The Microsoft Yahoo nonsense which is currently proceeding brings Baidu under the spotlight.

If you can think back a bit we may be in the same over-heated area we were in 2000. Then analyst Henry Blodget of Merrill Lynch said Yahoo price potential was around $425 even though at the time they were near the $300 mark.

He was more than somewhat off the mark.

Yahoo dropped like a stone in a muddy pond by more than 95% and ended in the $10 area. Recovered since then, of course. But it was an awful warning as to how far enthusiasm can go.

Citi thinks Baidu is a good buy and has increased its one year price target from $350 to $415.

This logic is, in a sense, helped by the fact the shares have almost doubled in the last month from the low $200s.

Past experience would tell us that last year they went up too far, too fast and are due for a correction. And that will not be in the direction suggested by Citi.

Now let us try pure reason.

The way matters stand at the moment the market is saying Baidua is worth nearly $13 billion. To put this into perspective add together most of the American airlines and their total worth is less.

Yet these airlines are estimated to generate revenues in 2009 of $86 billion.
A billion here, a billion there and suddenly your are talking real money.
This equates to more than 118 times Baidu’s expected revenues of $731 million.

Even though mathematics are not my strong point and in shares I am a conservative Welsh Calvinist Methodist there seems to me to be some sort of lack of logic herein that.

Baidu’s shares are selling at 91 times estimates of the 2008 profits and 57 times 2009 estimates of $6.54.
Google is selling at only 23 times 2009 earnings estimates.

OK, forget the airlines. Think of Google. And remember that Google is chip, chip, chipping away at Baidu’s share of the market in China.

Anything could happen because this is China and sometimes irrational decisions can be made. But, at the moment, I am not thinking of putting any of my meager earnings into Baidu. The lottery looks a lot more attractive.
Source: Seeking Alpha

Microsoft is offering to buy Yahoo! for $46 billion. Around the world it may not make very much difference for in search engines Google will still hold the lead. In China it may be something else again.

The theory being put forward by the pundits is that this is mainly Microsoft getting a grip of mobile communications.

At the recent World Economic Conference in Davos, Google Chief Executive Eric Schmidt said mobile Internet services have the potential to spark a ‘huge revolution’ in the coming year, comparable to the ‘re-creation of the Internet’ and the personal computer.

And there is much in what he says. Microsoft is also keen on having a bit of this action and with Yahoo!’s mobile assets and it is possible to see the combined companies coming up with some killer mobile applications.

Does this mean the combined companies will wipe Google around the world?

Not a bit of it. Just getting the two companies to work in synch will be difficult enough.

To get them to a state where they are challenging Google in the search engine stakes is some major task and will not be accomplished in a year or even two.

In his letter to Yahoo’s board of directors, Microsoft CEO Steve Ballmer touted ’significant benefits of scale in advertising platform economics’ as one of the key advantages of the acquisition. So, on the face of it, Microsoft wants some of the online advertising business where Google currently has about 42% with the rest divided between Microsoft, Yahoo, and Time Warner’s AOL.

The current online advertising market is still search-based. Neither Yahoo nor Microsoft could come close to Google in this field. Google is estimated to have a 58% share of the web search market while Yahoo has a 23% market share and Microsoft something in low single figures.

However, in China the two companies combined will be well set to take on Google which is far from being the market leader. It is possible the Microsoft is gambling first on establishing itself what is currently the second biggest market in the world and may well become the biggest before too many years are over.

There have been cynical comments that when you cross Microsoft and Yahoo!, you get Microsoft. Sadly, there is much truth in that cynicism.

It is an amazing deal and, perhaps, if it happens the first impact will be in China. The second on mobile phones.

But it is not yet a done deal. Add to that Microsoft’s track record on dealing with mergers and you feel the opposition can sleep soundly for the time being.
Source: Forbes

Netease has a new homepage to allow for the fact that the search engine Yodao has become the official search engine of the site.

Yodao, run by 163.com, is now out of beta — the test phase which can last many months, or in the case of Google, years — and now integrates many services from Netease, the biggest online game company in China, while, at the same time, still continuing to search like Google.

