Tuesday, October 31, 2006

Another Yahoo? or still China's Google?

Baidu reported third quarter earnings today.

It was fantastic: 180% increase in revenue, 10 fold increase in profit.

No one can ask more, can we?

Frankly, we are quite disappointed. This quarter supposed to be a strong build up from last quarter with strong momentum in many fronts, especially continued market share gain and the release of new community based products.

However, as we suspected, Baidu's decision to replace channel partners with it's own sales force could have negatively impacted business in the quarter. Active online customers increased only by 13.3%. Many of these partners might have shifted their energy to work for Google.

For the next quarter, the projection is merely 15% increase quarter over quarter. We have expected Baidu's business to take off instead of maturing at this early stage.

Baidu has been heavily tauted as China's Google. We have to respectfully disagree. It looks more and more like another Yahoo.

Google has long realized that click through rate is more important than keyword pricing and have improved their ads ranking based on relevancy and likelihood of being clicked by users. Yahoo was late to do similar and being punished last quarter. Baidu is still doing the old "overture" way in disregard of user experiences.

Last quarter, Baidu had 40% quarter over quarter growth. Google had probably 70% quarter over quarter growth in China(estimated by last survey). When the new survey coming out, it's likely to show that Google probably continues to gain market share in search revenues thanks to Baidu's strain relationship with channel partners.

Again, longer term, it is hard to see how Baidu can compete with Google on capex front. Effort in capital expansion is much needed for Baidu sooner rather than later.

Sunday, October 29, 2006

Baidu to report earnings

Baidu will announce 3rd quarter earnings after market close on Tuesday.

A webcast will be held at 8pm US eastern time.

We expect Baidu will have another excellent quarter.

Revenue should grow 35 to 40% this quarter over last quarter which is about 2 to 3 million higher than Baidu's guidance of about $31 million dollars.

A few things contributed to higher revenues this quarter:

1. Continue market share gains
2. Significant increase of display ads across the two most significant properties of post.baidu and mp3.baidu
3. Continue strength in keyword pricing

One uncertain factor might have affected result is the replacement of channel partners with Baidu's own salesforce mainly in Beijing area. It definitely helps Baidu in expandng revenue in northern China regions but a strain relationship with channel partners could negatively impact revenue growth in other regions as those partners were heavily courted by Google at the same time.

Other positive developments during the quarter includes rollout of hi.baidu, a blog service and several partner agreements including the distribution agreement with Viacom's MTV.

There are also several negative development during the quarter:

1. Layoff of enterprise software division employees. The event was covered heavily and expanded by Baidu's competitors. To Baidu's end, it was done less appropriately and Baidu now decides to sue one of the former employee for defamation which we think is very unwise.

2. CTO resignation. The reason of Mr. Liu's resignation was quoted as "strong desire for starting a new business". Translation - I don't like my boss and want to be my own boss.

3. Over monetization concerns. Many search result pages have whole page of sponsored links when Baidu thinks a user was looking for a product. In near term, since many Chinese users could not differentiate a sponsored link from a natural result, Baidu can profit handsomely. Longer term, it degrade Baidu's user experience and could open up opportunities for Google to regain market shares.

There are also several challenges facing Baidu:

1. Capex. With very limited financial resources, how Baidu can compete with Google long term is a big question. Baidu should consider listing in domestic market as a source for more capitals.

2. Missiong links such as email program. Email is probably one of the most sticking application of all web applications. Baidu should consider taking over Netease which owns one of the most widely used email program.

3. Missing English contents. Though there are growing (but still very limited) English contents in Baidu, a joint venture or collaboration with a English search engine could give Baidu much needed boost since many academic users in China are using Google as their second choice of search engine. Once Google's China division starts to deliver localized content with their recently hired one hundred talented Chinese engineers, many could decide to stay with Google for searches in both languges.

Monday, October 23, 2006

Google Penalized Alibaba

Update. Rankings of some subdomains and webpages from Alibaba were lowered by Google recently. Google search is no longer "Alibaba inside".

Before Google, Baidu has penalized Alibaba. This time, Google used different degree and means by lowering ranks of some of Alibaba's domains and their pages. For example, search.china.alibaba and hotproduct-cn.alibaba.com used to be the best performing search rankings and now lowered by Google. Previously, Baidu removed these two subdomains from their search result.

After lowering the ranks, though still indexed by Google, they are no longer ranking well in search results. For example, if you search some keyword such as "y-style filter", you can no longer find Alibaba's result in the first page. Previously, Alibaba was absolutely always number one.

Reasonable explanation from seo field is that those sub domains are placed in Sandbox. For major website like Alibaba, it is unlikely the adjustments have been done by machine. Connecting with the crazy fact that tens of thousands of Alibaba pages are clogging almost 30% of Google's first page results, human involvement from Google is more likely.

A few days ago, the author has questioned some of the SEO work of Alibaba's pages: "Such search quality has severely affected user experience, and threatening normal use and survival of search engines. It is not the question whether because Alibaba's CTO was from Yahoo and very skilled in search technology or because they are often crossing the lines. It is the question how long Google can tolerate this situation".

Now, facts proved once again, there is limit how much Google will tolerate. "Any behavior that severely affects user search experience and normal use and survival of search engine will ultimate be abandon or punished". This event should be a big warning for many large scale websites.

by Shitou

Friday, October 20, 2006

Baidu builds 4th generation search engine

The hugely successful 3rd generation search engine Baidu, is actively building 4th generation search technology, revealed by it's CEO Robin Li yesterday. Baidu is actively exploring social search to meet the internet's need for next generation search technology, that is social search.

Li indicated that, in the next few years, the trend of socialized search will be more and more predominant. Internet search has gone three stages, the first one based on appearing frequencies of keywords; the second one using "super link analysis" technology and the third stage is dominated by sponsored search ranking and it is where Baidu is positioned currently.

As the need of information surges, there is increasing demand for user involvement. Socialization is the best way to meet this demand. Baidu is actively pursue the idea and development. The announced products of post.baidu, baike.baidu, and hi.baidu are the testing ground for this developing trend of communities. Baidu is increasing it's commitment in this area to maintain it's leadership position in the industry.

from news.163.com

Tuesday, October 17, 2006

Keyword Pricing Updates(8)

On Oct. 17 , Huatong 140 Index came in at 5.7411. It is up another 14% from two month ago when last survey was done on Aug. 15.

It was up more than 25% from the first survey done on June 6.

Breaking News: Baidu Signs with Viacom

Sept. 17 Breaking News

Baidu has just signed strategic agreement with Viacom and four largest Chinese music labeling companies this afternoon.

Baidu will establish close relationship with Viacom's MTV music network.

reported by tech.qq.com

Breaking News: Baidu Signs with Viacom

Sept. 17 Breaking News

Baidu has just signed strategic agreement with Viacom and four largest Chinese music labeling companies this afternoon.

Baidu will establish close relationship with Viacom's MTV music network.

reported by tech.qq.com