Name: Baidu

Commands about two-thirds of the booming Chinese search market, successfully holding off Google with a range of services tuned to local users. Whether it can compete on a global scale is uncertain.

Stock Symbol: BIDU
URL: www.baidu.com
Location: Beijing
Telephone: +86 (10) 5992 8888
Year Founded: 2000
Number of Employees: 6387 (as of December 31^st, 2008)

Executive Leadership:

Chairman and CEO: Robin Li

Bio: Bachelors in information management from Peking University, Masters in computer science from the State University of New York, Buffalo. Prior to Baidu, Li was a staff engineer at Infoseek, an Internet search engine, and, before that, a senior consultant at IDD Information Services.

CTO: Yinan Li

Bio: Masters and Bachelors in optical engineering from Huazhong University of Science and Technology. Li worked as the CEO of Harbour Networks and then the chief telecommunications scientist of Huawei Technologies before Baidu.

Board Members and Advisors:

William Decker

James Ding

Nobuyuki Idei

Robin Li

Greg Penner

R&D:

Total R&D spending (FY 2008): $42.0 million

R&D as a percentage of revenues: 9.0 percent

Ratio of employees engaged in R&D: not disclosed

Technology:

Baidu’s key technologies are its Web search and advertising technology, and an e-commerce platform. Baidu uses distributed software and high performance parallel computing technologies to provide these services with low cost computer clusters on a Linux operating system.

Baidu’s advertising system matches customers’ advertisements with relevant audiences, based on users past search experience and the content of individual web pages. In November 2008, Baidu announced the development of “Phoenix Nest”, a new keyword sealed auction system which provides customers with more keyword choices to bid on, more tools for budget management and more data for the effective measurement of ROI. According to latest quarterly report, 70% of all customers already use Phoenix Nest.

In December 2008, Baidu announced “Project Aladdin”, an ongoing research and development effort aimed at uncovering parts of the Internet that existing search engine technology may not be able to index.

Market:

The Internet search industry in China is rapidly evolving and highly competitive. Baidu’s main competitors are U.S.-based Internet search providers that provide Chinese language Internet search services (for example, Google China, Yahoo! China) and Chinese Internet companies (Sina, Sohu, Netease, Tencent).

Baidu competes for both users and customers on the basis of user traffic, quality and quantity of search results, availability and ease of use of our products and services, the number of customers, distribution channels and the number of associated third-party websites. Baidu also faces competition from traditional advertising media such as newspapers and TV.

Its new instant messenger, Baidu Hi, and C2C services (Baidu Youa) is in competition with the leading providers of these services in China (Tencent’s QQ, MSN Messenger, and Ailbaba’s Taobao, Tencent’s Paipai, and EachNet, respectively).

Strategy:

Baidu’s strategy is two-fold: continue to maintain a leading position in the Chinese market as well as expanding its operations into new markets.

Baidu’s main goal is to maintain a leading position in the Chinese language Internet search market by offering new and innovative products to attract and retain a larger user base, attract additional customers and increase spending per customer; and further enhance their brand recognition. Also, Baidu aims to continuously upgrade its technology to support increased traffic and expanded services to maintain customer loyalty. Furthermore, Baidu is trying to expand into new markets, e.g. it has launched its first oversea operations in Japan in 2008, but is struggling to take away market share from Yahoo and Google, which have captured the majority of the search market in Japan.

Challenges and Next Steps:

Baidu is facing significant competition, pressure to provide new products and services and expand into new markets, as well as intellectual property infringement claims.

U.S.-based Internet search providers such as Google and Yahoo! have a strong global presence, well-established brand names, more overall users and customers and greater financial resources than Baidu. Baidu’s Chinese competitors have widely recognized brand names in China and some have greater financial resources than Baidu.

In order to keep its market share, Baidu will have to continue to innovate. According to their latest annual report, the company has recognized the need and seems committed to high R&D expenditures.

With respect to the expansion into new markets, such as Japan, Baidu is looking for new ways to take away market share from the incumbent firms. For example, it has announced in September the launch of its beta version of a wireless search service in Japan through which it hopes to expand its reach.

In China, uncertainties still exist with respect to the liability of Internet search providers that provide links to third party content that infringes upon others’ copyrights, which could open Baidu up to expensive litigation.

Compiled by René Reinsberg