Thursday, February 23, 2006

Avoiding Google's Frontal Assult, Robin Li Looks Beyond China

Feb. 24 Beijing

According to media reports, Baidu, the famed "China's Google", reported fourth quarter earnings on Tuesday. Baidu continued it's strong uptrend of growth with better than expected results. However, as Google making strides into the Chinese market, Baidu is facing increasingly fierce competition.

Fourth quarter revenue came in at $14.2 million or 29.2% Q/Q. Net income came in at $3 million or 188.7% Q/Q.

One day before the announcement, Baidu's major rival Google formerly opened it's China headquarter.

Baidu's chairman and CEO Robin Li said: "As our business growing rapidly, we are investing heavily in search technology, products, capacity, sales, as well as in human resources".

Though maintaining fast growth rate, Baidu's performance is still far behind Google's. Recent data showed that Google's global revenue surpassed $6 billion in 2005. Similar to Google, Baidu's major source of revenue is in paid search ranking services. China's online advertising market reached $400 million in 2005. Baidu hopes to catch a larger share. To reach the goal, Baidu must face Google's strong challenge. Li indicated that Baidu may consider to enter markets outside of China.

Google has leaped a giant step in the Chinese market by establishing it's Chinese headquarter. The company has installed servers in China for the first time to speed up the responses to Chinese internet users as well as saving communication cost. Besides that, Google is also planning to establish a research and development center in China in the fall.

Facing the aggressive invasion of Google, Robin Li is still full of confidence with Baidu's leadership position in the Chinese market. "As the number one web search provider in China, we will continue to expand our lead", Li said.

Mole from Sina Tech

Monday, February 20, 2006

Baidu Reports Earnings 5 pm Pacific Time

Baidu will report earnings Tuesday, February 21, 2006 8:00 p.m. ET / 5:00 p.m. PT.

Link to: Q4 2005 Baidu Earnings Conference Call

Wednesday, February 15, 2006

Cisco an strategic investor, not a business partner for Shanda

According to ZDNet China), Shanda spokesman affirmed that the purchase of Shanda's stock by Cisco was a strategic investment rather than business relationship.

Cisco's China division also confirmed that. Spokesman from Cisco indicated that the company has invested about $300 million dollars in about 25 Chinese companies directly and indirectly. 
The investment serves as a vehicle for Cisco's large cash reserves. The spokesman also indicated that the purchase has been done over last year and not directly related to the latest movement in Shanda's stock price.

Shanda's spokesman expressed management's confidence in achieving the coporate goal of becoming "online Disney". "Cisco's investment indicated their good expectations about our business. Our cash flow is very normal now".

iResearch Report: Baidu extends its lead

Jianghuai Morning report, leading internet research company iResearch released annual Chinese search egnine report of 2005. We interviewed CEO of iResearch Weiqing Yang regarding the latest result.

Yang indicated that "in areas of web page search, music search, and image search, Baidu is leading significantly in user traffics". Baidu has extended it's lead in 2005. However, the future competition will be fierce in the Chinese internet search market. "It will be a three-horse race for the next three years".

The report indicated that, comparing with 2004, "the most commonly used search engine" category has changed dramatically. Baidu jumped to 56.6%, Google gained slightly to 32.8%, while Yahoo dropped sharply to 6.1%.

Yang said that, Baidu's has rapidly gained market share. specifically, "Web search was about 53% of it's total traffic, music search was about 15%, image search was about 13%. Baidu's web page searches has reached 24% of total searches done nationally. Currently, web page search marketing has the most visible and most profitable model as well as being the main revenue source of search engines. So, leading in this area will provide critical firepower for further growth of Baidu's businesses".

Feb 16, 2006

Sunday, February 12, 2006

Online Advertising Surpassed 3 billion Yuan, Catches Up Radio

Feb. 13 from Xinhuanet (cited from

China's online advertsing market is in rapid growing phase. Yesterday, iReseach released a new report with data showing the online advertising market reached 3.13 billion Yuan or $390 million dollars. It is increased 77.1% over 2004 and it is 7.6 fold of the size in 2001.

Online advertising also reached 2.3% of overall advertising spending in 2005. The size of the market is already passed that of magazines (1.8 billion Yuan) and is catching up the size of radio advertising(3.4 billion Yuan).

Addtionally, paid search marketing was 1.04 billion or $130 million dollars. Alltogether, the online marketing has reached a scale of 4.17 billion Yuan, growing 78.4% year over year. It is about 3.0% of total advertising market.

Last year, Sina has 21.7% of market share, followed by Sohu with 15.0%, Netease 8.0%, Tencent 3.8%, and 2.2%. The five largest portals weighted in 53.4% which is actually 20% lower than that of 2004.

It is worthy to note that, while the market shares of the traditional web portals such as Sina and Sohu are falling, shares of the search engines represented by Baidu and Google are clearly heading up.

