphone market, with almost 70 percent market share, according to Analysys International. But some Google services, like YouTube, are blocked by the Chinese government, while others, like Google Maps, simply aren’t optimized for China. Baidu Cloud’s suite of services, including maps, a popular music service, and an e-reader platform, may give its OS an edge over foreign competitors. Wang says the company also provides training and support to help developers build apps, which results in more apps designed specifically for Chinese consumers.
Analysys telecom analyst Wang Ying says that some medium and small mobile phone manufacturers may be happy to use Baidu Cloud, but she doesn’t expect the OS to dominate the smartphone market. “Lots of Internet players are joining the mobile phone market,” she notes, including the social networking and gaming company Tencent and the e-commerce company Alibaba, which have both introduced their own phones and operating systems. “The whole smartphone OS market shows fragmentation,” says Wang.
Other analysts say the proliferation of smartphones will benefit Baidu even if its OS doesn’t catch on. “We’re starting to see the stars align for Baidu when it comes to mobile search,” says Michael Clendenin, the founder of the Shanghai-based research firm RedTech Advisors. He notes that 3G subscriptions are increasing and more Chinese websites are creating mobile versions. Meanwhile, Apple recently announced that it will integrate Baidu’s search function into next-generation iPhones sold in China. “It’s more important that Baidu be the default search on the mobile Web browser,” says Clendenin. “They could totally fail with the Baidu Cloud OS and still be wildly successful at mobile search.”