Baidu Extends Market Share Gains in China as Google’s Dwindles
Baidu’s (NASDAQ:BIDU) search market share has risen sharply from an estimated 56% in 2007 to around 78% currently driven by the strong relationships of the company with high growth among small-and-medium size businesses (SMBs) as well as due to more regulatory barriers on foreign Internet companies like Google (NASDAQ:GOOG) and Yahoo (NASDAQ:YHOO). But Baidu has also had its share of problems. For example, it has been criticized for selling off its top search results to the highest bidder instead of basing on the search keywords used. [1]
While we estimate Baidu’s search market share in China will increase from around 80% in 2012 to almost 86% by the end of our forecast period, Trefis members expect an increase from near 83% in 2012 to 89% during the same period. The member estimate imply a small upside to Baidu’s stock price.
We currently have a Trefis price estimate of $134 for Baidu’s stock, which is just below the current market price.
High Regulatory Barriers on Google, Yahoo
The Chinese government in the past has put restrictions on the nature of news and online advertising provided by foreign Internet providers like Google and Yahoo. Even in traditional media business, no overseas TV company, except for Phoenix TV, offers any Chinese news programs. Google, a supposedly non-content provider, has been suspended several times in China for ‘improper content’ in its search results. Frustrated by government censorship and hacking, Google shut its Chinese domain google.cn and began rerouting searches to its Hong Kong site last year. This caused a drop in Google’s market share from 36% in Q4 2009 to 19%% in Q2 2011. [2] Baidu was the biggest beneficiary of Google’s decline that saw its own market share increase by more than 30% during the same period.
Focus on SMB Advertising
Baidu’s increased focus on advertising for SMBs will likely help increase its search market share. It has developed strong relationships with companies and the presence of strong sales force and an established brand will help Baidu penetrate this market segment, making it more difficult for other players to break in.
While Baidu is striving toward maintaining its leadership and market share, it has been criticized in the past by state-run China Central Television (CCTV) with fraudulent advertising practices. And more recently, in an August 15 program aired on CCTV’s business channel, undercover CCTV reporters exposed how companies selling unlicensed products could buy their way to the top of Baidu’s search results. [1] This report could trigger another round of regulation forcing Baidu to clearly define its paid advertising versus organic search results.
Our complete analysis for Baidu’s stock is here.
Notes:- China’s regulators may force Baidu to be more like Google, venturebeat, Sept 2, 2011 [↩] [↩]
- Google’s China Market Share Down In 2Q, Baidu’s Up – Research Firm, Fox Business, July 15, 2011 [↩]