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Its reluctance to self-censor has resulted in a bigger lead for Beijing's Baidu.

Bloomberg News

HONG KONG - After winning permission from China's government to continue to operate there, Google must now fight for relevance as Baidu extends its dominance in the world's largest Internet market.

Uncertainty over whether Google would be forced out of China prompted some advertisers to switch to Beijing-based Baidu.

"There is a big gap between Baidu and Google, and that gap has got bigger," said Vincent Kobler, managing director of Emporio Leo Burnett, a Shanghai advertising agency that specializes in online marketing. "It's going to be tough for Google, even with the renewed license, to gain market share."

"It won't be easy for Google because its service has been diminished in the past few months," said Jake Li, an Internet analyst at Guotai Junan Securities in Shenzhen. "Baidu is likely to stay ahead."

Last month, to remain in compliance with China's laws while also ending self-censorship, Google added an extra step for Chinese Web surfers, directing them to a landing page that in turn points them to a Hong Kong site. The U.S. company had said in January that it would no longer comply with Chinese government requirements that websites self-censor content.

Adding that complication for Chinese Web surfers will cost Google, Gene Munster, an analyst at Piper Jaffray Cos., said in a July 9 research note. Every extra step added to the search process will lose users, he said.

China had 384 million Internet users at the end of 2009, the government estimates, more than the U.S. population. That may grow to 840 million by 2013, according to EMarketer Inc.

"Baidu is willing to do whatever the government wants, to play by the rules. That's to Baidu's benefit," said Jason Helfstein, an analyst at Oppenheimer & Co. in New York. "Google is trying to do things that they think are the right thing to do, even if it has negative business implications; naturally, that has been shareholders' gripe."

Ending self-censorship also cost Google partnerships with mobile phone service provider China Unicom (Hong Kong) Ltd. and Web portal Tom Online Inc.

Google had said in January that it would stop censoring content, and it threatened to exit the Chinese market after cyber attacks originating from the nation targeted its systems.

The "highly sophisticated" attacks were aimed at obtaining proprietary information and personal data belonging to human-rights activists who use the company's Gmail e-mail service, it said.

Since it began redirecting Chinese users, Google's search results have been screened by China's so-called Great Firewall, a government monitoring system that blocks overseas services such as Facebook and Google's YouTube.

The firewall limits Chinese Web users' access to information on topics ranging from Tibet's independence movement to the 1989 crackdown on protesters in Tiananmen Square.

"Until Google develops a deeper understanding with regulators in China, Google's China business remains at risk," said Sandeep Aggarwal, an analyst at Caris & Co. in San Francisco.

"There is a big gap between Baidu and Google, and that gap has got bigger."

Vincent Kobler,managing director of Emporio Leo Burnett, a Shanghai advertising agency that specializes in online marketing


58.4% Baidu's fourth-quarter 2009 market share in China

35.6% Google's fourth-quarter 2009 market share in China

64% Baidu's first-quarter market share in China

30.9%Google's first-quarter market share in China

Source: Analysys International