Google's China Plan May Stoke Exodus to Baidu, Clients Say

Google Inc.’s modifications to its website in China will probably encourage more Web surfers and Chinese advertisers to switch to Baidu Inc. in the world’s largest Internet market, advertizing agents said.

Officials at EmporioAsia Leo Burnett and Zenith Optimedia said yesterday their customers will be more likely to market their products on Baidu after Google disclosed its plans to keep an Internet license in the country. The search-engine operator said on June 29 it will point users to an unfiltered Hong Kong site instead of redirecting them automatically on concern authorities wouldn’t renew the permit.

“Advertisers will have more reservations about Google, as the uncertainty has now increased,” Steven Chang, chief executive officer for China at Zenith Optimedia, the media unit of Publicis Groupe SA, said in an interview.

As Google awaits its fate, Baidu’s stock has gained 66 percent this year, making it the best performer on the Nasdaq 100 Index. The Chinese Internet-search company stands to gain the most should the standoff lead to the shutting of Google’s engine in the country, according to Samsung Securities Co.

Google shares have fallen 28 percent this year, compared with the Nasdaq Composite Index’s 7 percent slide.

Vincent Kobler, managing director at EmporioAsia Leo Burnett in Shanghai, said Google’s so-called landing page is less convenient because it forces users to click to a link to the Hong Kong web page instead of being redirected automatically. The advertising agency has been advising most online search clients to use Baidu’s services, he said in an interview.

Return on Investment

“Marketers in China are feeling more certain of their return on investment with Baidu now than with Google as a result of this situation,” said Emporio’s Kobler. “We have seen Baidu’s market share growing and growing, and that means other search players are shrinking.”

Mountain View, California-based Google said yesterday some Web search features have been partially blocked in China. can keep providing Internet services there.

The blockage affects the “suggest” tool, which helps users refine queries as they are typed, according to an e-mailed statement. Traditional searches are unaffected, it said.

Google’s share of the China search engine market declined to 30.9 percent by the end of March from 35.6 percent three months earlier, the first drop in three quarters, according to data from research firm Analysys International. Baidu’s share increased to a record 64 percent, according to Analysys.

Not All Lost

Zenith Optimedia’s Chang said the drop-off in Google’s business in China hasn’t been as bad as initially feared.

“It certainly hasn’t been the case that all clients had fled and the company has lost all business,” said Chang.

In March, the U.S. company closed its Chinese search engine and began directing users to the unfiltered Google.com.hk site. The offshore move allowed Google to avoid local rules for websites to self-censor content deemed unacceptable by the government.

Google proposed the changes after government officials indicated they won’t renew the company’s Internet license if it continues to redirect users automatically, Chief Legal Officer David Drummond said in a blog post this week.

The “landing page” switch allows Google to “stay true” to a commitment not to self-censor search results in China while adhering to local law, according to Drummond’s blog.

Stay or Go?

Opinions are mixed whether the changes will work. Danny Sullivan, who runs the search-analysis website Search Engine Land said he doesn’t see why China would be any “happier” with Google’s latest proposal. Gene Munster, an analyst at Piper Jaffray Cos. said he expects Google to remain in China.

“We were as surprised by this turn of events as anyone,” Baidu spokesman Kaiser Kuo wrote in an e-mail yesterday. “But we respectfully decline to speculate on how uncertainties around Google’s future in China may or may not impact our business.”

The “semi-exit” of Google benefited Baidu, Robin Li, chief executive officer at the Beijing-based company, said in April. Second-quarter sales will rise to between 1.83 billion yuan ($270 million) and 1.87 billion yuan, Baidu forecast at the time, exceeding analysts’ estimates. The company’s first-quarter profit more than doubled.

“Google won’t speculate on traffic but will be monitoring how users respond to the landing page experiment,” said Jessica Powell, Google’s Tokyo-based spokeswoman.

Sales in China

Google would generate $600 million in sales this year in China, according to estimates by JPMorgan Chase & Co. in January. That’s less than 3 percent of the company’s projected total revenue this year, according to the average of 28 analyst estimates compiled by Bloomberg.

China had 384 million Internet users at the end of 2009, the government estimates. That’s more than the total U.S. population. The number may grow to 840 million, or 61 percent of China’s population, by 2013, according to EMarketer Inc. in New York.

“That Google has proposed ending the auto redirect for Chinese users demonstrates a willingness to compromise,” said Nick Fawbert, managing director of Third Space Consulting, a media consulting company in Singapore. “I believe it’s a closer and more positive reflection of their desire to do business in China.”

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

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