Baidu Is a Better Version of Google

Douglas A. McIntyre

Google Inc.'s (GOOG) single greatest weakness may be its poor market share in the world's largest country as measured by population and Internet users -- China. To make matters worse, Google's primary competitor in the People's Republic -- Inc. (BIDU) -- is having an extraordinary year.

The Chinese firm announced:

Baidu reported total revenues of $1.232 billion for the second quarter of 2013,up 38.6% from the same quarter in 2012.

Net income attributable to Baidu was $430.8 million, a 4.5% decrease from the year before. Basic and diluted earnings per ADS for the second quarter of 2013 amounted to $1.23 and $1.22, respectively.

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And it forecast that the extraordinary growth would continue:

Baidu currently expects to generate total revenues in an amount ranging from $1.422 billion to $1.460 billion for the third quarter of 2013, representing a 39.7% to 43.3% year-over-year increase.

Google's global growth rate has fallen to less than 20%, although the comparison with Baidu has a major distortion. Google's quarterly revenue was $14.1 billion.

The size difference notwithstanding, most of the large geographic markets in which Google does business are ones where it has two-thirds or better share of the market. This success has put the search company's future in jeopardy, particularly in Europe, where Google is up against antitrust challenges. The U.S. company's efforts to diffuse the problem have been unsuccessful. Reuters recently reported that:

"I concluded that the proposals that Google sent to us are not enough to overcome our concerns," European Competition Commissioner Joaquin Almunia told a news conference on Wednesday, adding that he has asked Google to present better proposals.

It is worth recalling how much damage was done to Microsoft Corp.'s (MSFT) prospects in Europe, when antitrust authorities bludgeoned it into a settlement over use of its Internet browser and operating system integration. Although the case was settled in 2009, European Commission officials said last year that Microsoft had not lived up to it part of the agreement. Microsoft was fined an additional $732 million early this year as Europe pressed Microsoft to keep its antitrust pledges.

So, Google's fortunes in Europe may be significantly delayed. Contrast that to China, where Baidu has full run of the market, despite a share that has been estimated at high as 80%. Google has been bedeviled by the People's Republic for what the government has said are inadequate censorship measures of its search results. Certainly, the rules by which Baidu and Google operate in China are different.

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Baidu may never have much of a future outside China. However, with more than 519 million people online in the People's Republic -- a number that is still less than half the population -- what other market does Baidu need?

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