Orange and Baidu strike up smartphone partnership

By Emeka Obiodu, Principal Analyst, Telco Strategy

France Telecom/Orange and Baidu, the leading Chinese-language Internet search provider, have signed an exclusive deal to co-develop a new mobile browser for emerging markets. The new browser will be designed for the Android platform and will be available in Arabic, English, and French across Orange’s footprint in Africa and the Middle East, starting with Egypt.

While the new browser will offer enhanced data compression capabilities, the bigger story is that the Orange–Baidu browser will give Orange an opportunity to create a portal for web apps without launching a dedicated app store. The partnership also marks Baidu’s first major attempt at internationalisation.

Orange adds something new for Africa

As a product, we were impressed by the look and feel of the new Orange–Baidu browser during a demonstration organised by Orange.

While the main technical benefit is the browser’s enhanced data compression capabilities (which can reduce the amount of data consumed by 30–90%), the one-click access to web-based apps and Internet services is likely to be of more benefit to customers. For example, during the demonstration, the home screen featured Facebook, Wikipedia, and Dailymotion, all of which are services that Orange is looking to push to its customers.

As Orange seeks to capitalise on the growth of mobile Internet services in Africa, the browser will become a de facto application store/portal for Orange’s customers.

Orange runs web portals in most of its European markets, where it promotes a variety of Internet content such as news, films, and music. However, Orange recognises that Internet usage in emerging markets is more likely to be via low-cost, small screens. As a result, the Orange–Baidu browser will seek to replicate the portal strategy but with a browser that delivers enhanced data compression capabilities so as to reduce the strain on networks and the cost for users.

In doing this, Orange is looking to create a tighter bond with its nearly 80 million customers in Asia-Pacific, the Middle East, and Africa. The company already notes that demand for Android devices in Egypt has doubled in the second half of 2012, which explains why Egypt is the first market to get the new browser.

Is this Baidu’s big coming out?

Much of the commentary on this deal will focus on what it says about Baidu. For a start, this is the Chinese search engine’s first major attempt to break into the international market, which speaks volumes about its ambitions.

However, Baidu has not opted to go it alone, nor has it aimed for the European, North American, or Asia-Pacific markets. Instead, it has adopted a go-to-market strategy that utilises Orange’s existing presence and resources in the Middle East and Africa. In its statement, Baidu acknowledged that the “Middle East and North Africa region is particularly important”.

Such an approach has its own merits and perils. On the one hand, the partnership provides Baidu with an easier entry point to the global stage. This will help it to reduce the rhetoric and suspicion that would have followed if it had announced plans to single-handedly aim for the more developed markets of Europe, North America, or Asia-Pacific. In these regions, national governments and more entrenched rivals, such as Google, are both powerful and wary.

On the other hand, given that the likes of Google and Apple have prospered without partnering with telcos, the exclusive deal with Orange will limit Baidu’s maneuverability in the market. Over time, this lack of maneuverability will influence, and maybe undermine, Baidu’s ability to exploit emerging opportunities in the market.

Telcos are not giving up yet on smartphone innovations

At a time when operators such as Verizon Wireless and Singtel have opted to shut down their application stores, Orange’s alternative approach to creating an operator-controlled portal for smartphones will resonate.

Most telco-owned application stores were always going to falter because the telcos’ ambition of generating substantial profit from them was misplaced. In contrast, none of the major non-telco application store owners hope to directly profit from their services. Instead, they rely on using apps as a complementary product/service to support their core product (in Apple’s case, device sales; in Google’s, advertising revenue).

This alternative approach to a telco-controlled portal recognizes that telcos are not suitably positioned to extract value from an app store. Therefore, it makes sense to embrace alternatives where the telco’s investment is kept to a minimum or its expectation is more realistic.

Viewed this way, the Orange–Baidu initiative is similar to the Telefonica–Mozilla/Firefox phone initiative.

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