Chinese Web Search Giant Serves Two Masters
Share with others:
BEIJING -- A government official's X-rated photos appear on the Internet and immediately go viral. Online traffic spikes as Web users hunt for the images with gleeful schadenfreude.
When Representative Anthony D. Weiner's anatomy dominated headlines in the United States this summer, the curious headed to search engines like Google or Bing to see more than usual of a U.S. politician. But when screen shots from a Web cam, showing a bureaucrat from the southern Chinese city of Guangzhou in a state of undress, hit the Web in late June, the majority of those who wanted to catch a glimpse of his naked body turned to Baidu, China's most popular Internet search engine.
With an 84 percent market share, according to iResearch, Baidu can see exactly what most of China's 450 million Internet users look for online, be it the latest political scandal, pop tune or movie schedule. And it is a formidable opponent for other companies, as Google can testify after scaling back its operations in China last year.
But despite its redoubtable position, Baidu finds itself faced with a thorny challenge -- keeping both the technocrats in Beijing and the financial analysts on Wall Street happy at the same time.
The company has gained a reputation in the West for censoring search results, as well as for its tussles with major music labels over its controversial practice of "deep linking" to pirated music tracks hosted on other Web sites. In February, the U.S. trade representative named Baidu as one of the world's "notorious markets" for piracy and copyright infringement.
That outside stigma has not stopped Chinese courts, Internet users and investors from siding with the search engine, which is based in Beijing. Since Google began directing mainland Chinese Web users to its Hong Kong site in March 2010, Baidu's market share has soared and its share price has more than doubled.
Despite that success, growing pressures within China have driven Baidu to move toward offering a more legitimate basket of services. After Google's departure, Baidu signed licensing agreements with Chinese songwriters and book authors. Those moves have raised the question of whether Baidu has chosen to turn over a new leaf on copyright issues.
But rather than repenting, the company may just be trying to expand without drawing the ire of the Chinese government.
Baidu scrubbed 2.8 million copyright-infringing works from its online library service, Wenku, just days after the Chinese National Copyright Administration announced that it was investigating the company for infringement of copyright regarding books.
A few days later, Baidu announced it had made a licensing deal with the Music Copyright Society of China, the country's official performing rights organization, which would distribute fees to composers and lyricists for each song downloaded or streamed through the company's Web site, putting an end to years of litigation. The organization successfully sued Baidu last year over unauthorized lyrics to 50 songs that were available on the company's servers.
"I hope this cooperation between Baidu and M.C.S.C. will set up a model for search engine companies to solve copyright problems with rightholders," Qu Jingming, the organization's secretary general, wrote in an e-mail.
Baidu's domestic legal setbacks have been interpreted as reflecting the Chinese authorities' growing intolerance of copyright infringement. With Google out of the picture, Baidu has increased its hold over Internet searches. But it has lost some of the Chinese government's support because there is no longer the threat of a foreign company gaining ground in the politically fraught realm of online information, analysts say.
Now, as Baidu grows more dominant with no real rival in sight, the Communist Party may increasingly see Baidu's near-monopoly as a cause for concern.
"Baidu's biggest enemy is itself," said Duncan Clark, chairman of BDA China, a technology consultancy. "Now that it has vanquished the bogeyman, it's gotten so large it's bumping up against the Party."
According to Mr. Clark, the government's solution to a current problem -- declining television viewership, particularly among young people, who prefer to entertain themselves online -- goes right through Baidu.
"State media is very desirous of Baidu's sheer reach," he said, noting that Baidu and other popular Web sites let Chinese users gain access to Western programming and news that do not always share the government's priorities.
"The Party wants to set the agenda," he said.
And since the only monopoly normally allowed to exist in China is the Communist Party, when a company gets too big, the government is happy to create competition itself. Last month, it did just that, when The People's Daily, the official party newspaper, introduced Jike.com, a rival search engine.
Whether Chinese users will frequent a government mouthpiece for their online needs remains to be seen. But Baidu is quick to dismiss its rivals.
"Whether private or state-backed, domestic or foreign, competitors can't tell us what the users can," said Jennifer Li, the chief financial officer of Baidu. "We handle more daily queries in China than any other search engine does in any single national market. That much data on the intention of users yields real insight into their needs and how to satisfy them."
That may be the case, but the company still cannot afford to sit back and watch major Chinese Internet companies like Sina, Tencent Holdings and Alibaba expand their rule over crucial sectors like microblogging, video games and e-commerce. And therein lies a big concern.
"Baidu is still very much a one-trick pony with search and very much wants to move beyond that," said B. Michael Clendenin, managing director at RedTech Advisors in Shanghai.
The company has been busy taking the money it makes from search advertising and investing in a number of new products that are likely to appeal to the most popular online habits. "They're throwing spaghetti at the wall and seeing what sticks," Mr. Clendenin said.
Last year, to compete for the attention of the nearly 340 million Web users in China who watch videos online, Baidu introduced Qiyi, a service offering ad-based licensed video content like movies and TV programs. A joint venture with the investment fund Providence Equity Partners, Qiyi attracts 156 million unique visitors a month. That still falls well short of the more than 280 million monthly visitors to Youku, a major video site.
Baidu is also preparing to introduce Ting, a free music service that incorporates social networking in its ad-based format. That approach, it seems, may one day supplant the vast quantity of pirated MP3s available through Baidu's search page -- if Baidu ever signs an agreement with the major record labels.
"Eventually Ting, which features only fully licensed music, will be Baidu's sole music offering," said Kaiser Kuo, a spokesman for Baidu.
Then there is Tieba, a community platform allowing users to build forums around topical keywords that has drawn more than a billion page views, according to Mr. Kuo, and Zhidao, a question and answer site.
Acquisitions are another important part of the company's strategy. Last month, Baidu announced it would invest $306 million for a majority stake in Qunar.com, China's leading travel search engine. The announcement came a month after Tencent, its rival and the largest Internet company in China, said it would buy a 16 percent stake in the online travel site Elong.com.
In social networking -- where Chinese people spend 6 percent of their time online, according to ComScore -- Baidu has failed to enjoy the success of Facebook clones like Renren and Kaixin001. That is a concern for the company if Chinese Web users become more like those in the United States, where about a quarter of Internet browsing time is spent on social networks.
For now, Baidu is letting Shuoba, its latest attempt at challenging the vast popularity of Sina's Twitter-like service, Weibo, percolate.
"We don't think we can seriously compete with Weibo," said Wang Menqiu, Baidu's senior director of technology and products, who oversees 2,000 engineers at the company's headquarters. "We kind of just want to try and let the product run online and watch what users will do with it."
The company's tricky position has so far not deterred investors from piling into its New York-listed shares.
"Baidu is one of our favorite stocks in China," said Tucker Grinnan, an analyst at HSBC in Hong Kong. "It has a very good underlying business, which generates a lot of cash flow."
Mr. Grinnan said, though, that he was not entirely convinced that the company's efforts to redeploy that cash in new services would ultimately pay off.
"Baidu is moving in the right direction in terms of being more innovative, but it doesn't have a huge record in being successful outside of search," he said. "The market is going to start asking, 'Where is the progress?"'
First Published July 18, 2011 12:00 am