Google Takes Stake In Baidu; Positions For Battle With Yahoo! In China

by Paul Denlinger

Posted June 16, 2004

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Google has taken a minority investment position in Baidu, a Chinese player in the keyword advertising market. Up until now, Google has had trouble penetrating the Chinese market because of Chinese government regulations of the media content market. The exact terms and amount of the investment were not disclosed.

Baidu would be Google's first announced investment in the Chinese market. While Google is popular among Chinese users, and is established as a brand with urban users, it does not have an official presence in China. Google does not have any sales presence in China, even though it offers Chinese keywords for bidding on its website.

Google makes money through its Adwords service, which allows bidders to bid on keywords in a live auction system. The paid search results show up in boxes on the right side of the search results page. Advertisers are only charged per click-through to their website, not for impressions. The program has been especially popular with small businesses, who can create keyword campaigns quickly, and monitor their effectiveness live in real-time. Since Google launched its service, the business model has been very successful, earning the company more than US$972 million in revenue in 2003.

Google has a similar program for content publishers on the Internet called Adsense. Adsense pays publishers a fee per click generated for ads hosted on their content pages. Ads are targeted accorded to keywords found on the page.

Examples of Adsense-targeted ad can be found at the bottom of this page.

Unlike Google, Yahoo! mixes in its paid inclusion with its search results. The result is that it is often difficult to separate advertised results from unadvertised results in search results pages.

The Chinese market is seen by the major Internet players as the next great frontier for keyword advertising. Yahoo! has already moved aggressively into China with its purchase of 3721 in 2003.

In the past year, the Chinese government has tightened content monitoring on websites. This is the main impediment to development of the market. By buying a Chinese company, Yahoo! has shown that it is willing to use a home-grown Chinese solution.

Google's stake in Baidu also suggests that it has come around to the position that a local solution may be the best way to establish a profitable presence in China.

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