Baidu vs Google; Tianya vs MySpace: With similar operational and content models, what determines the market position of Chinese and foreign Internet giants, and how do they set themselves apart from one another?

Search Engines

In the battle of the search engines, Baidu.com Inc and Google Inc, though seemingly similar in function and outlook, differ greatly in terms of substance and operational philosophy.  According to Alexa statistics, Google's traffic IP volume has remained stable, while Baidu began to suffer a decline in traffic volume during the second half of 2006, a sign that the web portal is losing users.

Google's position is supported by its research and development efforts in new software products.  Meanwhile, Baidu's support capability for browsers other than IE is much weaker than Google's

After its plan to provide search engine services to corporate clients failed, Baidu grew determined to learn from Google.  Its push to become the top name in search engines in China has been helped along by several circumstantial factors.  When Baidu was initially in fierce competition with 3121 and CNNIC, Yahoo's acquisition of 3721, and Alibaba's acquisition of Yahoo China, provided Baidu with the necessary room to grow through industry consolidation. At the same time, Google was unable to penetrate China's keyword sales market or to launch certain services because of regulatory conditions.  Baidu then seized the opportunity to expand further while Google dealt with restrains that diminished its user experience.

Following Google's example has thus created many technical obstacles for Baiju, making it impossible for the company to launch similar services.  Undoubtedly, Baidu has put a great deal of effort into shaking off its image as a mini-Google by entering community networking and services.  Baidu Wapp, Baidu Space and Baidu Personal Space have all served as tools for Baidu to create highly interactive and close communities.  Although they have enjoyed stable growth, however,  they are not influential enough to attain national significance.

Baidu and Google share the same market objective, to generate revenues from online advertising.  The two companies' fiscal reports show that Baidu's revenues and profitability still lag behind Google's.  Baidu's total revenues for the fourth quarter of 2006 reached 271.3 million Yuan (US$34.8 million), representing a 136.1% increase over the corresponding period in 2005; however, Google reported revenues of US$3.21 billion for the quarter ending December 31, 2006, an increase of 67% over the corresponding period of the previous year, and an increase of 19% over the third quarter of 2006.  Google reports revenues, consistent with GAAP, on a gross basis, without deducting traffic acquisition costs (TAC).  In the fourth quarter of 2006, TAC totaled $976 million, or 31% of advertising revenues.

Baidu heavily emphasizes expanding its advertising channels, from hanging advertisements to audio-visual spots.  However, if Baidu does not invest in a new search tool and new search services, it may have difficulty retaining its primary market position as a search engine.

Community Portals
The heart of Web 2.0 lies within its interactive functions.  The Internet's earliest mass application is BBS, which allows users to create content that can be accessed on community sights, and attracts large numbers of netizens.

MySpace surprised the Chinese media by announcing its intention to enter the Chinese market.  The social networking site was created in the fall of 2003 by Tom Anderson and Chris DeWolfe (CEO) as a looser, music-driven version of Friendster.  In 2005, News Corp paid US$580 million to by Intermix Media, MySpace's former parent company, and folded into Fox Interactive Media (FIM), which has now obtained US$900 million in advertising support from Google Inc.

No community portal can  rely on advertising alone to support its operation.  After China Mobile launched mobile net and ushered in its SP model, community portals like Tianya have been seeking opportunities to generate profit from SMS.  However, profitability remains unstable for community portals that compete with a large, comprehensive web portals like QQ, which continuously expands its products and service offerings. 

Blogs are common on community portals, but they tend to individualize members of the community and weaken the attractiveness of pure community portals like Tianya.  Although Tianya succeeded in motivating grass-roots initiatives and leading national discussions, this did not translate into the traffic necessary to transform its profitability chain.  Community portals like Tianya are now being marginalized when they fail to operate according to a complete and optimized profitability model.

Unlike MySpace, community portals like Tianya do not have the support of investment or cooperation from Internet giants.  Thus they need to consider how to generate profit from business beyond community services.  At the same time, the need to enhance their existing services in order to secure the loyalty of community portal users.  This is a prerequisite to achieving large-scale expansion by securing the involvement of strategic investors.