The company’s CEO Ding Lei says he expect the new website would become the No. 1 search engine within three years.

It took two and a half years for over 100 technicians to create the search engine. Ding Lei is positive that quality will tell. ‘If we provide better services, we will have many customers. They never refuse better products.’

China’s search engine market has not fully developed. Only 10% of Chinese enterprises have their own websites.

Already Wang Zhansheng, CFO of Baidu.com, has commented that the future market is able to support more new search engine companies. The reviews suggest that the Yodao Reader, while not better than the Google Reader, is fast, stable and Ajax-powered.

Yodao News Search is also new. Like Google News and Baidu News, it generates headlines on the subject searched for automatically.

All of which may bring some changes to the Chinese search market where Baidu is in a massive lead with Google - this is an unusual experience of that continuously booming company — trailing along in the rear. If Google is now beaten by Yodao then Google will be sending messages to its subsidiary in China that it is not happy, not happy at all.
Source: China Web 2.0

What are the top ten ‘What is’ questions searched by Chinese Internet users — according to Baidu?

1. What is a mutual fund? 2. What are warrants? . What are stock-index futures?4. What are stocks? 5. What is e-commerce? 6. What is love? 7. What is 3G? (Third generation wireless technology) 8. What is corporate culture? 9. What is ’scientific view of development?’10. What is OEM? (Original Equipment Manufacture)

The Google top ten “What is” questions by English users around the world:

1. What is love? 2. What is autism? 3. What is RSS? 4. What is lupus? 5. What is SAP? 6. What is Bluetooth? 7. What is Emo? (For those of us who do not keep up with modern trends it is a style of rock music) 8. What is Java? 9. What is HPV (human papillomavirus)? 10. What is gout?

Now the top ten ‘How to’ questions searched by Chinese Internet users — according to Baidu:

1. How to reduce weight? 2. How to speculate in stocks? 3. How to open up the registration form? 4. How to lighten your skin [a beauty treatment popular in China]? 5. How to apply make up? 6. How to buy mutual funds? 7. How to make money? 8. How to start a business? 9. How to kiss? 10. How to manage wealth?

Compare it to Google’s top ten:

1. How to kiss? 2. How to draw? 3. How to knit? 4. How to hack? 5. How to dance? 6. How to crochet? 7. How to meditate? 8. How to flirt? 9. How to levitate? 10. How to skateboard?

Source: China Digital Times

This is a long, fascinating and quite important article because it is written by Robin Li who founded Baidu in 1999 and which was listed in NASDAQ in August 2005. He has a bachelor of science degree in Information Management from Peking University and a master of science degree in Computer Science from the State University of New York at Buffalo.

What the article says is that the development of the Internet in China and Asia breaks into four major stages.

First came the portal phase – The earlier successful Internet startups primarily served the public as Internet portals.
Then came the games – The next rising commercial crest in the market was driven by the developers and providers of online games.
The third was the avatar. Exhibiting growth paralleling a remarkable tidal surge in the number of Internet users, volume in the trading of avatars grew steadily. Strongly representative of success in this realm are China’s QQ, with 65% of the firm’s income derived from avatar trading.
Fourthly, search and e-commerce. Developments channeled search and e-commerce firms to the mainstream of the Internet market.

Baidu is the world’s largest Chinese-language web portal operator.

Robin Li writes that due to varying factors, the application of e-commerce in China, in scale and in depth, still lags in pace of development – especially when one considers the enormous potential of the Chinese market.

At the mainstream center of today’s Internet industry, search engines have become one of the most commonly used technologies in the developed world, while offering enormous market opportunities and the greatest developmental potentials in the IT field.

In China Baidu has 66.7% of the market, followed by Google and Yahoo, the latter two collectively accounting for 24%.

Seven years ago, when Baidu first introduced its search engine, only 5 million Chinese web pages were indexed, accounting for a mere 2% of global cyber information.
Today, the number of web pages published in China exceeds 4.5 billion, amounting to 20% of the world’s volume.

