China’s leading search engine Baidu is named after a Song Dynasty poem by Xin Qiji about a man searching for love. Baidu – which means ‘hundreds of times’ – is said to represent the lengthy and torturous quest for the ideal amour.
The mainland search giant, however, has not had to wait too long to dominate the country’s search market. With closest rival Google choosing to log-off, Baidu is riding high.
Last week the company announced quarterly results that beat analyst expectations. The Nasdaq-listed firm saw its net profit rocket 165.3% to Rmb480.5 million ($70 million). Revenue also climbed 56.9% to Rmb1.29 billion. The company is now raising its forecast for the second quarter, and expects to deliver up to 70% year-on-year increases in revenue.
And if that’s not enough, Robin Li, Baidu’s chairman and founder, has been named one of the world’s 100 most influential people in this week’s TIME. All news that is worth a glass of something sparkling, perhaps.
So Baidu will monopolise China’s search market?
For now, it seems. Investors clearly think so. Since January, when Google first announced that it might exit China, shares of Baidu have leapt 180%, adding more than $10 billion to the company’s market value.
Even before Google’s withdrawal, Baidu already accounted for 64% of China’s internet searches, compared to 31% for its US counterpart. After Googles’s exit (it redirected its Chinese site to Hong Kong, where searches are not censored), Baidu now handles more than 75% of domestic searches, according to estimates from Shanghai-based iResearch Consulting Group.
Advertisers, too, have been moving their budgets over to Baidu. Its share of online search market revenues went up from 58.4% in the fourth quarter to more than 64% in the first quarter, says research firm Analysys International.
But in the long run…
While foreign onlookers have been fixated with what Google’s departure says about the future of the Chinese internet, as well as what it means for Baidu, the domestic firm has set its sights elsewhere. In fact, it is more worried about what its domestic rivals are up to.
There has been speculation that Taobao.com, an online retail arm of Alibaba Group, is preparing to introduce its own search engine. Sohu.com – a Yahoo-like portal – and Tencent, operator of China’s biggest online chat service, have also launched their own search engines and have been beefing up investment in their search business, says 21CN Business Herald.
Will they make a dent?
It’s hard to say for now, since neither Sohu nor Tencent has much of a presence in search, each with less than 1% of the market. That means that the two internet firms need to invest heavily to catch up if they are to be serious players.
At least Shenzhen-based Tencent comes armed with cash. With a market capitalisation of more than $37 billion, Tencent is China’s largest internet firm and the world’s third-biggest, ranking behind only Google and Amazon. HSBC calls the company “the most sustainable growth story of the China internet giants”.
Tencent’s biggest weapon is a hugely popular instant-messaging service called QQ. With free membership, the number of active QQ accounts has surged to about 500 million as of the end of 2009, the company says.
This large user base gives it an advantage in introducing new products. In addition to QQ, Tencent has emulated the success of Facebook – it now runs the country’s biggest social-networking site. This and its online gaming business are both highly lucrative. Revenue at Tencent jumped over 70% last year, to about $1.8 billion. Its share price went up more than three-fold.
With such a track record, many believe that Tencent is in the better position to capitalise on Google’s departure from the search market. Southern Metropolis Daily reported in April that the company has been aggressive in trying to hire Google’s China staff. “Tencent’s search engine could be a strong competitor to Baidu, given the company’s massive user-base and solid brand,” says Fang Li, an analyst at Analysys International.
Tencent also grabbed headlines last week when it announced that it would pay $300 million for a 10% stake in Digital Sky Technology (DST), a Russian internet firm that own stakes in US companies like Facebook and Zynga Game Network, the largest provider of games played on social-networking sites. Analysts say the tie-up is a sign of the Chinese internet conglomerate looking to establish itself as a global brand.
And then there’s Taobao…
Although it remains to be seen whether Taobao will set up its own search engine, the company’s consumer platform is already picking up online advertising revenue.
Like Baidu in search and Tencent in instant-messaging, Taobao is the clear leader in e-commerce, controlling more than 80% of the market. The online auction site clobbers eBay China by offering free listings. It claimed over 170 million registered users in the mainland at the end of last year.
This could prove another Achilles heel for Baidu, which has tried but failed to launch its own consumer sales platform. In a country with more than 400 million internet users (and growing), the e-commerce market is expected to expand rapidly. As this happens, companies may be more inclined to spend more of their advertising dollars on Taobao, which is getting traffic from online consumers already more disposed to shop, compared to visitors to more general search engines like Baidu, says the Manager’s Daily.
Changing course, Baidu has enlisted Japanese firm Rakuten for help. Last week it announced that it is setting up a joint venture with the biggest online shopping mall operator in Japan to take on Taobao. The two companies will invest $50 million over the next three years to launch a Chinese version of the Japanese shopping site.
But Tencent is also making headway. Its own e-commerce platform Paipai.com ranked second in China last quarter, with a 10% share of total transactions.
Is there going to be a clear winner?
The turf war between the country’s internet powerhouses is not unreminiscent of the confrontations between the Warring States (476 to 221 BC) in which kingdoms battled for territory. The centuries of warfare ended only when the state of Qin conquered its rivals to unify the Middle Kingdom under a single emperor (Qin Shi Huangdi – the man who went on to commission the Great Wall and the Terracotta Army).
Back to today: in the internet wars, a single victor is unlikely. But some players are likely to do better than others. And for Baidu, being out in front means it has more to lose than most. As the Song poet realised long ago, the pursuit of a dream is often filled with hundreds of obstacles.
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