A Tale of Two Search Engines: Why Google Is Winning, Baidu Isn't

(Corrects the currency of Baidu's revenue.)

When it comes to Internet search in China, no company is even remotely as big as Baidu Inc., which processes more than 80 percent of the country's online queries, according to Bloomberg Industries. It's a mirror image of Google Inc.'s ascendant position atop the U.S. search market.

Yet the companies couldn't be on more different paths. Baidu's stock has dropped more than 40 percent the past two years. The Beijing-based company faces a slowdown in advertising in its home market and struggles to expand beyond search.

Meanwhile, Mountain View, California-based Google is trading at all-time highs, fueled by increased spending on mobile and video ads -- businesses Google shrewdly got into years ago with the acquisition of Android in 2005 (about two years before the iPhone debuted) and YouTube in 2006.

The vast majority of Google's revenue still comes from Internet search advertising --- $43.7 billion out of a total of $50.2 billion last year, according to Bloomberg data. As does Baidu's -- 99.7 percent of its 22.3 billion yuan ($3.5 billion) in revenue last year came from online marketing services.

One key difference, though, is that Google predicted the mobile future and bet big on it -- Android is now the most widely used smartphone operating software in the world, while Baidu's dependence on desktop search has exposed its Achilles heel, as shipments of personal computers are falling sharply and more people are accessing the Internet through smartphones and tablets. Baidu did not immediately respond to a request for comment.

Baidu shares are trading at more than 50 percent below their average valuation over the past five years, as my Bloomberg News colleague Ye Zie reported . Tim Keefe, a managing director with BlackRock Inc., said Mondayin a radio interview on "Bloomberg Surveillance" with Tom Keene that Google is benefiting from rising revenue at YouTube and that he expects shares to outperform Apple Inc., which is facing increased competition from Samsung Electronics Co.

Baidu's challenges illustrate two important points about competing in an increasingly global technology market. The first is that being too geographically focused can really hurt. More than 99 percent of Baidu's revenue comes from China, according to Bloomberg data, making it especially vulnerable to regional swings in ad spending, even in the most-populous and most-Internet-connected country on the planet. Less than half of Google's revenue comes from the U.S., and sales from other markets are growing. A vast majority of smartphones in China now run on Android as well.

The second point is that, in technology, it's hard to catch up to missed shifts, and once an opportunity's gone, even for a dominant company with money to spend, it might be gone forever. Just ask BlackBerry.

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