Housing, IT products, Web services are ranked top three in advertisers. Individually, Samsung was the largest online advertiser with spending of 60.35 million Yuan, followed by China Mobile with 41.10 million Yuan and Ebay/Each with 39.13 million Yuan.

Online advertisers totalled 3418 last year, growing 6.6% over 2004. Though the number growing at a slower pace, the budget is showing up strongly. The advertisers with budget surpass one million Yuan reached 474 in number, a growth of 57.5% year over year.

iResearch predicts the overall online marketing scale will reach 9.1 billion Yuan this year, or 65.7% growth over 2005. In 2010, the number could reach as high as 36.7 billion Yuan or $4.6 billion dollars.

Sun Jin

Baidu should see blowout quarter

Baidu will report its earnings after the market close on Feb. 21, US time(Feb. 22 morning time in Beijing).

Wallstreet is predicting $12.7 million in revenue and 8 cents in earnings for this quarter.

We predict that Baidu will report an excellent quarter with revenue around $14 -15 million and earnings of around 10 to 12 cents. (admitted we are more cautious now after Google's less stellar quarter than Wallstreet expectations)

There are several factors contributed to Baidu's financial strength:

1. Continue to gain market share in China
2. Strength in MP3, image search, Post(bulletin board) service
3. Successful new service of Zhidao(Baidu Knows) service
4. Increase sponsored placement in popular news service and Post service

There is also increased awareness of search ranking service, thanks to promotional activities of many of Baidu's competitors.

Going forward, Baidu faces the same old challenge from it's major rival, Google. Recently, Google has decided to remove its "do no evil" cover and started "censored" This decision will further level the playing field between these two players.

Due to the nascent market and it's gigantic size, we think Baidu will continue to do super in near future.

Longer term, Baidu must address the "Chinese only" problem. Baidu's CEO has stated that Baidu's "Chinese only" index is Baidu's advantage in the way that it is more focused and easier to update.

From CNNIC and iResearch's published data, we can see Google's usage is often associated with higher income in China. We think that underneath the statistics, it is more of a reflection of the English level of the internet users. Since higher English level often associates with higher income level.

With the 2008 Beijing Olympics approaching, Robin Li will have to think hard on whether to boost Baidu's index to include all web pages besides Chinese ones. The government is promoting English to make almost every citizen in Beijing to speak at least some English. Being left as a Chinese specialty search engine will limit Baidu's future growth significantly and also leaves the door wide open for it's users to move on to Google.

Other events in the quarter: Baidu has bought a large parcel of land in Shangdi (which is in a high tech park not far from its current rented headquarter) to build a new headquarter with capacity to host number of employees twice as many as what Baidu currently have in it's headquarter.

Baidu's webcast will be posted here as soon as it's available.

Saturday, February 11, 2006

Charles Zhang "Bombardied" Google

"Google has no show in China. Yahoo took 7 to 8 years to have learned the lesson. I believe Google will have to pay the same price" said Zhang, CEO of

The flamboyant Zhang was certainly with firepower when he made above statement on Feb. 8. In his hand was the unaudited quarterly earning report from Sohu. (Wallstreet certainly liked it with an 18% reward for Sohu's stock traded on Nasdaq. Google's stock has suffered 20% since it's earning report missed Wallstreet expectations).

"Don't even mention Ebay, nor Amazon or MSN. None of them has succeded". Why Google will also fail? Charles Zhang has a crystal ball. "It's a structural defect. A subsidiary from a multinational can never win in China. There is the gigantic culture divide".

It's not the first time Zhang made the statement. "He has yet had any respect for the operations of multinationals. Since Google is making stride in China this year, it is normal for Charles to make such statement" said a person familiar with Zhang.

“Google is too young”

"Look at how Yahoo stumbled in China, you will see Google's failing path", According to Zhang. "For a subsidiary of an American company to succed in China with two managers, with whom no experiences of an internet portal, and no close relationship between the decisions from their headquarter and the local market, it is a story you will only have heard in Arabian Nights". "I think Google is too young", added Zhang.

“Google will be a failed company in China”

Focusing on their recent heavy investing on search business, Zhang clearly aiming at their real competitor, Baidu. "We are focusing on challenging Baidu, since I believe Google will stumble in China." He still maintains his last year's promise :"We will pass Baidu in one year". He also indicated that the revenue from paid search business is not Sohu's focus. The real focus will be the traffic growth. "We will try to gain more users first, then the rest will come".

“To choose Google is to ruin your future”

“Nowadays, many young people who are choosing Google will have the similar fate as those who have chosen Yahoo. " Charles must have recalled his embarassment when several of his top executives left Sohu to Yahoo years ago. A few years back, Yahoo came to China to recruit. Many people were rushed over including Sohu's chief editor in business section as well as chief editor in news. Gone with them are also many of their associates. Sohu took a hard hit at that time.

“Google is recruiting here. It lures many young people because they can't see through it. Many young people have not gone through the internet experiences since 1998. Very likely they are ruining their future just like those many who have gone to Yahoo have done." said Zhang.

Wang Dandan from