One might say that the facilitation of this growing enlightenment and sophistication is the most important result delivered by the search engine.
Source: China.org.cn

Chinese e-commerce firm Alibaba.com has entered the fray of Internet advertising with an online platform for Websites and advertisers to match up.

Its new unit — Alimama.com — which has gone through 100 days’ trial operation, will compete with other Chinese online adverting alliances in attracting small Websites, including bloggers’ spaces, to help them make money out of their traffic. These are, of course, led by Baidu.com and Google who are formidal competitors.

Jin Jianhang, vice president of Alibaba, said, ‘We are just offering a practical business model for the small sites to grow.’ He added that small Websites ‘deserve a better model’ than relying on the commission from search engines by serving as their extended advertising space.

Alimama’s model is claimed to be more transparent in that it allows small Websites to deal with advertisers directly.

Baidu, China’s No. 1 search engine, and Google have teamed up with hundreds of thousands of smaller Chinese Websites that joined their ads revenue sharing program. The small sites display the ads from the search engines’ customers on their sites and are paid by the number of clicks.

This is pretty standard operating procedure for Google around the world and advertisers are sometimes somewhat frustrated because it is a far from transpartent procedure. Indeed, opaque would be a good word.

It has become increasingly important for search engines to boost sales. For Baidu, traffic acquisition cost in the third quarter accounted for 12% of total sales, up three percentage points from a year ago.
Meanwhile, Alimama copies the business-to-business trading model of Alibaba. Alimama charges 8 to 15% of the advertisements value.

Advertisers such as Bank of China and Citic Bank as well as some online game companies have signed contracts with Alimama to place ads on the site.

It has 150,000 small and medium Websites and 135,000 bloggers’ spaces ready to take advertising. It is an interesting concept. If it works in China it will probably be picked up elsewhere around the world. And if anyone can make it work it will be Alibaba and Alimama.
Source: Jongo News

Microsoft and Founder, China’s second best-selling personal computer, have agreed to pre-install Microsoft’s Windows operating system in PCs. This is described as move to combat widespread Chinese product piracy.

There is no mention that this will also stop Linux getting on the machines as an alternative to Microsoft Vista. None at all.

A joint statement says the agreement with Founder Technology shows ‘the commitment of both companies to protect intellectual property rights’ and promote the growth of China’s information technology market.

Founder will also sell Microsoft keyboards, Webcams and other hardware in more than 500 stores across China.

In March, Microsoft and China’s biggest personal computer maker, Lenovo, agreed to pre-load Microsoft’s tool bar and Web search software on its computers.

Lenovo, the world’s third-largest PC maker is also to load Microsoft’s Windows Live on laptop and desktop computers. This package includes Microsoft’s search service Live Search which competes with Google. All this in the name of preventing software piracy.
Source: China.org.cn

StockRumors.com is strongly of the belief that a potential takeover of Baidu, the Internet search engine, is still very probable.
Its arguments for thisas presented by Seeking Alpha, are interesting:

The market for internet usage in the United States and in most of Europe has very little growth left. Few people in these countries do not have access to the internet or to modern search engines like Google.
China, in 2006, had 137 million internet users, a growth of 23% since last year. Compare this to the 208 million in the United States, which represents a growth of 4% in the last year.
The population of the United States is 301 million, leaving a possible growth of about 33%.
The population of China is estimated to be 1.3 billion people. Internet users in China, therefore, have a possible growth of 1,000%.
The question, then, becomes: where will these people go once they have the internet? What search engine will they use?
In 2006 it is estimated that Baidu averaged 52.3% of the search engine market share in China while Yahoo controlled about 15.7% and Google controlled 15.6%.
In the second quarter of 2007, Baidu controlled about 58.1%, with Google controlling about 22.8% and Yahoo only 11.6%.
Google, therefore, is growing in China along with Baidu. Yahoo is clearly losing market share along with others like Sohu and Sina. Google, therefore, is the only real competition that Baidu.com needs to worry about.
For Google the acquisition of a company like Baidu would be a good move as they would immediately increase their market share to about 80% of all searches in China. Google has enough cash to do a straight out purchase of Baidu, making it an easy acquisition. However, a stock offering would be fairly simple and probably even more desirable.
Google previously had a stake in Baidu but sold it in June 2006.
Even though Google is increasing its market share in China, it is mostly at the expense of Yahoo, not Baidu. By buying Baidu, Google would secure their position even further in the Chinese search market and firmly place themselves as number one.

