Wednesday, September 14, 2005

Baidu Report From China Sources(9/10/05)

After "Miraculous" IPO, Baidu Is Facing The Google Challenge

Baidu and Google are closing in on each other in China. It will largely depend on whether Baidu can continue their Nasdaq fairytale.

Reported by Haowen Zhang and Yin Xue from the International Hereld Leader on Aug 8, when Baidu was still overwhelmed by the joy of seeing their stocks skyrocketing, Google stormed the media with their announcement of first authorized partner in China, China Enterprise.

Coming right after the "Perfect Storm" on Nasdaq, the annoucement is the prelude of heated competition between Baidu and Google in China.

Is Baidu a bubble?

On Aug. 5, Baidu debuted it's IPO on Nasdaq with a share price of $27. In the first day of trading, Baidu's price surpassed almost all predictions. It skyrocketed to $151.21 or 450% at one moment, and ended the day at $122.54, a whopping $354% jump. Baidu's market value reached $4 billion.

"A new bubble is brewing in internet stocks!", media acclamed quickly while the storm is spreading in the IT industry.

"It's too early to say it's a bubble, because Baidu is a special case." IT analyst Weigang Lu said. "The reason that Baidu' price went so high is because there a label of 'China's Google' on their forehead."

The CEO of one of the big portal in China said bluntly: "American investors are just throwing down their extreme anger of missing out Google's IPO onto buying Baidu." According to it's prospectus, Baidu claims they have 45% share of China's search market, while the second place Google only owns about half as much.

"Google is absolutely the company that makes American crazy. They have the strongest American spirit, completed with Silicon Valley culture. However, on the otherside of the planet, there is Baidu under Robin Li, they are beating the Google hero! The fairytale is more or less the cause of the admiration of Americans." Internet analyst Xingdong Fang thinks. Baidu's story is basically read to Americans by Google and that's why it is so simple and easy to understand. It also fits well with American's high regard with human exploration and entrepeneuship.

Weigang told the International Herald Leader that, search is very hot in the US now. Baidu is considered "China's Google". Many American investors made a simple decision without knowing all the facts. They don't know much of Baidu's financials and that caused the flying prices of Baidu.

"Google bebuted it's IPO at $85 per share, it went over $300 or almost 300% in a year. Investors bet a 300% rise also for Baidu. Another comparison was made that Google commands a market value of $80 billion. So investors think the 'China's Baidu' should worth at least 5% of that and came up with a price of $4 billion for Baidu." Weigang explained.

Google's On The Offensive

Nevertheless, Baidu's skyhigh price is drawing many criticism by oversea's analysts. They consider there is a big risk here. The value of Baidu is 279 times it's sales of 14 million in year 2004. Google's value is only at 26 times it's sales of $3.2 billion.

"If many investors think Google and Yahoo are overvalued, how do they value Baidu? Baidu's price to sales ratio is at least five times of that of Google or Yahoo. Just because it's a Chinese company?" One analyst questioned.

Weigang is also worried there is maybe indeed a bubble in Baidu's price. Though the investors are happy now, Baidu is facing mounting challenges on the road ahead.

One of the major problem is of course from Google which is rapidly rolling out it's China strategy. On Aug. 8, Google had a media show with it's first authorized channel partner, China Enterprise( CE net is an IT service provider for over 200,000 business customers. They mainly provide communications as well as integrated e-commerse solutions to businesses.

"Google's highlight of entering China market is mainly a public relations show. They hope to get into the China market in the shortest time and to replace the leadership of Baidu here." One analyst said.

In less than a month, Google made another splashing move by pushing out the Bendi service. It provides local business information to consumers with a mapping service in over 100 large cities in China. The super clean interface again demonstrated Google's user friendly and elegant style.

Weigang thinks the authorization of the first partner in China is indicating that Google is already have a clear strategy in China. To Baidu, it's a hardly ignorable body blow.

Google's ability in innovation is widely recognized. "Their sales is also using high tech." An expert in the industry told the reporters after reading Google's brochure on direct sales on the internet. According to him, after buying keywords from Google, a customer can find many related information on clickthroughs. Payment is also depends on clickthroughs. In the similar service from Baidu, a customer can obtain relatively little information on clickthroughs.

CEO of, Wen Xie pointed out that Baidu's bidded rankings are mixed together with search results. It is a big headache for users. Google has the two results placed separately.

Weigang thinks, if Baidu cannot make breakthroughs and innovations quickly. The experiences of customers will suffer. The only lead in the channels is not going to stop customers from switching to Google.

Baidu's Robin Li is not scared. With fresh injected $100 million, Baidu will focus it's business in search and in China. Enjoying mountain climbing with wife and a beloved daughter, Li's dream is to make Baidu world's best search engine for the Chinese. "You have over 100 million Chinese accessing internet everyday with potential of another 1.2 billion consumers, the market is

Appearing in a new advertisement, Baidu is trying to show it's prowess in understanding Chinese better than anybody especially the foreigners. In the video ads, the famous ancient literature talent Bohu Tang was joking around a foreigner (squared at Google probably), and smartly broke down a four-word sequence into sentenses in many different ways.

-I know, you don't. I know you don't know that I know, you don't.
-I know you, you don't know me. I know that you don't know me. I know you don't.
-I know you don't know that I knew. You don't know that I knew that you don't.

Try your breakings in the comments!


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