Baidu Is Set To Monetize Its Tieba In 2014

Feb.16.14 | About: Baidu, Inc. (BIDU)

Baidu (NASDAQ:BIDU) is known as the biggest search engine in China. But it is not just a search engine. Tieba (literally Post Bar), provided by Baidu, is the biggest Chinese communication platform. In this key word based forum, people can discuss about all kinds of topics with others who share the same interest. For example, if you are interested in topics about the Los Angeles Lakers, you can simply search "Lakers" in Baidu or Tieba. Then you will be directed to "The Lakers' Bar", where you will meet other Lakers' fans and see their posts about the Lakers.

How big is Tieba? As of December 2013, Baidu Tieba has registered nearly 1 billion user accounts and 200 million monthly active users, with over 8.1 million bars. It records nearly 60 million posts per day and a daily average page view of around 2 million times. Yes, it is amazingly huge.

What distinguishes Tieba from other forums? First, its content is incredibly broad and comprehensive. Since it is based on key words, you can find almost anything you can think of, including stars, TV shows, games, interesting places and events. Second, it is extremely easy to use. When you want to discuss about a certain topic with people, or just to see how people discuss about it, you can Baidu it and go to its Tieba. With one account, you can share information in any Tiebas (you don't even need an account if you just want to see others' shares). What if you happened not to find the Tieba you want? You can create a Tieba for your key words. It is free and has very low IT capability requirement. Third, it is a perfect match with the Baidu search engine. Baidu provides Tieba with search volume, whereas Tieba gives supplementary information of the key words that people search for.

Since people go to Tieba because of their interest in certain topics, it is supposed to be rewarding to launch interest-based advertising. However, Tieba has never generated substantial revenues for Baidu. In fact, Baidu did very little in monetizing Tieba. Even the most popular Tiebas have very little advertisement display, if any.

However, this may change in 2014. Baidu has made a couple of moves to monetize Tieba.

First, Baidu is trying to make Tieba a marketing platform for enterprises. In the program known as "The Windows of Enterprises", companies pay Baidu to obtain the right to construct and manage their Tiebas, through which the companies will be able to interact with users and fans. Moreover, as part of the program, the contents of their Tiebas will have a sufficient display on their Baidu search results. A few big companies, such as JingDong, Tmall and CCTV News have already joined the program.

Second, Tieba is rapidly increasing and promoting its value-added services. Users can now purchase various kinds of services and privileges. For example, they can become VIP, which will enhance their popularity in the bars and enable them to decorate their posts. This is very similar with how Tencent (OTCPK:TCEHY) monetizes its QQ services. Given the success of Tencent, I am optimistic about the value-added services.

The monetization of Tieba will be a huge boost for Baidu right now. A big concern for investors is that Baidu is facing decreasing margins, due to its aggressive investment in R&D. Tieba, however, is a mature product (just past 10th anniversary). Therefore, its monetization will likely elevate Baidu's margin.

Baidu just started to monetize Tieba, and the future is still uncertain. With uncertainty comes opportunity. I think Tieba has been undervalued, or even neglected by investors. It has not been priced sufficiently into Baidu's value. If the monetization is mediocre, Baidu does not lose too much, as Tieba will still serve as a big moat for Baidu. If the monetization is successful, the potential could be tremendous.

At last, let us not forget that Baidu also has many other products with huge traffic volume and sub-optimal monetization, including Baidu Map, Baidu Zhidao (Baidu Knows), etc. Thus, 2014 could be a very exciting year for Baidu.

Disclosure: I am long BIDU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.