The mainland’s search engine Baidu has now been listed in the US; Google announces its first business partner in China; the merger of Yahoo! and Alibaba; Sohu redevelops its business plan in China … these moves, according industry insiders, imply that the mainland’s Internet search engine competition is about to become fierce …

The search engine Baidu, known as “China’s Google” was listed on the US Nasdaq market in early August, and even on the first day of listing the stock price trebled. Over the past five years - in the wake of the IT market boom, bust and steady resurgence - this stock had already broken records. The dramatic rise of Baidu, and its online traffic rate, attracted more attention than the original listing of Google. Indicators like this point to a promising future for the search engine industry in China.

Years ago, when the whole “dotcom mania” was in its full frenzy and investors were falling over themselves to pour money into Internet startups, few people in the industry believed that search engine companies would emerge as the most attractive investment in electronic commerce. But the market for search engines in China alone is now huge. According to information from iResearch, a mainland Internet marketing research organisation, China’s search engine market pulled in revenue of 1.25 billion RMB in 2004, with the average annual increase being as high as 81 percent. It is expected that this revenue figure will rise to 5.35 billion RMB by 2007.

The report also highlighted the fact that the number of Internet search engine users in China was over 80 million in 2004, which represented 80 percent of all Internet users. The same report said that more than 70 percent of Internet users regarded search engines as the most common way to find information. If the volume increases by 50 percent every year, it is estimated that the number of people using Internet search engines in China will be nearly 190 million by 2007.

Searching, advertising merge

As more and more search engines emerge in China, a new type of “sponsored search” is being developed. The sponsored search is an innovative way to break the wall between advertising and e-commerce. The higher price the advertiser is willing to pay, the higher its name will be on the search result list. In this type of advertising, the advertiser pays only when the Internet user clicks on the link and enters the website of that particular advertiser. Thus, the advertisers are actually paying for the “clues” which may lead them to potential customers. Through supervising the number of “clues” that transfer into transactions, an advertiser will be able to create more business activities and opportunities via the Internet.

Just three days after the listing of Baidu on the Nasdaq, Google became active in the China market, since sponsored search is currently one of their main projects. In early August, Google confirmed its first business partner in China, authorising www.ce.net.cn as the agent for its adverting service “Google Adwords”.

Professor Lu Ben-fu, vice-chancellor of Management Faculty of China Scientific Research Institute (Post Graduate), said that applying for a domain name and establishing a corporate website is just the first stage for an enterprise wishing to sell and generally do business on the Internet. To attract new online customers, the second stage is necessary i.e., promoting the website and the products of the company in order to gain recognition. The most cost-effective and convenient way to do this is to get help from search engines. In this type of promotion, it is the customers who takes the initiative. The results, therefore, will generally be good.

In the US, over 60 percent of enterprises are using “sponsored search” or similar services. In the mainland, in addition to Baidu and Google, Sina, NetEase, TOM, 3721, 21CN, etc. have also joined the game.

Innovation welcomed by mainland enterprises

As this advertising mode can achieve satisfactory results at a minimum cost, it becomes the best choice for small-to-medium-sized enterprises wanting to explore e-commerce and Internet sales. According to the China Internet Network Information Centre, about 82.2 percent of Internet users recognise new websites by using search engines.

It is well known that the charge for sponsored search “advertising” is not high, and the service provider must deliver results to build a successful business. By comparison, traditional advertising and promotional activities require more than 10 times the money to achieve the same coverage - and even so the traditional approach may not be as effective or speedy. So undoubtedly search engines have their own unique advantages. Which is why more and more enterprises now use sponsored search as their major channel to sell their services or products.

As Internet technologies mature, especially those related to sponsored searches, many enterprises are seeing benefits from this new advertising mode. Mainland enterprises understand that selling on the Internet does not mean simply establishing a website or buying a computer system - rather, it is “catching” more potential customers via the Internet in order to gain revenue.

Industry giants join competition

Commenting on the development of Internet search engines and related business, Wang Jian-jun, deputy director of Sohu, said: “The relationship between search engines and e-commerce is very close. I believe the development of search engines in the future will depend on the number of Internet users in China and the e-commerce in the country. Providing the search engine is a basic service and advertising evolved from the service has been recognised by most advertisers. I think in a commercial environment, the key is to balance the benefits of advertisers and Internet users.”

Sohu launched its professional search website “Soguo” in August last year. The company has recently acquired Go2Map website with US$11.8 million to integrate its map searching business and enter the market via “Soguo” Zhang Chao-yang, chairman of Sohu, said that search engines would be the core business of Sohu and that “Soguo” aims at becoming the first in the market within two years.

When the competition is so fierce and the profits from related advertising business are so attractive, Microsoft MSN is planning to expand its MSN Internet service on the mainland. It is expected that MSN will launch its search engine service within a few months.

Huang Cheng-ching, secretary of Internet Society of China, said that the mainland’s search engine industry is entering a golden period. He is optimistic about the future of the market as well as its expected profits.