ANALYSIS-China mobile search: the next battle for Google, Baidu

* Google, Baidu vie for rule of China’s mobile search market

* Difficult mobile search monetisation could slow development

* Tencent, other competitors could pose threat in mobile race

SHANGHAI, Sept 22 (Reuters) - As China ushers in a new generation of snazzy smartphones and 3G networks, Google GOOG.O and Baidu BIDU.O are shifting their battle from the Internet to China's mobile search market, likely to become the world's largest, with the promise of billions of dollars in revenue.

However, experts say putting a price tag on the potentially massive market is tough as any future riches could be years off due to a lack of clear business models, potential competition and political risk in China’s tightly controlled media markets.

“Everything is very fast growing, but who is going to make money now?” said Wallace Cheung, an analyst with Credit Suisse. “The (mobile search) market is so diverse, even globally there is no sure business model yet.”

Google, a distant second to Baidu in China’s 1.8 billion yuan

($264 million) PC search market, is the world leader in mobile search by revenue and determined not to cede control of mobile search in the Chinese market. [nSHA284052]

Google said recently it expects mobile search to surpass PC search revenue in a few years.

China’s mobile search market, where the pair are currently tied with about a 26 percent share each, is potentially huge due to China’s more than 600 million mobile subscribers, about double its 338 million Internet users.

Billions of dollars in revenue could be at stake if the market develops along lines similar to PC Internet search.

According to government data, at the end of June this year China had 155 million mobile Internet users, and more than 40 million of them used mobile search.

China’s mobile Internet market numbers far surpass the United States, where there were only about 40 million mobile Internet surfers at the start of the year, according to a JP Morgan report.

“For the mobile search market, the number is still small but the growth potential is extremely high,” Baidu Chief Technology Officer Li Yinan told Reuters in a recent interview. “It is an important area.”

China’s mobile advertising industry was worth 754 million yuan ($111 million) last year and is set to nearly double by 2010. Mobile search volume rose 120 percent in the second quarter alone to 272 million clicks, according to Analysys International.

For a graphic of China's mobile advertising industry click here: here

But monetising all those clicks could prove a challenge.

Some analysts say the mobile platform could actually be easier to monetise as mobile carriers can also double as bill collectors -- a function that has helped texting services run by companies such as Sina SINA.O and SOHU.O to reap profits in China even as paid Internet services have been slower to take off.

“We expect China’s mobile value-added-services industry to have another 2 to 3 years of rapid growth with a compound annual growth rate of 22 percent from 2009 to 2012,” Alan Hellawell, a Deutsche Bank analyst, said in a note.

“The deployment of 3G networks will enable a far broader and deeper market for mobile applications,” he said.


Both Google and Baidu have been aggressively courting mobile users this year. Google, which pushed out new mobile services in China recently, launched an advertising campaign in Shanghai, Beijing and Guangzhou marketing its mobile services.

Baidu, which holds 61 percent of the desktop search market, said in early September it planned to hire two software engineers to focus specifically on the mobile platform.

Both Baidu and Google already have mobile products and provide free services such as maps, games and news over cellphones. Analysts say Baidu still has the edge in China’s mobile market given its brand, depth of local information and its dominant position in the desktop search market.

The rollout of 3G will lead to faster downloads and offer users more sophisticated functions such as global positioning search, mobile reading and music search.

“The market is still young, so it is hard to say, but with 3G a lot more people will use mobile search because the data speed allows them to get on the Internet,” said Dick Wei, an analyst with JPMorgan.

If the market really takes off, Baidu and Google could also face the potential for competition from other companies such as Tencent Holdings 0700.HK, operator of China's largest instant messaging platform, which has been experimenting with its own search algorithms, said industry sources.

Tencent has a large “sticky” base of mobile messaging users that the firm could tap when mobile carriers roll out their application stores.

Mobile search providers could also find themselves facing competition from suppliers of other paid-for mobile services.

“It’s going to take some time for them to figure out what is the right business model to generate revenue on the mobile platform. The easiest one though is instant messaging,” said Elinor Leung, a CLSA analyst.

($1=6.825 Yuan)

(Editing by Doug Young and Valerie Lee)

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