Baidu Inc ADRBIDU

Baidu grabbed about 73% of Chinese Internet search traffic in 2008, which is much larger than the aggregated share of Google and Yahoo in China. Also, Baidu has higher user stickiness, suggested by higher page views per user compared with Google and Yahoo China.

Baidu boasts a local offline presence through its large nationwide sales network to market its advertising services for customers.

Baidu has a patriotic brand name that is welcomed by Chinese users. It has a deep understanding of Chinese Internet users' preferences and can quickly respond to their wants and needs.

In the third quarter of 2009, Baidu's market share of search dollars increased to 63.9% from 61.6%, and Google China's share grew to 31.3% from 29.1% over the previous quarter, according to Analysys.

Baidu has tremendous growth potential in the booming Chinese B2C sector. Its advertising platform is an ideal place for large retailers to establish their brands and bring user traffic to their own sites. Read more 

The user experience might suffer from the fact that Baidu mixes sponsored links with all other links in its search results.

Following CCTV's criticism, we are a bit concerned about future regulations imposed on the company. However, we doubt the Chinese government will place too many restrictions on Baidu because we don't think they want a foreign rival, Google, to overtake Baidu as the leading search engine in China.

Potential click fraud, unclear advertising effects, and some irregular channel operations might make customers suspicious of Baidu's advertising methods.

Baidu's ambitious plan for going into Japan will be very costly, and its outlook is hazy for now, as the Japanese search market is already dominated by Google and Yahoo.

Baidu will discontinue its old bidding system and transfer all of its customers to the new advertising platform, the Phoenix Nest, by end of November. The company might risk losing market share to Google China during the transition period. Read more