Baidu, China's king of search

Google hopes China Mobile alliance will find traction with young Chinese

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BEIJING--Google dominates online search in the U.S., even in the face of competition from Yahoo, well-funded conglomerates such as IAC's and indie startups like ChaCha and Wikia, a for-profit company co-founded by Wikipedia founder Jimmy Wales.

Google’s share of search queries in the world’s largest internet market has climbed steadily from less than 20% in 2001 to 45% in '06, according to ComScore, and beyond 60% according to Hitwise.

But none of that has helped the world’s largest online search engine in China, the second-largest market with 132 million internet users at the end of 2006, where Google has been hammered by Baidu's name means “hundreds of times,” a reference to a poem written more than 800 years ago during the Song Dynasty, and its rise has indeed been poetic.

Founded in 2000 by Robin Li, previously an engineer at Infoseek, a search engine partly owned by Disney, Baidu's grip on the Chinese market is getting stronger. By the end of 2006, Baidu (pronounced “by-DOO”) controlled more than 69% of China's seaarch engine market, according to iResearch. Google's share was just under 15%, down from about 25%.

Revenues in China's search engine market topped $53 million in the third quarter of 2006, up almost 11% from the same period in 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. 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," said Dick Wei, a China internet analyst in the technology research department at J.P. Morgan Chase & Co. based in Hong Kong.

Flush with success from its growing popularity at home and income from a 2005 listing on Nasdaq, Baidu is branching out. It is already is a leading supplier of online news, MP3 files and pictures in China. Last year, Baidu expanded into the online video service field by launching 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,” said Mr. Li, its Beijing-based chairman-CEO, in a statement.

By comparison, Google and other foreign companies like Yahoo, e-Bay and Microsoft's MSN division have found China a tough market to crack, despite some inherent advantages like superior technology and global management experience.

Baidu has built on its head start in the mainland on a strong understanding of local consumers as well as China's complex language, plus solid ties with regulators. But foreign companies have struggled to reconcile heavy government censorship in China with the political views of shareholders back home, a problem that hasn't affected local companies as much, even though Baidu and other local search sites like Sina and NetEase face the same censorship rules as foreign sites.

The U.S.-based giants also arrived late in China, making it difficult to forge partnerships with firmly entrenched local partners. Last month, eBay shut down its main web site in China after failing to chip away at much stronger Taobao, a Chinese auction site operated by e-commerce group Corp.

Alibaba also runs Yahoo's Chinese operation, but one year into that partnership even China's leading online retailer and its charismatic founder-CEO Jack Ma, haven't been able to turn Yahoo around. As a popular search tool, its presence has been minimal, but earlier this week, Mr. Ma announced plans to transform Yahoo China into a business-oriented search engine. Such specialization could differentiate the site from bigger search engines like Baidu, and attract more affluent business users than the mass market sites used mainly by students.

Google, meanwhile, is teaming up with China Mobile to launch a mobile search engine business in China, the world’s largest mobile phone market, this year. Google already offers mobile search services in the U.S., India and Taiwan. The deal was announced at a Jan. 4 press conference in Beijing with Lee Kai Fu, Google’s China president, and senior officials of China Mobile, the world’s largest mobile telecommunications carrier.

The mobile and internet search service will be available through China Mobile’s Monternet WAP portal and supported by some Nokia, Sony Ericsson and Motorola phone models. Users will be able to access the service via a search box or search link on Monternet’s homepage, or through a dedicated mobile search homepage on Monternet. A partial trial started in December 2006 and the service will launch in early 2007.

The move could help Google grow in the mainland, where young consumers happily use mobile phones for far more than voice communication and text messages. To young Chinese, phones are portable cameras, music players, game consoles and fashion accessories.

At the same time, the company has strength in the profile of its existing users. Like Yahoo, Google attracts business executives and other affluent users that are more attractive to advertisers than Baidu's students, said Tony Ip, general manager, China at Grey Global Group's G2 relationship marketing arm based in Shanghai. "In terms of 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."

Contributing: Ad Age reporter Abbey Klaassen in New York
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