Baidu and its competitors part I: Google China

Guge (when I say Guge [Google in Chinese - translator] in this post, I'm referring to Google China, not Google in general. Similarly, when I say Yahu [Yahoo! in Chinese - translator], be assured that I'm talking about Yahoo! China) is the No.1 competitor of Baidu, at least that's what people would think. China IntelliConsulting Corporation, a consulting company based in Beijing, recently published the report of their research of advertisers on search engine ad, and the result shows that it's still too early to assert that Guge is already overwhelmed by Baidu in China.

The two have very similar business models, with ad revenue being their only source of income. But their mentality when facing the pressure from investors are completely different. The cost and revenue of Guge are hardly reflected in Google's financial report. Baidu, on the contrary, often sees drastic fluctuation in their stock price whenever the tiniest news breaks out. Also, the p/e ratio of Baidu is twice of that of Google, which means that investors have high expectation to the growing speed of Baidu's business. If Baidu fails to meet the expectation, investors will bet their money elsewhere.

It seems that the Chinese internet market is not lucrative as people have imagined, which is the main reason why Baidu has taken the risk to enter the Japanese market. 'The scale of advertising market in Japan is nine times of the one in China, so you'll be able to maintain a fairly large team even if you have only 5% of that market,' said Robin Li Yanhong, the CEO of Baidu. In this respect, Lee happens to have a lot in common with Lei Jun. (The President and CEO of Kingsoft. - translator.)

But Baidu should worry about their home base first. As I said in my previous blog post, the Cost Per Click model is born vulnerable to click fraud, or, shall we say, that click fraud is the malignant tumour rested within the Cost Per Click mechanism. By providing custom tools, Google is helping advertisers to analyse the condition of the websites' page view and ad clicking, therefore minimizing the potential loss resulted from click fraud to a certain degree. Baidu's anti-fraud measurement is more like a black box: although the company has repeatedly claimed that it's an advanced system, no one is assured of anything except for the fact that what's in the box remains invisible.

There are two ways for Baidu to keep its current growing rate in this not-so-lucrative-market of Chinese internet: increasing the number of advertisers, or charging more from each one of them. The former depends on Baidu's marketing intensity and the market's acceptance of placing ads on search engine, and the latter depends basically on Baidu's pricing policy. The company recorded only 5.9% increase of the number of active advertiser in the fourth season of 2006, while its revenue has grown for 13%. Given the circumstances, the pressured Baidu might choose to boost up the price for individual advertisers in the near future.

But advertisers are no suckers. More than 40% of the online advertisers are frustrated by the overwhelming number of non-effective clicks, and 15% of them plan to cut down advertising on Baidu in the next six months. (Only 5% plan to do the same with Google.)

Everybody has realized how Guge (Google China) is subjected to its American headquarter, few has realized that Baidu is subjected to their stock price.

But Guge is currently keen on boosting page view, not on taking advantage of Baidu's flaw.

PS: After Guge published its own version of Hao123 (an aggregator of Chinese portals, forums and download sites, popular among Chinese netizens - translator), Guge Re Bang (Google Hot Chart), an aggregator of a variety of Chinese charts which has been conceived and realized earlier by Baidu as Zhongwen Sousuo Fengyunbang (Chart of Chinese Searches), is also online.