Baidu - Tough times ahead? Probably NOT.

The article  emphasizes the issue's advertisers are having as they change from an old legacy system of Baidu  to a new interface that almost mirrors Google. Will this ultimately be a positive or a negative for the Chinese Search engine? How will it affect Google's position in China?  In my analysis, I explore some more details left out of the original article.

In my Search Engine Watch article, Baidu - A Sleeping Giant Awakens, I discussed the potential drawbacks  of the search engine's ability to switch from a portal providing little consumer transparency with great advertiser benefit to better consumer transparency with less advertiser benefit.

 

The cause for concern is in the proof, we are already seeing the advertisers who purchased paid links below the 2nd or 3rd result in the past and who are now on the right column, seeing a considerable decrease in traffic.  This I feel is more of a consumer awareness issue  then anything, since the right hand column has been so irrelevant to previous searches, many Chinese users simply are ignoring it.

 

I mentioned that this could possibly effect Baidu's short term advertiser results, less traffic available plus poorer conversions equal less money for Baidu.

 

Or is it really the case?

 

Lets take a look at other factors:

 

80/20 Rule: I do not know if this is the case with Baidu, however, the old rule still applies that 80% of your revenue comes from 20% of your clients.  If that's the case, then top paid positions, which deliver 40-60% of the traffic, are usually 2-5 times more expensive on Cost Per Click's.

 

60-70% market share: Baidu crushed Yahoo China and continues to chip at Google  China in terms of market share. 

 

20-30% online growth: Considering that the Chinese market has only reached 25-20% of its population, it is enjoying huge yearly growth.  Where do most new consumers go when they first jump online? They are likely attracted to Baidu over Google China.

 

Chinese Default: The Chinese default search engine in internet cafe's and other internet institutions in China is still Baidu.

 

Revenue per search: Google China still enjoys more revenue per search. As multinational advertisers see 2-3 times better conversion, they are willing to pay 2-3 more in CPC.  However, as Baidu concentrates on a better search engine, it would be interesting to pay attention to this revenue per search gap. As quality improves on Baidu, it may eventually gain the affluent and B2B users away from Google China or even worse, create and maintain a new base of affluent clients on their site.

 

Considering all of those factors, Baidu still has great long term potential, even if it might have a little hiccup as they change for the better.

 

 

Michael Bonfils consults with leading institutions through GLG