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Baidu invested $10m in IndoorAtlas to beef up its mobile map service.

IndoorAtlas could potentially double or triple Baidu's current O2O monetization given its level of granularity.

Lack of 3D support and indoor/outdoor integration are two key near-term challenges, in my view.

According to Bloomberg news, Baidu (NASDAQ:BIDU) invested $10m in IndoorAtlas, a Finnish startup that specializes in indoor positioning by using magnetic anomalies inside buildings and smartphones. IndoorAtlas claims to be the first company in the world using this technology, which can achieve an accuracy of less than 3 meters. Baidu's investment values the startup at $40-50m.

I view the investment in IndoorAtlas to be a good fit in Baidu's overall mobile internet/mobile map strategy given the level of accuracy can be achieved behind its technology. Based on my understanding, the service relies on two factors to be successful: 1) The availability of magnetometers within smartphones, and 2) the willingness for mall/store operators to submit their floor plan to IndoorAtlas for data generation and analytics.

The first factor is easy to achieve given the declining price of magnetometer (a critical component for the mobile compass within smartphones). The price of a three-axis magnetometer has dipped below $1 per device which makes it affordable for smartphone OEMs to include this into device. Moreover, the proliferation of low-cost smartphones in China supports the adoption of the magnetometer.

The second factor, however, will take time to achieve given the complexity of the IndoorAtlas workflow process of floor plan alignment and data collection that requires actual manpower to walk within buildings (think of it as Google map construction using the Google Map car, except this time it is a person walking inside the building).

While indoor map/GPS is nothing new among the map apps in China, their accuracy and the level of detail can be inconsistent which often result in poor user experience. A more accurate indoor map service can greatly expand and enhance Baidu's O2O services for both retailers, department stores and supermarkets.

For retailers that are located inside a mall, Baidu Map's location tracking feature could pinpoint the user's physical location and allow retailers to send promotional messages onto his smartphone and hopefully convert the promotion into a sale.

As for department and grocery stores, IndoorAtlas could allow the merchants to send promotions on specific items and then direct the user to the item via Baidu Map, thanks to the granular detail that is achievable by IndoorAtlas. For example, if a grocery store wants to drive demand for its roast chicken, then it can push the promotion to the shoppers via Baidu Map and provide step-by-step navigation through the isles on where to locate the item.

I see the successful adoption of IndoorAtlas could potentially double or triple Baidu's current O2O monetization given the large number of malls and offline merchants available.

While IndoorAtlas is truly innovative, several drawbacks that are worth noting are:

  1. The technology currently only supports 2D positioning and consider 3D a "special case of 2D positioning". While the company does not give much clarity, one thing clear is that IndoorAtlas can not be used to track movements within a 3D space.
  2. The technology is only limited to indoor only so I am curious to see how Baidu can smoothly integrate its outdoor Baidu Map with the indoor-only IndoorAtlas feature to ensure consistent user experience.
  3. IndoorAtlas is best to operate in metal buildings and that makes me wonder how much metal is required for the building to have in order to achieve the optimal level given that most buildings also use concrete and brick for construction materials.