Those thinking hardest about the implications of Google’s move to redirect Chinese users to its uncensored Hong Kong website probably include the management of Baidu, its local rival and the country’s market leader.
Since Google announced in January that it was reviewing its China strategy, analysts making revenue estimates for Baidu have begun to factor in greater market share for the Chinese company.
But Robin Li, Baidu’s chief executive, has been careful not to underestimate its US competitor. When he reported forecast-beating fourth-quarter results last month, Mr Li said he did not expect any major change in the competitive landscape.
“The damage [to Google] is not going to be as severe as we thought earlier,” says Li Zhi, online search expert at Analysys, a Beijing-based research firm. “If traffic levels can be held at the Hong Kong website, ad customers’ confidence might come back, and the drop in Google’s market share might be limited.”
China’s online search market revenue grew 39 per cent to Rmb7.15bn ($1bn, €775m, £695m) last year and is expected to reach Rmb10bn this year, according to Analysys.
“We expect Baidu’s revenue market share [to rise] from 57 per cent in 2009 to 59 per cent in 2010,” said Wallace Cheung, an analyst at Credit Suisse. “Baidu’s recent surge has factored in the potential gain of Google’s ‘exit’. We believe Baidu is fully valued.”
At the end of 2009 Google accounted for about 20 per cent of user traffic and about 35 per cent of online search revenue in China.
Advertising experts estimate that about a third of Google’s China revenue comes from keyword sales, with the results delivered to overseas internet users. That business will not be encroached on by its Chinese rivals without sizeable global operations.
The rest of its income comes from local advertising, however, and distributors have started advising customers to consider alternatives to Google as blocking by China’s internet censors might disrupt access to the Hong Kong-based site and thus lower traffic.
Many advertisers in China are reluctant to move all their budget to Baidu because they tend to be placing ads with the market leader already and think that spending more with the company will do little to increase returns.
The most likely beneficiaries are therefore companies that have not played a role in internet searches in the past.
Tencent, the company that runs the world’s largest instant messaging service, switched from Google to its own on-site search engine late last year and is, despite a conservative outlook from management for this year, expected to snap up Google customers.
In addition, Taobao, the retail e-commerce subsidiary of Alibaba, has started picking up online advertising revenue in a trend that analysts believe could even challenge Baidu’s room to grow.
These pressures mean that Baidu is likely to look elsewhere for growth.
Although Baidu says Chinese-language search is what it does best, the company has started looking overseas. In addition to fledgling operations in Japan, it has started hiring engineering staff with Turkish, Russian, Iranian, Malay, French and German language skills over the past year.
“Robin Li has every reason not to be triumphant right now,” says Guo Kaisen, an internet executive. “He knows that on a global scale, Baidu has a long way to go to match Google.”