Baidu's Full-Speed Push into Autonomous Driving
The company offers software for self-driving systems on an open platform, but observers have questioned Baidu's business model.
With its recent announcement that it would sell ready-made hardware for autonomous vehicles, Baidu Inc. (Nasdaq: BIDU) looks determined to capitalize on its open-source platform for the development of a self-driving car.
The search engine giant said it would sell off-the-shelf hardware to other companies looking to produce their own autonomous vehicles. Baidu will sell Apollo Computing Units (ACU), hardware that automakers can install in vehicles to operate their software. Some of these ACUs already enable autonomous driving, though they require a safety driver.
Observers of self-driving car initiatives have questioned how Baidu could benefit financially from its autonomous driving initiative. The company has emphasized its willingness to share its technology, saying that it would drive innovation and the faster development of self-driving vehicles. That would lead to new opportunities for Baidu.
Apollo allows other companies to access data and autonomy software, though the arrangement isn't entirely open source. Companies must participate in the platform, sharing their findings at certain times to obtain additional information.
To be sure, other companies have been working on similar, so-called plug-and-play arrangements. Among them, GM spin-off Delphi Automotive is working with Israeli technology company Mobileye to develop an off-the-shelf system, and British firm Oxbotica is creating a system called Selenium that will turn a vehicle, forklift or other equipment into driverless mode. GM and Uber have acquired start-ups over the last two years that are working on similar systems.
But Baidu has made a particularly robust commitment. It invests about 15 percent of its revenue annually — about $1.5 billion —in research and development with most of that amount targeting improvements to artificial intelligence (AI), which has been at the core of Baidu's products. AI is the foundation of the Apollo program.
Despite its swift growth, Baidu has faced increased competition for its core search services and struggled in its efforts to expand its online services. Revenues in Baidu third quarter rose 29 percent but the company disappointed Wall Street analysts with its projections for the latest quarter. The company's stock, which had an impressive climb last year, has suffered more recently under some doubts about competition. Share in Baidu, which has slid 10 percent in the past week, closed Friday at $233.17 per share. Still, that's a price increase of one-third overall in the past 12 months.
A Rising Industry
Baidu sees vast potential in the autonomous driving sector. Nearly 300 Chinese companies have smart-city, transportation projects powered by AI with more than a third of these encompassing driverless technology infrastructure.
A 2017 survey created by the research group Strategy Analytics predicted that the driverless vehicle industry would create economic opportunities totaling $7 trillion by 2050.
"The Passenger Economy will stimulate value creation from the adoption of Mobility-as-a-Service and other new mobility services as well as emerging new applications and services as well as from savings in time and money associated with vehicle use and from the resulting freedom of movement," the report said. "It will drive change across a range of industries, displacing vehicle ownership…and defining a new landscape of concierge and ride-hailing services."
In addition, Baidu is working with more than 90 companies on this initiative and has collected a huge amount of data.
Baidu plans to introduce a level-3 system by 2020 and a level 4 system the following year.
At level 3, the car takes over certain safety-related functions, but a driver is necessary. A level 4 vehicle is fully autonomous, but won't cover all driving situations. The National Highway Traffic Safety Administration uses a 0-5 rating system created by the Society of Automative engineers to rate vehicles from full driver control to completely driverless.
Some experts have suggested that Baidu could also monetize digital mapping functions.
"Ripe for Collaboration"
Last April, in a statement announcing Apollo's start-up, Qi Lu, Baidu's chief operating officer, said that China called the country's "open environment…ripe for collaboration."
According to the Italian analytics firm, focus2move, Chinese consumers purchased nearly 28 million cars in 2016, making the market the world's largest by a chasm-like 35 percent margin over the U.S. market, the second biggest globally.
"Baidu took the initiative to open our autonomous driving technology to the industry in order to encourage greater innovation and opportunities, making better use of our technology to drive the evolution of the entire industry," Lu said. "An open, innovative industry ecosystem initiated by Baidu will accelerate the development of autonomous driving in the U.S. and other developed automotive markets."
Baidu named its self-driving platform Apollo, likening its scope and innovation to the historic U.S. program that put men on the moon nearly a half-century ago.
In an interview with The Wall Street Journal last year, the company's co-founder and CEO Robin Li said that Google was "substantially ahead against everybody else."
"They started earlier," he said.
But, he said, Baidu was among "tier-one companies" in the space and following the right strategy.
"The technological foundation of a driverless car has lots and lots of components," he said. "It's a high-barrier business, because the depths of technology you need to develop is enormous. If we're to take a perspective three years from now, five years from now, what's the determining factors—who will be ahead in five years? It's about writing software that learns. Data and algorithm and iteration is the game."