Google Is Clearly King of Search -- Except in China

Baidu Commands About 70% of Market, and U.S. Giants Can't Dent Its Share

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BEIJING (AdAge.com) -- The Google of China is a local search engine called Baidu.com that increasingly dominates the world's second-largest online market of 132 million internet users despite Google and Yahoo's best efforts to fight back.
Baidu Chairman-CEO Robin Li says the Japanese market is an 'ideal next step' for his company.
Baidu Chairman-CEO Robin Li says the Japanese market is an 'ideal next step' for his company.

Baidu's name means "hundreds of times," a reference to a poem written more than 800 years ago. Founded in 2000 by Chairman-CEO Robin Li, previously an engineer at Infoseek, a search engine partly owned by Walt Disney Co., Baidu's grip on the Chinese market is getting stronger.

Big lead over rivals
Baidu (pronounced "By-DOO") has a big lead over its multinational rivals. By the end of 2006, the company had parlayed powerful first-mover advantage, deep understanding of Chinese consumers and their complex language, and relationships with regulators into control of more than 69% of China's search-engine market, according to iResearch figures. Google's share was just under 15%, down from about 25% in reports issued earlier last year. In some areas, Baidu is even bigger, with an 84% share of music searches, for example.

Revenue in China's search-engine market topped $53 million in the third quarter of 2006, up almost 11% from the same period the previous year, according to Analysys International. Baidu's share, $30 million, exceeded the combined revenues of Google and Yahoo in China.

"Google is still perceived as a foreign search engine, so Chinese prefer to use Baidu when searching for anything about China," said Dick Wei, a China internet analyst at JPMorgan Chase in Hong Kong. "They only use Google for foreign information. Also, the relevancy of search results from Baidu is better than Google's results in China, which has helped Baidu win market share."

Branching out
Flush with success from its rising popularity at home and income from a 2005 listing on Nasdaq, Baidu is branching out. The company is already a leading supplier of online news, MP3 files and pictures in China and last year started a Chinese-language video channel. It also formed an alliance with Viacom's MTV Networks and Motorola Corp. to produce and distribute programming and content across all media platforms.

Last month, Baidu announced plans to enter Japan's search market, because its "proven strength in non-English-language search, the high internet penetration in Japan [and] similarities between the Chinese and Japanese languages make this market an ideal next step," Mr. Li said in a statement.

By comparison, Google, Yahoo, eBay and Microsoft's MSN are finding China a tough market to crack, despite inherent advantages such as superior technology and global management experience. Multinational companies struggle to reconcile heavy government censorship in China with the political views and concerns of shareholders back home, a problem that hasn't affected local companies as much, even though Baidu and other local-search sites such as Sina and NetEase face the same censorship rules as foreign sites do.

Late arrivals
The U.S.-based giants also arrived late in China, making it difficult to forge partnerships with local companies already entrenched in the market. EBay shut down its main China website in December 2006 after failing to dent the dominant position of Taobao, a Chinese auction site operated by Alibaba.com Corp., China's leading online retailer.

Yahoo is trying, but its presence as a search tool has remained minimal even after it teamed with Alibaba a year ago to run Yahoo's Chinese operation. Jack Ma, Alibaba's founder-CEO, announced plans this month to transform Yahoo China into a business-oriented search engine. That change could help differentiate the site from Baidu and attract more affluent business users.

World's largest cellphone market
And Google isn't giving up. Google is joining China Mobile to launch a mobile-search-engine business in early 2007 in China, the world's largest cellphone market.

Like Yahoo, Google attracts business and other affluent users who are more attractive to advertisers than Baidu's heavily student-oriented base, said Tony Ip, general manager, China at Grey Global Group's G2, Shanghai. "In ... traffic, Baidu's share is much higher, but in terms of future business development, Google does have a good base in China to grow on."
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