Baidu Inks Strategic Research Agreements With Seagate and BMW

While Alibaba’s (NYSE: BABA) IPO continues to hog the limelight in the Chinese Internet segment of the stock markets (see Initiating Coverage Of Alibaba), Baidu (NASDAQ: BIDU) has been making moves of its own. Although famous as China’s largest internet search provider, Baidu is known to nurse ambitions of using its data analytic capabilities to create smarter hardware. In this article we review Baidu’s strategic tie-ups with two  hardware manufacturers, car-maker BMW (FRA:BMW) and data storage devices maker Seagate (NASDAQ: STX).

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BMW Partnership Aimed At  Automating Specific Driving Functions

The partnership with BMW is expected to foster joint research on driver-less cars. The ultimate goal is the development of semi-autonomous vehicles in a time-span of three years. These vehicles are expected to better integrate Baidu’s data services, such as navigation, with the automobiles. Also on the research agenda are solving traffic challenges facing the Chinese market through development of high resolution maps. ^[1]

Driver-less cars are another aspect in which Baidu, often called the Google (NASDAQ: GOOG) of China, is following Google’s lead. Google’s autonomous car project, over 5 years and 600,000 miles old, has recently passed its first U.S. state self driving test in Nevada. ^[2] Baidu, however, is not looking for complete automation of the driver’s function. The Baidu-BMW partnership is aimed at automation of specific functions including parking and adaptive cruise control. ^[3] This is also in keeping with how the Baidu Eye, Baidu’s take on the Google Glass, had fewer features as compared to its rival from Google. Most notably, it did not have any display of its own, but interfaced with the owner’s mobile phone to display search results related to items captured by its camera. ^[4]

Seagate Partnership Aimed At Low Cost Online Data Services

The partnership with Seagate Technology is aimed at low cost online storage, archiving and data analysis, a press release from Seagate said. Baidu is a major buyer of Seagate products such as hard drives and storage products. One part of the agreement between the two specifies how they will give priority to each other in the supply and procurement of this hardware. Baidu agreed to source these preferentially from Seagate, and Seagate agreed to give priority to Baidu in providing them. Seagate will also maintain dedicated engineering team for Baidu. ^[5]

The agreement also allows for joint research on three new technologies:  cold storage, big data analysis and shingled magnetic recording (SMR). Cold storage refers to low cost storage of information that is expected to be accessed infrequently, such as archives of user search histories. Big data tries to aid decision making by finding patterns among large amounts of data. SMR aims to compress data in storage media to accommodate more data per device without compromising on the integrity or reliability of data. ^[5]

Impact Of Partnerships On Baidu

The partnership with Seagate is expected to have significant short term benefits for Baidu. The preferred buyer status may help reduce costs of procurement of hardware covered by the agreement. Research into low cost storage solutions may help reduce costs of data management, a key issue for any search provider. Research into big data is also expected to yield rich dividends. This is because the market for big data services is expected to grow at a rate of 27% annually and reach a size of $32 billion in 2017. ^[6]

The partnership with BMW however seems to of a long-term nature. The development of assisted driving systems seems speculative at this point of time. The commercialization and monetization of these technologies may be a long way off. The only silver lining is the limited aims of Baidu’s driving automation partnership with BMW. Unlike Google, they are not trying to develop a self-driving car from scratch. This makes them more likely to be successful, as the challenges, both regulatory and technological, could also be less. Some part of the pains and costs of commercialization are also likely to be borne by BMW. This can be expected to help Baidu focus on leveraging its data management competencies in facilitating early monetization of these innovations.

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1. Baidu Partners With BMW On Driver-less Car Research [↩]
2. Google Autonomous Car Passed U.S. State Self-Driving Test [↩]
3. BMW And Baidu To Develop Autonomous Car [↩]
4. Take A Look At Baidu Eye [↩]
5. Seagate And Baidu Sign Strategic Cooperation Agreement [↩] [↩]
6. Seagate Technology And Baidu Sign Strategic Agreement [↩]