In the U.S., for better or worse, the name associated with search is Google; but in China its Baidu by a landslide. But it is not only the largest Chinese-language search engine, according to Web traffic ranking site Alexa it is also the fourth most visited site on the Web. Its 60 percent share of the China search market puts Baidu roughly four times ahead of its nearest challengers, Google and Yahoo!; and like its American rivals, Yahoo!, Google, and MSN, Baidu is expanding. The company is making partnerships in the mobile search and digital download spaces and recently announced its intention to move into the Japanese market. When Baidu went public in August of 2005 its stock price was $27, as of this writing the price is $122. China’s size and the fact that only 10 percent of its population is online suggests to some that it will be the next Internet battleground; and Baidu currently rules the day. However, some question whether Baidu will have the staying power to hold its ground against the big three as the battle heats up.

There are those that think Baidu’s grasp is already weakening. CCID Consulting believes this and remarks, “that market shares of Baidu saw a growth this year but its counterparts are gaining on it.” The Motley Fool also agrees that Baidu’s hold could shift, “The company has managed to grow its market share over the past year, yet one can’t assume that stateside giants like Google and Yahoo! will take things lightly.” There is truth to that statement, but it is interesting in that it places the actions, or reactions, of ‘stateside giants’ at some point in the future; the fact is these giants and others have already tried, and failed, to take Baidu’s spot. The New York Times notes that the battleground in China is presently littered with the fallen from overseas, “ bought China HR, then lost market share. bought, and lost market share. acquired a big Chinese Internet travel company and slipped. And a few years ago, Yahoo bought, its biggest competitor here, then handed its operations over to” CIBC World Markets analyst Paul Keung sees Baidu growing stronger, “Baidu continues to strengthen its market position through leveraging its leading brand, aggressive monetization, extensive distribution network, and other local advantages, while its largest rivals, such as Google, fail to catch up with its pace for localization and monetization in China.” There is no way to tell if the lead it has already will be enough or if the lead will dwindle when the giants move again. As things shake out there are those that are trying to make headway in the market by partnering with Baidu, and there are those entrenching themselves against it.

Though not one of the giants mentioned above, UK record company EMI seems to feel that partnership with Biadu is the best way into the Chinese market for digital music downloads; and it feels strongly enough about it to drop out of a lawsuit against Baidu to boot. According to Bloomberg, “EMI is planning to drop out of an infringement lawsuit brought against Baidu by record companies on claims the Web site violated copyright by offering links to illegally copied music on non-affiliated sites.” Instead of locking horns a legal battle, the Financial Times says the two companies will “co-operate on an advertising-supported online music service,” and share revenues from the “free online music streaming service in China.” At least one of the giants sees the profit in partnership.

Microsoft, made the decision to take the path of partnership with Baidu last month. At that time, the two companies announced a revenue sharing deal in which Baidu will provide paid-search listings for Microsoft’s MSN China search-engine websites. Though Microsoft is a big name for Baidu to land, the money involved is not necessarily a huge amount. Piper Jaffray analyst Safa Rashtchy estimated that it could mean between $10 million and $20 million in incremental revenue. According to the Motley Fool, “Even at the high end, that would make up less than 10 percent of the company’s revenues next year.” But, the deal is worth more than money; it demonstrates an acknowledgement of Baidu’s clout. The Motley Fool puts it this way, “Even though Google may one day have something to say about it, for now, all roads to China seem to weave through Baidu.”

Google on the other hand is taking more of a head-to-head approach. Google’s approach also involves partnerships, not with Baidu, but with companies that will help it gain traction against it. Earlier this month Google invested about $5 million in, one of China’s fastest growing Internet start-ups. This move is seen as a direct play against Baidu, which is well known for its digital media search and downloads. Richard Ji, an Internet analyst at Morgan Stanley, notes this, “Xunlei is a very interesting company. It’s a leader in video downloading and so this should help Google in the battle with Baidu.” Google has also entered into a mobile search services partnership with China Mobile; this too is a direct confrontation. Baidu already has an agreement with Nokia to install Baidu searching engine in Nokia handsets, and at least one other phone company is set to work with the company in this space. It is worthy to note that Google has been aware of Baidu for some time. Prior to Baidu’s IPO Google was a significant investor in the company; it sold its 2 percent after the IPO, citing their own desire to work in China.

Whatever happens with the players in China’s Internet market, huge changes are not likely to happen any time soon. Baidu has a huge lead at this point, and China represents a vastly different arena than its competitors are used to. But the competitors have money and experience on their side. In any case this will be an interesting game to watch.

A more complete version of this posting, with journal articles, and research reports can be found at the website of Analyst Views Weekly.

More information on this topic can be found in the Search Technology section of Northern Light’s Internet & Information Services Market Intelligence Center.

And in the following articles:

EMI Signs Deal with Baidu, Will Drop Lawsuit Appeal
Bloomberg, January 16, 2007
EMI Group Plc., which lost a copyright infringement lawsuit against Inc., will drop its appeal and work with the Chinese Internet search site to win advertising by offering free online samples of its music.

EMI Pulls Out of Piracy Suit against Baidu
Financial Times, January 16, 2007
EMI has pulled out of the recording industry’s anti-piracy lawsuit against Chinese internet search company, with the two companies agreeing instead to co-operate on an advertising-supported online music service.

Google Makes another Investment in the Internet in China
New York Times, January 6, 2007 is the 500-pound gorilla in China. The company, an Internet search engine start-up began operating only a few years ago and has one of the most-trafficked Web sites in the world. The look of its home page is similar to that of Google, which invested in Baidu several years ago, but then sold its small stake for a huge gain last year, after Baidu went public on the Nasdaq.

Previewing 2007: Baidu
Motley Fool, December 29, 2006
Oh, how the cynics love to pile on After coming to market as one of the hottest IPOs of 2005 and nearly doubling in 2006, the bears are positioning themselves for a fall in China’s red-hot market (in general) and Baidu (in particular).

Microsoft, Baidu in Paid-Search Tie-Up
BusinessWeek Online, December 20, 2006
Microsoft has teamed up with Chinese search site Baidu in a strategic partnership centered on paid search listings. Under the terms of this agreement, Baidu’s paid search listings will appear on the search results pages of the Chinese versions of Microsoft sites such as MSN and Live Search. This is expected to go into effect later this month.

Google, Baidu Eye Online Video Business in China
Reuters, December 15, 2006
Google Inc. and Inc., its biggest rival in China, are exploring similar options to expand their online video services in the world’s fourth-largest economy. Industry sources told Reuters this week that the two Internet search leaders have independently had early discussions with some local video Web sites for potential business cooperation or possible acquisitions.

Microsoft, Baidu Form Paid-Search Partnership
CNET, December 14, 2006
Microsoft has teamed up with Chinese search site Baidu in a strategic partnership centered on paid search listings. Under the terms of this agreement, Baidu’s paid search listings will appear on the search results pages of the Chinese versions of Microsoft sites such as MSN and Live Search. This is expected to go into effect later this month.

The Rise of Baidu (That’s Chinese for Google)
New York Times, September 17, 2006
While Baidu continues to gain market share in China — and does so with a Web site that the Chinese government heavily censors and that gives priority to advertising rather than relevant search results — some analysts question whether Baidu can withstand competition from Google and Yahoo, which possess superior technology and global work forces.


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