INTERNET: Baidu Puts Brakes On Mobile OS, Who’s Next?

Bottom line: Baidu’s temporary halting of updates for its mobile operating system is likely to become permanent, and looks like a smart move as it focuses on more efficient ways to boost its mobile market share.

Baidu stops supporting Yun OS

In a move that seemed inevitable, Internet search leader Baidu (Nasdaq: BIDU) has put the brakes on its 3-year-old mobile operating system (OS) that was sapping big resources with little or no chance for long-term success. The move comes just a month after Baidu trumpeted the growing contribution of mobile revenue to its overall business, surpassing traditional desktop PC search revenue for the first time in December. There’s no mention in Baidu’s latest quarterly report of how much of its mobile search revenue came from smartphones equipped with its self-developed mobile operating system, Yun OS, but I suspect the answer was “very little”.

It’s still not clear if Baidu is abandoning its Yun OS completely, since the latest reports simply say the company announced it has “temporarily” stopped updating and supporting the system. (Chinese article) But that kind of signal certainly seems to indicate that Yun OS’s days may be numbered. Accordingly, Baidu may either follow soon with a formal announcement that the temporary move has become permanent, or perhaps it will let Yun OS die a quiet death without any formal announcement.

According to the latest reports, Baidu says it took the step as it makes internal adjustments to the unit, and that it stopped supporting and updating the Yun OS as of Wednesday this week. The reports add that the Yun OS division has been in a state of disarray for the last 2 months since its core team jumped ship and went to smartphone maker Meizu, which has its own OS called Flyme. Such mass-scale defections aren’t that uncommon in China, where workers are often treated as a commodity by their employers and thus have minimal company loyalty.

In this particular case the Baidu move does seem somewhat based on special circumstances, though there’s rampant speculation that the move will soon become permanent. Launched in June 2012, Yun OS was just one of a number of customized mobile operating systems developed by China’s major Internet and smartphone makers, who all believed they needed such systems to promote their products and services. Yun OS was based on Google’s (Nasdaq: GOOG) Android operating system, and currently has more than 10 million users.

If Baidu does make the move permanent, it would further consolidate its reputation as a leader among China’s top Internet firms in shutting down new businesses that are struggling. Baidu made headlines several years ago when it dropped out of the microblogging business, in a nod to the dominance of Sina Weibo (Nasdaq: WB), and in a move that was later copied by rivals NetEase (Nasdaq: NTES) and to a lesser extent by Tencent (HKEx: 700). Baidu was also quick to abandon 2 bids at e-commerce after they failed to gain much traction due to the dominance of Alibaba (NYSE: BABA).

I’m not usually a big fan of quitters, but in this case I have to commend Baidu if it permanently shutters Yun OS. The company has probably pumped tens or even hundreds of millions of dollars into the initiative over the last 3 years, both via product development and also through collaboration with smartphone partners. While 10 million users isn’t small, it really isn’t much compared with China’s overall base of 560 million mobile Internet users at the end of last year.

Abandonment of Yun OS will allow Baidu to focus on other ways to continue boosting its share of the mobile search market. The most obvious of those is simply to pay smartphone makers to pre-install its mobile search app on their models. The next question is whether this will become a trend, leading others to dump their own OSs. I suspect most of the smartphone makers will continue to develop their own customized systems, mostly based on Android, but that one of two other Internet players like Alibaba or Qihoo 360 (NYSE: QIHU) may also quietly drop their self-developed products over the next 2 years.

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