The Genius of the Baidu Apollo Project
The best companies in the world build platforms, not products (see Facebook Inc (NASDAQ:FB), Google—aka Alphabet Inc (NASDAQ:GOOG)—and Amazon.com, Inc. (NASDAQ:AMZN)). This is true in America and around the world. For example, Baidu Inc. (NASDAQ:BIDU) recently launched the “Baidu Apollo Project” for driverless cars.
It is a platform for self-driving technology and, to be frank, it could send Baidu stock price soaring over the next few years.
There are 50 members in the Baidu Apollo alliance, including four Chinese automakers and U.S. tech giants like Microsoft Corporation (NASDAQ:MSFT) and NVIDIA Corporation (NASDAQ:NVDA).
Together, these companies will put self-driving cars on the road by 2018. Or at least that’s their hope.
Some people are doubtful. They claim that Baidu’s artificial intelligence (AI) is way below others in the autonomous driving industry. If true, this would be a real weakness in BIDU stock. We need to perform our due diligence before rubber-stamping this investment.
So where does BIDU stock stand right now? Are its critics right to criticize the technology?
Well, let’s say that other tech giants have been at this a lot longer than Baidu. That puts Baidu at a disadvantage. However, Baidu is doing what no one else has dared to do. It is making a platform rather than a service.
This could help the company make up for lost time. It could help them close the gap much quicker than previously estimated.
But before we get too deep into the weeds, let’s make sure we’re all on the same page. Products and platforms. What is the difference?
Products and Platforms: A World Apart
In my opinion, products and platforms sit at two opposite ends of a spectrum. There’s a pretty big middle ground in between. And where companies lie on this spectrum can tell you a lot about them.
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For instance, Alphabet Inc is definitely a platform company. Its “Android” operating system is open to dozens of manufacturers, all of which can exercise their creativity in adapting the system for their own needs. But those are not “Alphabet” or “Google” branded smartphones.
They are sold by Samsung Electronics Co Ltd, HTC Corporation, Xiaomi, and others.
Similarly, anyone can make a “YouTube” account. With a smartphone and a little creativity, they can create magic that goes viral. But it’s important to remember that Google is not selling that content. The content is does not belong to Google.
Google is more fundamental than that. It lets others build, but only with the building blocks that it owns. And look how it paid off for Google’s stock price.
Chart courtesy of StockCharts.com
Products, on the other hand, are things like toothbrushes or toothpaste. Both are necessary items that sell extremely well, but those markets are more competitive. Brand names matter a lot more in those areas of business.
With platforms, however, you’d barely recognize a monopoly. Think about it: Google has a virtual monopoly on the Internet search market (yes, I know Microsoft has “Bing,” but I’m talking about serious competition here), yet no one questions Google’s market power.
Can Baidu Really Pull This Off?
Short answer: Yes, I think Baidu can pull this off.
The cumulative power of 50 different companies can help narrow the race with Google and Tesla Inc (NASDAQ:TSLA), but it’s more than that. I don’t think people realize how big Baidu really is.
Baidu is the Google of China. It’s an all-powerful, omnipresent Internet search giant with boatloads of money. Go to the streets of Beijing and ask someone if they know Baidu. They’ll look at you like you’re crazy!
It’s a ruling power of the tech industry there, which means it has the resources to compete in the autonomous driving industry. That said, I think that U.S. investors doubt Baidu because they aren’t that familiar with it.
Investors like to think of themselves as rational, but we all have mental blind spots. Familiarity is one of them. Haven’t you noticed that it’s easy to like companies you know? It’s much harder to like companies that you don’t know.
For instance, if I say the name “Google” you probably associate it with innovation and technology. Whereas Baidu is just a random word, a random ticker on a screen with no immediate value attached to it.
That is a blind spot, dear reader. Don’t let it fool you into underestimating BIDU stock.
Platforms are like “Play-Doh.” They give companies and people the freedom to experiment. To build. To innovate. That is what makes them so valuable.
By entering the market with this strategy, Baidu has an opportunity to become the center of the autonomous driving industry. It might be the smartest thing the company has ever done.
To put it in perspective, driverless cars are expected to form a $7.0-trillion market eventually.
If Baidu can scrape that market for a few pennies on the dollar, and without the heavy costs of car manufacturing, it stands to become one of the best investments of the decade.