Microsoft seeks China growth

06 July 2011

BEIJING: Microsoft, the IT giant, is forging a closer tie-up with Baidu, China's leading search engine, as it seeks to enhance its position in the country.

Under the terms of the deal, starting later this year, Microsoft's Bing will provide search results for queries submitted in English on Baidu, currently numbering 10m per day.

"It's a non-trivial matter to build your own index of English pages, so why not partner with someone who already does that well?" Kaiser Kuo, Baidu's director of international communications, told the Los Angeles Times.

"It's all about serving the needs of our users."

"We'll learn quite a bit. And that certainly will help us venture into other markets with our core search product."

Baidu took 74% of search adspend in China during the first quarter of this year, beating Google's 23%, according to iResearch.

More broadly, Baidu's online ad revenues reached $1.2bn last year, a 78% improvement, and a figure that can be measured against the $1.9bn secured by Microsoft.

However, as internet penetration stands at around 30% in China, which has a population of over 1.3bn, considerable room for further growth exists.

"It remains to be seen how much English-language searches account for the total Baidu search inquiries and how many Google users will eventually switch to Baidu," said You Tianyu, an iResearch analyst.

Analysys International reported Chinese netizens contribute just 8.6% of Bing's global audience, meaning that Microsoft's latest effort may prove beneficial.

"It will strengthen Baidu's position in the search market in China and for Microsoft, Baidu's large traffic also provides a platform for it to promote itself, which will help it to gain more users," said Dong Xu, an analyst with Analysys International.

Andreas Pouros, chief operating officer of search engine marketing specialist Greenlight, agreed the alliance with Baidu marks a step forward for the US multinational.

"Whilst it represents an opportunity for Bing to make more money from the Chinese market, Baidu gets what it needs to expand overseas when it is ready to do so," he said.

"Microsoft has entered the Chinese market slowly and has made some friends, in a way that the Chinese government will have no issue with. This should leave Baidu and Bing to control the Chinese search ad market without too much difficulty."

Daniel Knapp, an analyst at Screen Digest, argued Google's decision to reduce the scope of its Chinese search operations could have assisted Microsoft.

"Chinese local players like Baidu would be very wary about striking up a relationship with Google, a rogue authority in the eyes of the Chinese authorities," he said.

"Microsoft has always been very diffident - for Baidu it's much safer."

Wallace Cheung, an analyst at financial services group Credit Suisse, was largely neutral in his assessment regarding his prospects for the tie-up.

"It's a good thing, but I see very minimal impact for Baidu. I don't see a lot English keywords going through Baidu. It goes through Google," he said.

By contrast, Jake Li, from Guotai Junan Securities, based in Shenzhen, predicted the alliance could make a major mark.

"This is not good news for Google," he said.

"Most Chinese internet users currently prefer Google's English-language search results over Baidu, whose service will be improved by the partnership with Microsoft."

Data sourced from Reuters, Los Angeles Times, Bloomberg, China Daily; additional content by Warc staff