BREAKINGVIEWS - Microsoft gets message late on China market

Tue Jul 5, 2011 2:42pm IST

A photo illustration shows Baidu's website and Microsoft's logo on computer screens in Shanghai July 5, 2011. REUTERS/Carlos Barria/

A photo illustration shows Baidu's website and Microsoft's logo on computer screens in Shanghai July 5, 2011.

Credit: Reuters/Carlos Barria/

Related Topics

Stocks

   

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)

By Wei Gu

HONG KONG (Reuters Breakingviews) - Microsoft (MSFT.O) has belatedly got the message: going it alone in China is no fun. Google already gave up offering online search in China. Yahoo sold its China portal in 2005. Now Microsoft has agreed to share its search results with local giant Baidu (BIDU.O), apparently for free. Meanwhile, its current joint venture partner is looking for an exit, Breakingviews has learned. Microsoft needs an even bigger strategic rethink to succeed in China's huge market -- and buying a stake in a rival would be a good start.

Baidu has agreed to direct English-language searches to Microsoft's Bing, which will deliver the results back to Baidu's web pages. For that Microsoft gets no money, but some branding benefit, as users will see the results are from Bing. Whether English speakers will now choose Bing remains to be seen. Google is still a major force, via its Hong Kong site. Baidu and Google together have 97 percent market share in online search, according to China's iResearch.

Microsoft previously brought in partners for mainly political rather than strategic reasons. It set up an Internet joint venture in 2005 with Shanghai United Investment, controlled by son of former Chinese president Jiang Zemin. But local competitors have been aggressive. Tencent now controls more than 70 percent of China's instant messaging market share, according to Morgan Stanley, while Microsoft's share has been falling. Shanghai United is considering selling its 50 percent stake, possibly to Nasdaq-listed second-tier operator NetEase (NTES.O).

Instead of trying to be another Google, Microsoft's best bet is to be more like Yahoo. That company sold its struggling China portal to local rival Alibaba in 2005, in return for a 40 percent stake. Thanks to China's rapid growth, the stake is now equal to about half of Yahoo's enterprise value.

Microsoft should also consider using its large cash pile to take a stake in a strong Chinese player. Microsoft may consider taking a 10 percent to 20 percent stake in NetEase, which has a search engine of its own, according to a person familiar with the situation. With local competition rising fast, Western internet companies need to think beyond small tie-ups. Since Microsoft can't beat them, there is no shame in joining them instead.

CONTEXT NEWS

-- China's search engine Baidu will partner with Microsoft for English-language search, the companies said on July 4. Baidu will direct English searches to Microsoft's Bing, which will deliver the results back to Baidu's Web pages.

-- The new tie-up, due to be launched later this year, builds on existing cooperation between Baidu and Bing on mobile platforms and page results. The deal does not involve a financial component.

-- Baidu has 74 percent of China's search market share by ad revenue, followed b y 23 percent for Google as of the first quarter of 2011, according to Chinese Internet tracker iResearch.

-- Baidu made $1.2 billion in online marketing revenues in 2010, up 78 percent from 2009. Microsoft's total online advertising revenue in fiscal 2010, including a small contribution from Bing, was $1.9 billion.

-- For a Reuters story: Baidu picks Microsoft for English search, click here

(Editing by John Foley and David Evans)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

FRESH RULES

A man speaks on his mobile phone in front of the Reserve Bank of India (RBI) seal at the RBI headquarters in Mumbai July 30, 2013. REUTERS/Vivek Prakash/Files

RBI says all companies must apply 2-step payments for credit cards

The Reserve Bank of India said that all transactions involving domestic credit cards must follow rules requiring additional verification, a stance that could impact companies such as Uber Technologies Inc that provide more simple app-based purchases.  Full Article 

REUTERS SHOWCASE

Record Highs

Record Highs

Nifty touches record high; software stocks gain.  Full Article 

New Adviser

New Adviser

Arvind Subramanian likely to be chief econ adviser.  Full Article 

Pricing Mechanism

Pricing Mechanism

Govt sets up a four-member panel to re-examine gas pricing.  Full Article 

Royalty Rates

Royalty Rates

India to hike iron ore royalty, miners may struggle to pass on extra cost.  Full Article 

Diesel Deregulation

Diesel Deregulation

Oil ministry to seek Cabinet nod on diesel deregulation - sources  Full Article 

Commodities

Commodities

Gold near two-month low; set for weekly drop on interest rate fears  Full Article 

Reuters Exclusive

Reuters Exclusive

Apple iPhone 6 screen snag leaves supply chain scrambling   Full Article 

Helping Regional Mills

Helping Regional Mills

Govt raises sugar import duty to 25 pct from 15 pct.  Full Article 

Curbing Risks

Curbing Risks

RBI to lower ceiling on bank loans to a single corporate group.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage