China’s Baidu Beats Google At Its Own Game

by Alexander Moschina, Investment U Research
Tuesday, May 3, 2011

The Chinese Internet Stocks Index may have flat-lined as of late, but that doesn’t mean there aren’t some star performers.

One company in particular – Google‘s (Nasdaq: GOOG) greatest rival overseas – recently leapt 3.25 percent after surprising everyone with its first-quarter earnings. But that’s just the start…

Google Says “No” to China, Baidu Steps in and Collects Millions

On April 27, Baidu, Inc. (Nasdaq: BIDU) reported that net profit for the first quarter had more than doubled to $163.5 million. Total revenue shot up 88 percent to $372 million. And it’s all thanks to the company’s continued dominance of China’s internet search traffic.

According to research firm Analysys International, Baidu.com now owns over 75 percent of China’s search market.

Meanwhile, Google’s stake has fallen to a new low of just 19.2 percent. The U.S. company has been slipping for more than a year – ever since announcing that it will no longer abide by China’s strict censorship guidelines.

Yet that’s only half of Baidu’s success story…

The company isn’t just after Google’s desktop search business. According to CEO, Robin Li, “We want to copy our success on the PC to mobile phones.” And to make this happen, Baidu is making some pretty bold moves …

Baidu Teams Up with Google… to Take Down Google?

A company spokesperson recently announced that Baidu plans to use Android – Google’s popular smartphone operating system – to boost its own business.

Going forward, at least 80 percent of the Android phones sold in China will feature Baidu in place of Google as the default search provider.

So essentially, the company is using Google’s software to push Google further out of China. And there’s not much Google can do about it, either. Android is “open source,” which means developers are allowed to change the software any way they want.

Considering mobile traffic was pretty much all the U.S. company had left in the world’s second-largest consumer market, this could be devastating.

There’s About to Be 900 Million Users Heading Baidu’s Way

But for Baidu, it’s an ingenious way of securing some extremely valuable search traffic. Chinese mobile users outnumber U.S. mobile users three to one. That adds up to 900 million active users.

However, the bigger story here is how this victory takes Baidu one step closer to becoming the Google of China. After all, the $52-billion company has cornered the country’s search market in just a few years’ time. And it’s got plenty in the works to make sure it stays on top…

• It’s launched a Hulu-esque site where users can view licensed video content…
• It’s investing millions in blogs and other social media outlets…
• And it’s even developing its own open source software platform (a la Android)…

Baidu may not win any points for originality, but that doesn’t really matter here. On the web, the biggest profits go to the company with the most users, and this one has them in spades.

Good investing,

Alexander Moschina

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