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Moving in circles
Join Date: Apr 2006
Location: Singapore
Age: 49
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Quote:
Originally Posted by SeijiSensei
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While I am more likely to believe allegations of Chinese espionage than not, part of me wonders whether Google has benefited from a cleverly planned public-relations ruse.
I've spoken to an Oracle engineer recently who echoed the opinions muttered by a few businessmen friends I know: Generally, they suspect that the real reason Google announced the alleged hacking attacks is to cover up its dismal performance in China despite years of operation. Other members here have raised similar suspicions, but what is striking to me is that few mainstream English-language news agencies have explored the angle.
In that light, it's interesting to read this analysis of Web-based business in China:
Searching for value: Baidu vs Tencent
Quote:
By Sunita Sue Leng
The Edge Singapore (Jan 26)
I LOVE Google. I use it almost every day. I read the news, I look up stuff. For millions of Internet users in China, however, Google isn't the go-to search engine. For most of them, it's local portal Baidu. And guess what they look for? MP3 downloads.
Yes, music is what drives China's search-engine business. And that's largely because its Internet users are young. According to government data, 61.5 per cent of Web users are below the age of 29. They also don't have bucket loads of disposable income: About 42.5 per cent of users have a monthly income of 1,000 yuan (US$146.50) or less.
The Internet is a source of cheap entertainment for them. Sure, it's a window to a world not utterly controlled by the heavy hand of the state. But, for the bulk of China's 384 million Internet users, it's a window to listen to the latest Mando-pop or Lady Gaga hits.
Baidu understood that early on and that's a key reason it has thrived. Last year, it had 60.9 per cent of the market by revenue (three quarters, if measured by traffic). Google was second, with 31.8 per cent, according to Beijing-based consultancy Analysys International. That's a position it quickly built up in three years and that it is threatening to give up.
Who's the real winner?
...Whether Google goes or doesn't go, most analysts reckon Baidu will gain. If Google stays, it would be in a weakened position to negotiate prices with advertisers, who may prefer to channel their money to local search engines.
Since Google's shock announcement, several investment banks have upgraded their calls and target prices on Baidu, and the Nasdaq-listed company's share price rose to a one-year high of US$470.25 on Jan 15.
Just how much does Baidu stand to gain? First, it's worth remembering that about half of Google's China-derived revenues are spent on its international sites. If Google does indeed quit the market, these advertising dollars will likely continue to go to Google's international sites. That leaves the balance up for the taking, of which Baidu is expected to take 90 per cent, estimates Deutsche Bank.
That's because the other search players in China are puny. Sohu.com has about 1 per cent of the market, while Tencent Holdings, China's largest social-networking portal, has a mere 0.7 per cent. The rest is shared by online gaming operator Net Ease.com and other smaller operators.
Tencent's game plan
...The search landscape is changing; competitors are beefing themselves up and new players are entering the fray. Alibaba, which owns Taobao, the largest e-shopping portal in China, is preparing to roll out its own search engine. Microsoft, which launched Bing in mid-2006, is stepping up its investments in China.
Tencent is ramping up the technology on its SoSo search engine. Sure, SoSo is tiny at the moment but, given Tencent's huge user base and enormous traffic, it can become a meaningful alternative to Baidu over time. Also, Tencent offers investors exposure to another Web offering that is growing explosively in China: online gaming.
...Last year, the value of China's search market was 7.15 billion yuan (US$1 billion), according to Analysys International. The market for online games was almost four times that, coming in at 26 billion yuan (US$3.8 billion). That market is forecast to swell further to 73 billion yuan (US$10.7 billion) by 2012.
Then, there's the profitability aspect. "On a per-user basis, online gaming is a higher-margin business," says Mr Shailesh Naik, chief executive of Matchmove Games, a Singapore-based online game service provider.
That's because search is a volume game, requiring massive server farms and powerful Web crawlers (computer programs that browse the Web) to deliver the best results. That costs money. In contrast, much of the investment with online games is upfront, at the design stage. For games created in-house, the margins can be extremely lucrative as volumes build up.
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