Bloomberg reported late last week that Baidu is investing $600 million in Uber. The move makes sense. China's other dot-com darlings -- Tencent and Alibaba -- have invested in Didi Dache and Kuaidi Dache, respectively. Those two companies may not be household names, but they dominate the Chinese market that Uber is just trying to break.
It won't be easy for Uber. Just as Baidu vanquished Google in search, the Chinese favor their homegrown heroes. Uber's already rolling in Shanghai and a couple of other markets in the world's most populous nation, but it's not making much of a dent against Didi Dache and Kuaidi Dache. That's why this investment that may be seen as a shrewd move for Baidu is actually an even smarter play for Uber. Aligning its financial interests with Baidu -- one of China's most revered companies where CEO Robin Li is a rock star -- gives it the street cred that it needs if it wants its U.S.-weathered platform to have a chance in China.
In Google's footsteps
Baidu isn't the first search giant to buy into the Uber story. Google Ventures invested $258 million in the peer-to-peer taxi service. Imitation is the sincerest if not shrewdest form of flattery, and Baidu does it often.
From video sharing to online travel -- from mobile apps marketplaces to wearable computing -- Baidu isn't shy about copying Google. Let Big G take all the gambles. Baidu will follow when Google succeeds. Baidu's own paid search platform improved dramatically when it aped Google in launching Phoenix Nest seven years ago.
Some will argue that Baidu's copies are better than the original. It's growing faster. Revenue soared 52% in its latest quarter, well ahead of Google's 20% pace. The compelling margin-stretching dynamics of the Chinese market given its low corporate tax rates and relative labor costs have historically translated into wider profit margins for Baidu.
This doesn't mean that it's a competition. If anything, now that both companies have stakes in Uber they have a shared interest in the success of the ride-sharing darling. This may not seem to be a ground floor opportunity here for Baidu. It completed a round of $1.2 billion in financing earlier this month that reportedly valued the company at a cool $40 billion.
This doesn't mean that Uber's had it easy. It faces stiff competition in China and it recently ran into some regulatory roadblocks in India. Even some stateside markets have tried to get in the way of the cottage industries that Uber is creating by arming civilians with the ability to cash in on their otherwise dormant cars.
Things are heating up for Uber, but we're just getting started. Having Google and now Baidu on board provide global validation, but the company and even the model itself face challenges in the disruption process. This is still a smart move for Baidu, and an even smarter move for Uber.
Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Baidu and Google (C shares). The Motley Fool owns shares of Baidu and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.