5 Billion Reasons to Buy Baidu
Mar 2nd 2013 2:30PM
Updated Mar 3rd 2013 10:00AM
While Wall Street worries about Baidu's dominance and mobile efforts, one thing remains clear: Baidu is the "King of Search."
Or so it seems.
According to Baidu Director of International Communications Kaiser Kuo, via tech blog Tech in Asia, Baidu processes more than 5 billion search queries per day. That's measured across search, community, and partner sites and across all device platforms.
For comparison, Google processes just 3.3 billion queries per day. Now, to be fair, this number doesn't include Google's properties, such as YouTube and Gmail, and altogether Google may in fact process more searches than Baidu. But even so, a Google lead could be short-lived. When you dig deeper into the numbers, Baidu could double, maybe triple, its search queries.
Don't believe me? Well, to make things simple, let's consider the company's respective home markets.
In the U.S., Google commands 67% of the U.S. search market. Yet, that still that pales in comparison with Baidu's 72% market share in China. Furthermore, the U.S. has 78% of the people online, amounting to 245 million Internet users. Altogether, that means Google's market is 191 million people.
Baidu more than doubles that figure with 406 million users. China has a 42% Internet penetration in China, totaling 564 million Internet users.
Now, Google is already a huge, international company with 53% of its revenues coming in from its 50 international offices. More importantly, Google's products are are well established, and they are often the market leader when it comes to search, video, and mobile operating systems abroad.
However, Baidu does operate in 130 countries and has made significant moves over the past few months in capitalizing on its international expansion. Just this week, Baidu released its mobile developer tools in English. And in January, the company struck a deal with France Telecom to create a better mobile experience for customers in Asia, the Middle East, and Africa. Finally, the company released an antivirus suite in Thai and English in early January. As the search market is still in its infancy abroad, especially in Third World countries, Baidu has the chance to remain the "King of Search," with maybe 10 billion, 15 billion, or more searches per day.
Nonetheless, there are fears. Wall Street is worried that Qihoo may beat out Baidu's search dominance.
So far, there isn't a report on the number of searches per day newcomer Qihoo has, but according to market share reports, Qihoo has 11% of the country's Internet population, or 62 million people using the service. And that's all within the span of a little more than half a year.
As time goes on, Qihoo could get stronger. In fact, Qihoo seems as if it has. Amidst its dwindling search market share in China, Google and Qihoo struck a deal last month giving the new search competitor access to Google's ad optimization techniques.
Moreover, it was rumored that Sohu's Sogou and Qihoo were in talks of partnering together. The partnership would result in a combined 18% of the total search market. Now, that's not much, but, as China is undergoing a shift to mobile, it would give both companies a window of opportunity to turn in more search queries that Baidu.
Whether or not such a partnership will materialize is a different story. I don't think it's likely. Sohu and Qihoo seem to be on the verge of converging business models -- Web portal, search engines, and desktop browsers -- which would lead to eventual conflict. Moreover, both have had blowout quarters. In Q4 2012, Sohu saw revenues grow 78% year over year, while Qihoo's revenues rose by 215%. So the companies may already be too proud to cooperate on a high-functioning level needed to take on Baidu.
Even if Qihoo and Sohu are able to strike a deal, unseating Baidu is unlikely. As fellow writer Rick Munnariz has noted, Microsoft's Bing has tried to unseat Google by "populating the Web with Bing search boxes." Even as Bing started with more search market share than Qihoo and Sohu combined, it has yet to make a true dent in Google's stateside dominance.
Why is that?
Ultimately, online search seems to work best as natural monopoly. That is, search functions most efficiently and creates the most value for customers when there's just one player. And now that Google and Baidu both have properties in video, email, the cloud, and more, the data that they know about their customers is even greater. In turn, these companies can use that data to ensure their dominance in other Internet verticals -- like mobile.
So, Baidu bears, say what you will about mobile or competitive worries. In the end, I expect Baidu's current price of $92.56 -- close to its 52-week low of $85.96 -- to be an incredible buy opportunity. Search engines become more powerful with every search. Now that Baidu is processing 5 billion queries a day, the company will remain China's top dog and maybe, in the future, become more powerful than Google.
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The article 5 Billion Reasons to Buy Baidu originally appeared on Fool.com.Fool contributor Kevin Chen owns shares of Baidu. You can follow him on Twitter at @TMFKang or on Google+. The Motley Fool recommends Baidu, Google, and Sohu.com and owns shares of Baidu, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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