SHANGHAI (Reuters) - On the face of it, Internet search company Baidu Inc looks to be the big winner if Google Inc goes ahead with its threat to quit China, the world’s biggest market by users, over censorship concerns.
If Google exits, analysts say, dominant local player Baidu stands to soak up much of the U.S. group’s 30-odd percent market share. If Google stays, Baidu will be in a strong position to sign up advertisers now leery about working with Google.
“Even if Google can successfully solve this problem and continue in China, in our view Baidu will still benefit incrementally from advertisers’ concerns,” UBS analyst Wenlin Li wrote in a note.
Analysts also said Baidu would be in a stronger position to negotiate prices with advertisers if Google was out of the picture. Baidu has over 60 percent of China’s $1 billion search market, according to research firm Analysys International.
“If Google doesn’t leave, it could be subject to more tightened controls and a strained relationship with the government,” said JP Morgan analyst Dick Wei, explaining further implicit benefits for Baidu, whose name was inspired by a Song dynasty poem.
Baidu shares closed almost 14 percent higher on Wednesday, just off an all-time high, and several banks and research houses, including UBS and S&P Equity, upgraded their views on the stock.
A Google exit could increase Baidu’s market share, and give the Chinese firm around 6 percent revenue upside, JP Morgan estimates, while PiperJaffray reckons Baidu’s revenues could rise as much as 40 percent this year if the firm absorbed all Google’s market share.
Baidu, which had 2008 revenue of $468 million, declined to comment for this article, though a company source told Reuters there would be no change of strategy following Google’s announcement.
Baidu’s founder Robin Li grew up during China’s Cultural Revolution and started his company in 1999 with the belief in the power of the Internet to change people’s lives.
Baidu warned in October that its shift to a new advertising system, Phoenix Nest, would lead to softer revenues in the first quarter of this year. The new keyword bidding system for Baidu’s clients was fully implemented last month.
Baidu shares had been weak ahead of the Google announcement, on uncertainty related to the Phoenix Nest, JPMorgan’s Wei said.
Analysts also noted that other players such as Tencent Holdings, China’s largest Internet firm by market value, but which currently has only a tiny search presence, would also be battling for business if there was a Google vacuum.
Tencent terminated a search agreement with Google in September in order to develop its own search technology. Tencent could prove a tough opponent for Baidu given its large user base from its online messaging platform.
“I think Google’s market share will be split between Baidu and smaller players,” said CLSA analyst Elinor Leung.
In addition, the whole of China’s homegrown Internet industry could suffer if Google departs as there would be less innovation.
“The market benefits from having many players,” said Analysys International Chief Executive Edward Yu. “A monopoly cannot be a good market and it’s a lose-lose for everyone.”
And Baidu may also need to polish its local branding.
Among some excited, nationalistic chatter seen on Chinese media websites, lauding China’s Baidu for beating off America’s Google, one web user, “txsj,” noting Baidu’s U.S. market listing, wrote: “Money earned by Baidu is taken away by Americans, you idiots.”
Additional reporting by Ben Blanchard in BEIJING, editing by Don Durfee and Ian Geoghegan