This is the view of a site which has a reasonable reputation for accuracy in forecasting. And this forecast, on balance, makes sense. Robin Li, seen in our illustration, and the man who started Baidu, has some interesting decisions ahead.
Source: Seeking Alpha

Steve Ballmer at Microsoft can be quite eccentric at times — although in fairness he is apparently an unassuming family man who is a decent cove — and the mention of the operating system Linux makes him come over strange.

The problem is Linux is mainly free and Linux works on personal computers. Works quite well. In fact, a lot better than the original version of Microsoft Vista which was as slow as Annie, the asthmatic ant with a heavy load of shopping. It has improved but much remains to be done.

On Linux Ballmer is not rational. As he said to the Chicago Sun-Times, ‘Linux is a cancer that attaches itself in an intellectual property sense to everything it touches.’

(It is not just Linux that gets him going. This report from the Sydney Morning Herald, a newspaper with which I was once associated, suggests he is not keen on Google either: ‘I’m going to f—ing bury that guy, I have done it before, and I will do it again. I’m going to f—ing kill Google.’ He has not succeeded yet. Perhaps he should try harder.)

What really, really upsets Steve Ballmer is that Novell, a major distributor of the Linux operating system, expects its revenue from China to more than double this year as the open-source software continues to gain ground.

Chang Sen-ming, managing director of Novell East Asia said, ‘A number of our customers have chosen to buy upgrade services for their existing Linux systems this year. That will help us to outpace the average market growth here.’

This is the sort of thing that would make a chap throw a chair around the office although Ballmer swears he never did any such thing. Certainly not.

Novell is now one of the world’s largest distributors of the Linux operating system.

Presently, Novell generates most of its revenue from the server market as Microsoft’s Windows system still holds the lion’s share of the desktop segment. But in recent years, an increasing number of the world’s top PC makers have been embracing Linux, especially in China, where the government has required local PC makers to pre-install patented operating systems to reduce piracy. For Steve Ballmer that operating system has to be Microsoft Vista, even if Microsoft has to pay to get the computer makers to use it.

But Lenovo did Linux, has now been brought back to Windows. So has Dell. And, indeed, Dell has two support centers for Linux. According to a report by IT researcher IDC, China’s Linux market is projected to grow fivefold from 2006 to 2010 to $51.1 million. Enough to make a chap go into a monkey dance of frenzy.
Source: China.org.cn

Ministry of Information Vice-Minister Lou Qinjian has announced that, as of September 2007, China had 172 million Internet users.

This figure represents a 10 million increase over the last count. That was in July by China Internet Network Information Center (CNNIC) which said China had 162 million Internet users.

This rate of increase is consistent with the rate of growth of China’s Internet population since January 2007, when CNNIC counted 137 million Internet users.

Work on the basis that about four million Chinese people go online for the first time every month.

The story of the great Internet Wall of China gets a big press — outside China. Most users do not, in fact, even notice that it is there. Those that do are mainly Westerners living in the country and using the Internet to search for news and information.

In China, the typical activity on the Internet is not to search for news and information. It is to search for entertainment in whatever form that might be; sometimes multi-user games, sometimes contact sites.

Yes, thousands of websites may have been shut down but that plainly does not deter Chinese people from going online. And, indeed, a substantial percentage of Chinese net users are unaware that they are restricted in access.

In the West it can be different but just as difficult. To illustrate this article a portrait of Lou Qinjian would be appropriate. Indeed, we have used one before. Go into Google and do a search under the minister’s name under Images and the picture we have here comes up first. Charming but most certainly not the minister.