INTERNET: Baidu Challenges Beijing with Economic Indexes

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Bottom line: Baidu’s new move into economic indexes looks like a smart use of big data but is also risky due to potential interference from Beijing, and stands a 30-40 percent chance of becoming a significant revenue source.

Baidu gets into index business

When it comes to economic indexes in China, Beijing holds a strong lock over the market due to its unique ability to collect the necessary data needed to compile broad national snapshots. But there’s also a political element to the story due to the sensitivity of economic growth and issues like unemployment. That makes leading search engine Baidu’s (Nasdaq: BIDU) decision to enter the business look both savvy and also slightly risky. But if Beijing doesn’t interfere, the plan looks like a potential new revenue source that would also raise Baidu’s profile by taking advantage of its mountains of big data.

According to the new reports, Baidu’s Big Data Lab is planning to roll out a number of new economic indexes starting this month or next. (English article) Two of the first will track consumer spending and unemployment, issues that the government follows closely and also get widespread attention among general consumers.

The unemployment index in particular is likely to attract Beijing’s attention, since China’s own unemployment index is viewed by most as meaningless. That’s because the official national unemployment rate has stayed between 4 percent and 4.3 percent for every quarter since 2002, a period when the country underwent a huge economic boom followed by the current sharp slowdown.

That period also saw a huge migration of Chinese from the countryside to big cities, in what is often called the most rapid urbanization in human history. But those migrants lack formal residential status in their adopted new cities, meaning they aren’t usually counted in the official unemployment figures.

I’ll be quite curious to see what Baidu releases for its first official unemployment figure this month or next, which it will reportedly generate using data from various job-related sites it indexes on its search service. The consumer spending index could be similarly sensitive, since Beijing is reluctant to see any data released showing a economic slowing that might fuel broader discontent and worry among the general populace.

Keeping Beijing in the Loop

If it’s smart, Baidu will keep government sources informed of its efforts, and possibly even tell them its figures before their official release to avoid any major surprises. But it will also need to be careful, since such moves could boost skepticism towards the credibility of its indexes, undermining any commercial potential for selling such data.

Other big companies like e-commerce giant Alibaba (NYSE: BABA) and financial network operator UnionPay also use their big data to spot economic trends, though most of that is focused on consumer spending due to their handling of large volumes of financial transactions. By comparison, Baidu handles a far wider range of data due to its status as China’s leading search engine.

it’s probably noteworthy that no major western Internet companies have entered the economic index business, probably because the sector is quite mature and there’s already widespread private participation in the business. By comparison, nearly all of China’s economic indexes, with one or two exceptions, are compiled by various government agencies like the Statistics Bureau and central bank.

Government interference is probably the biggest obstacle to this new initiative by Baidu, but another could be the inability to find customers who might be willing to pay for early release or more detailed information related to these new indexes. That’s because Chinese companies are notoriously stingy about buying this kind of service, though foreigners might see more value. At the end of the day, I still have to commend Baidu for its creativity in entering this new business, and would probably give it a modest 30-40 percent chance of becoming a significant revenue contributor over the next decade.

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