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Baidu: Strong IPO, Stronger Rivals?
2005-8-8 10:43:48
Chinese search engine Baidu's stock soared some 350 percent on its debut. But powerful competitors like Google and MSN are moving in on its turf.
Related Story: Big VC Comes to China; Where's Wireless?

This brings Baidu in line with Shanda Interactive. The Shanghai-based operator of online games was a favorite of American investors in 2004, following the company's NASDAQ IPO in the United States. With China's population of Internet users soaring, Shanda became the best-performing NASDAQ stock last year, thanks to fund managers and other investors looking for companies poised to cash in on the growth of the Chinese Web market.

Now Wall Street has a new Chinese favorite., which operates China's most popular search engine and styles itself as a wanna-be rival to global powerhouse Google. Investors are betting the inflated price is justified since Baidu is in the best position to take advantage of a demand boom among Chinese Net surfers.

With such an explosive performance, Baidu's debut is similar to those that debuted in 1999. And just as the dot-coms that rocketed upward in those days of the Internet bubble quickly fell to earth, Baidu is getting a big short-term boost from investors who have fallen in love with a good story.

In Baidu's case, the cause for the exuberance is the booming Chinese Internet market. The country has over 100 million people online, making it the second-largest Internet market worldwide, behind only the United States. And there's plenty of room for more growth. In the first half of 2005, the market expanded 18 percent. And the number of Net users is still tiny compared to the number of Chinese consumers who use mobile phones ! over 360 million. Many of those people use their cellular handsets to access the Net, providing Chinese dot-coms with an even bigger audience than just those who stick to PCs.

Baidu stands a good chance of winning big as all those Chinese Net surfers look for help navigating the Web. But amid the hype surrounding the Baidu IPO, it's worth remembering that the company is going to face a lot of obstacles, too.

The most obvious one is competition from Baidu's role model, Google. Ironically, Google is a minor shareholder in Baidu, having taken the stake last year.

That investment might once have been meant as a stepping stone to a bigger Google stake in the Chinese concern, but now it seems that Google has other plans.

A latecomer to China, Google has finally opened a Chinese office and is trying to hire a top Microsoft China executive to run its operations in the country. That plan might need a revamp, though, since Microsoft has filed a lawsuit in the United States to prevent Google from recruiting its former employee.

Google might be off to a slow start in China, but it clearly has the brand and the technology to leap ahead quickly. Google is already one of the most popular search engines among Chinese Net surfers. Once Google gets its act together and makes a big push in China, which no doubt it will, Baidu will have its work cut out responding to the threat.

While Microsoft is trying to stymie Google in China, Bill Gates may turn out to be another big competitor to Baidu.

MSN, the Microsoft portal, earlier this year launched a joint venture with an investment company in Shanghai and it probably won't be long before MSN becomes more aggressive in trying to lure away users from Baidu. Yahoo! is a threat, too, thanks to its acquisition of a Chinese search engine in 2003.

(Source: Shenzhen Daily/Agencies/Photo: Baidu)

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Related Stories:
v Baidu Shares Quadruple in Debut 08-07
v Baidu Makes Dazzling Wall Street Debut 08-06
v Investors Rush for Baidu Shares 08-06
v Baidu Raises Share Price 08-05

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