Baidu's profits grow as Google's search share falls in China

Baidu profits double for third quarter as the Chinese search engine continues to dominate the China market

China's largest search engine, Baidu, doubled its net profit in the third quarter as it continued to take market share from Google.

Baidu's net profit rose 112.4 percent year-on-year to US$156.4 million. The positive earnings were the result of the company's efforts to expand its customers base, as well as improvements made to its online marketing system, said Baidu CEO Robin Li during a conference call on Friday morning. Revenue rose 76.4 percent to $337.2 million.

Baidu won a 73 percent share of the Chinese search market in the third quarter, up from 70 percent previously and a new high according to Beijing-based research firm Analysys International.

Baidu is winning users from rival Google, which has continued to lose market share in China since it announced in March it would stop censoring search results. Google's market share fell to 21.6 percent in the third quarter, from 35.6 percent at the end of 2009.

One of Baidu's latest initiatives to attract more users has been to embed applications into its search engine, in what the company has called its "box computing" concept. About 30 percent of the search engine's queries is for applications, Li noted.

As part of that idea, in early September Baidu officially launched a series of new entertainment features that allows users to play games, watch TV shows, buy books and listen to songs directly from a Baidu search page.

"I think users like these embedded apps very much," he added. "We are opening up a whole new area to let our users be more dependent on Baidu's service."

More developers are also growing interested in embedding their apps with the new platform, and Baidu is working on ways to share revenue with them to promote their products, Li said. However, in the near future, Baidu does not plan on making any direct revenue from offering apps on the platform, and is instead allowing the developers to charge users for the products.

"The main purpose is to let users be more dependent on the Baidu search box, not to drive more revenue opportunities," he said.

Baidu's revenues come from its online marketing. Compared with last year's third quarter, the number of online retail companies advertising with the search engine has doubled, Li said.

The company is also becoming more directly involved in the e-commerce market. Earlier this month, Baidu jointly launched a new Chinese online shopping mall with Japanese e-commerce company Rakuten. So far, the new shopping mall, called Rakuten China, has a total of 2,000 registered sellers, said Shen Haoyu, Baidu's senior vice president of operations.

China's e-commerce market is already dominated by Alibaba Group. But Baidu believes it can leverage its expertise on search as well as Rakuten's own online retail experience to create a successful site, Shen said.

But even as Baidu currently dominates the Chinese search market, new competition may be arising.

Alibaba Group has launched a new shopping search engine called Etao through its online retail company Analysts have said Etao will compete with Baidu primarily for a large number of users who search online to buy products.

Baidu, however, believes such search engines, that specialize in certain fields, represent no threat to the company, Li said.

"The majority of users are lazy. They only want to rely on one search box to satisfy their information needs," he said. "I still believe that the super majority of users will first come to Baidu for what they are looking for."

Copyright © 2010 IDG Communications, Inc.

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