Chinese search engine specialist Baidu (NAS: BIDU) recently announced plans to introduce a low-cost smartphone powered by its proprietary Baidu Cloud mobile operating system.
Let's take a closer look at what prompted the country's Internet search leader to foray into relatively uncharted mobile handset territory.
Baidu's smartphone will be sold at roughly $158 (1,000 yuan) and will be manufactured in association with Foxconn. Its Baidu Cloud software will offer 100 GB of storage and incorporate the company's licensed music and map services, among other applications. Baidu expects the smartphone to be the first of a range of handsets manufactured by other brands that'll also offer its very own operating system in what is a clear move to grab a larger share of the booming Chinese smartphone market. But there is another and perhaps more important reason Baidu has entered into a highly competitive mobile handset scenario.
Searching for cash
According to research firm Analysis International, although Baidu currently enjoys the top position in China with a 35% share of mobile-based search, others, like Tencent Holdings, seem to be breathing down its neck with a 23% share of the total traffic. Keeping that in view, the introduction of a smartphone with a customized operating system will probably deter buyers from switching to other search services while surfing the net from their mobiles. But that still brings up the question: Will Baidu's mobile venture make a significant impact on the already crowded low-end Chinese mobile market? Maybe not.
A crowded mobile market
Bringing out an inexpensive smartphone certainly won't help much as we already have Chinese players such as ZTE and Huawei that leveraged their relationships with wireless carriers to gain an edge in the low-end smartphone segment. At the same time, having customized software may not prove to be a major plus point, either. For instance, the recent launch of its own Linux-based operating software by the Alibaba Group hasn't seemed to meet expectations.
And then there are the other big players to contend with, most importantly Samsung, HTC, and Apple (NAS: AAPL) . While Samsung is aiming to become a dominant force as it launches a slew of cheaper handsets, Apple has its sights firmly set on China even as it embarks on talks with China Mobile (NYS: CHL) , the nation's largest wireless carrier, for offering a newer version of its popular iPhone. However, the good part is that Baidu's mobile offering caters to the low-end market segment in contrast to Apple's iPhone, which is meant for high-end users.
The Foolish takeaway
Having said all that, Baidu still has a lot of work to do, both in terms of persuading more smartphone makers to use its operating system as well as persuading wireless carriers to offer its devices. And the Baidu Cloud is set to face tough competition from Google's (NAS: GOOG) Android operating system, prevalent in a large number of smartphones in China. However, given the fact that certain features offered by Android, such as YouTube, are blocked in China, Baidu does stand a chance. Also, the fact that the company is offering a significant cloud storage space may just work in its favor.
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At the time thisarticle was published Keki Fatakia does not hold shares in any of the companies mentioned in this article.The Motley Fool owns shares of Google, Baidu, and China Mobile. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple, Google, and Baidu. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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