Not simply content to rule the roost of search in the United States, Google has joined with six other companies to invest a reported $10 million in Baidu.com, a Chinese search engine. The move could help give Google a strong foothold in one of the fastest growing Internet markets in the world.

According to a report by CCW Research, the Chinese Internet market, especially broadband, is exploding. (Broadband users are expected to grow from an estimated 10 million in 2003 to a projected 60 million by the end of 2007.) As of April 2004, there were believed to be roughly 80 million Internet users in China, making it second only to the United States in terms of sheer number of users. In China’s largest city, Beijing, an estimated 63.8% of homes had access to the Internet via a broadband network. Even rural areas surrounding Beijing have a reported 21.9% of homes connected to the Internet.

Baidu.com is viewed by many as Google’s chief competitor when it comes to the Chinese search market. ChinaTechNews.com reported earlier this month that Baidu had indexed over 300 million Chinese language Web pages and logged over 60 million page hits each day, giving it 95% coverage among Chinese Internet users. Shanghai-based research company iResearch reported that among Chinese Internet users, Baidu has a market share of 48.2% compared to Google’s 29.8%.

So why would Google step in and invest in what may be their chief competitor in the most populated country in the world? Well, there are several possibilities. The first and most obvious is to compete with other U.S. search engines that have already formed relationships in China. Yahoo, Google’s chief U.S. competitor has already formed an alliance with 3721.com, another popular Chinese engine. It’s also possible that Google is planning to help Baidu beat out other local engines to make a future partnership more profitable for both companies. Sohu.com, a Chinese portal often viewed as Baidu’s chief Chinese competitor, has just launched an aggressive effort to becoming the leading online destination for coverage of the Olympics in China, a move that would help attract both visitors and advertisers.

Robin Li, chief executive of Baidu provided some possible insight into the partnership during a conference call with journalists earlier this week. While Li emphasized hopes that the partnership with Google would lead to the shared development of better search technology, he also expressed the thought that the partnership could help build both brand images in China, stating “Baidu has a better understanding of the Chinese market, and we hope to reinforce that advantage with the money raised overseas."

A potential Google partnership with Baidu could mean increased advertising revenues for both sites. This past February, Google launched its AdWords advertising program on its Chinese-language site, allowing international merchants and local advertisers the ability to bid on keyword triggered ads that would appear next to search results. With China being viewed by many as having an untapped Internet economy, the advertising potential that could be gained by a Google/Baidu pairing could be astronomical. Despite being second only to the United States in terms of sheer number of Internet users, the Chinese online advertising market accounts for only about 1% (or US$130 million) of the global Web advertising market. The first company that effectively learns how to target and sell Internet advertising in China stands to make a tidy profit.

Where this investment will lead is unlikely to show for a while, but industry observers will be keeping an eye on any technology changes that take place at Baidu as well as on any changes that take place with their advertising models. A technology hungry market larger than the United States is unlikely to stay dormant forever, and Google has certainly proven their knack for showing up late to the game and still coming out the winner.
June 16, 2004





Jennifer Laycock is the Editor of Search Engine Guide, the Social Media Faculty Chair for MarketMotive and offers small business social media strategy & consulting. Jennifer enjoys the challenge of finding unique and creative ways to connect with consumers without spending a fortune in marketing dollars. Though she now prefers to work with small businesses, Jennifer’s clients have included companies like Verizon, American Greetings and Highlights for Children.







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