China Search Industry

Chinese search leader ‘to double revenue in 2004’ – ZDNet UK News writes:

Baidu.com, China’s largest Web search engine, says its revenues will more than double in 2004 and could double again next year as more companies pay to feature in search results.

China has the world’s second-largest Web audience after the United States. Internet operators are trying to cash in on the explosive growth of Web users and their willingness to spend on online services. “We expect our revenues to more than double in 2004 from a year earlier,” as they have done since 2000, co-founder and Chief Executive Robin Li told Reuters in an interview on Wednesday.

The bulk of Baidu’s sales comes from sponsored links, where a client pays to have its name and Web site link appear at the top of a results list when particular terms are searched. “Looking ahead, it’s hard to say — it really depends on how quickly the market matures and how many small and medium enterprises realise the promotional power a search engine can bring to them, and our best guess in 2005 is about double [from 2004],” added Li, touted to be a multi-millionaire at 36.

Market research firm Shanghai iResearch estimates the company generated about 100 million yuan (6.8m) in revenue last year, about half that of local rival 3271 Network Software, owned by Yahoo. Last month, Baidu’s Chief Financial Officer Shawn Wang told Reuters the company had been boosting revenue by about 150 percent in each of the last two years as its paid search services gained popularity.

China’s Internet users are estimated to grow to 111 million this year, from 81 million in 2003, according to the Ministry of Information Industry.

The country’s search market will be worth an estimated $50 million this year and its expected to grow to $200m by 2006, according to iResearch. A recent iResearch survey found that Baidu is nearly twice as popular among Chinese Internet users as Google, with a market share of about 49 percent. But competition has been rising after Yahoo beefed up its presence by buying 3721 for $120m late last year.

Disk Drive Industry

WSJ writes:

The TiVo video recorder, the iPod music player and the Xbox game machine all owe their existence to the same high-tech innovation: smaller, denser, cheaper disk drives. For nearly 50 years the disk-drive industry has driven advances in computers and gadgets by supplying new ways to store data.

But there’s one thing drive makers can’t produce: sustainable profits. Even during the tech boom, when makers of other high-tech innards like software and chips feasted, drive makers collectively lost money in 1998 and 1999. More losses followed during the bust.

For a few shining months last year, the $22 billion-a-year industry looked ready to pull out of its long slump. Sales and profits rose with the first whiffs of a tech recovery. A consolidation wave had reduced the field of competitors, and fertile new consumer markets were opening. Instead, the next 12 months became the industry’s latest debacle, as drive makers repeated their mistakes of the past.

Encouraged in part by aggressive sales forecasts from computer makers, they overproduced. Looking to recoup their investments in research, they began targeting each other’s markets. Inventories of unsold drives mounted, sparking deep price cuts that erased drive makers’ razor-thin profit margins.

The events of the past 12 months show just how tough it is to profit by selling disk drives, how fewer competitors can mean more competition, and how prices and revenue can fall amid improving demand.

US VCs in India

WSJ writes about the growing number of US VC firms now coming to India:

Successful Indian entrepreneurs and financiers in Silicon Valley are discovering that going back to their roots is good business. As the U.S. technology sector has slowed, many Indians say they prefer to invest in the dynamic subcontinent rather than the mature U.S. The rise of the Internet-based global communication and sharp declines in Indian long-distance charges because of telecommunications deregulation also make investment easier and less risky.

Promod Haque, managing partner at Norwest Venture Partners, returned to India only four times since he left New Delhi for the U.S. in 1972 — until this year. He says he has taken four more trips in 2004 to look for opportunities and to “open doors for our companies,” especially in telecommunications, a sector that is struggling in the U.S. but taking off in India.

Vinod Khosla, among Silicon Valley’s best-known venture capitalists, has gone part time at Kleiner Perkins to devote more time to business and charity in India. Vish Mishra, a senior partner at Clearstone Venture Partners in Menlo Park, Calif., and other venture capitalists are vetting “pitch” sessions with Indian start-up businesses via Web conferences.

Other entities are bolstering the Silicon Valley-India infrastructure, too. Chip maker Intel now makes 40% of its investments abroad, up from 5% in 1998, says Intel Capital Managing Director Sriram Viswanathan. “The pain level has gone down” in India, he says. “The offices look the same in Bangalore and Santa Clara.”

Silicon Valley Bancshares has opened a subsidiary in Bangalore, and Cisco Systems Inc. said in September that it plans to open a venture arm there. Silicon Valley’s legal powerhouse Wilson Sonsini Goodrich & Rosati now has a full-service India practice. “On average, we are forming one subsidiary in India per week for U.S. companies,” says Raj S. Judge, who heads the India practice team. “Three years ago, it was one every quarter.”

I hope they look beyond software services and BPOs into funding technology innovations.

SAP’s NetWeaver’s Challenge

WSJ writes:

NetWeaver, belongs to a family of software known as middleware that links different computer programs. This segment is becoming increasingly important in the battle for global dominance among large software companies. Many analysts expect the edge will go to the suppliers that can sell the broadest range of software to big companies, and middleware is emerging as a crucial plank in that range.

SAP faces several challenges, some of which have been homegrown. “This was the probably the most important development in SAP’s history, and they managed to confuse the entire planet about it,” says John Parkinson, chief technology officer of Cap Gemini SA, a consulting firm that works with SAP to implement software for corporate customers.

SAP hopes the new NetWeaver software, which the company is in the process of rolling out, will help drive revenue growth in a market where price competition is cutthroat and customers have been reluctant to open their wallets for costly technology projects.

But SAP failed to explain properly what the software package meant for customers, says Mr. Parkinson. Now, the company is addressing the issue, he says, and “they’re getting the message right, but doing it one customer at a time.”

SAP says one key benefit of the new product is it allows customers to access and track data more easily that might be stored in different programs, such as a database and a purchasing system. Edmund Toben, chief information officer at consumer-products company Colgate-Palmolive Co., New York, says the software helps his company take information about sales linked to customer promotions that is housed in one program and feed that into a separate program used for managing the supply chain. Colgate, a longtime SAP customer, has been able to move such data in the past, “but it was more cumbersome,” he says.

Analysts and customers say it is still too early to judge the success of the software, which so far is being used by only a fraction of SAP’s more than 23,000 clients.

NetWeaver has the right ideas – I hope it succeeds. The story just goes to show how important positioning and education is while trying to sell something new.

Content Providers should Rent, Not Buy

Haig Shahinian writes:

Q: Why does every service provider want to own content these days?
A: I know why–unlike every other point in the digital multimedia value chain, content margins are actually increasing, while distribution and retailing are winding down towards nothingness.

Paul Kagan’s column gets it right when he says that buying content holders outright isn’t the way to go, leasing the content is. Didn’t anyone learn anything from the AOL-TimeWarner merger?

Here’s the thing: when VOD finally comes around to being a feasable service, it’s seriously going to change viewing dynamics in a big way. But one very important aspect for the VOD experience is a comprehensive library. Providers are going to need to allow access to a huge library of movies and shows from all over the content industry, not only from MGM or TimeWarner. If Comcast can secure a stake in every content company, then its strategy will work and more power to them, but realisticly that’s not going to happen and so if you don’t own a little of all, don’t own a little of any. Instead, lease it out like usual and stick to doing what you do best, distributing as much as possible, as convenient as possible, and keep your subscribers happy.

TECH TALK: Web 2.0 Conference: Observations (Part 2)

Abe Fettig wrote about three trends that permeated the Web 2.0 conference:

RSS. Publishers want to know how to make money off it, which means not just advertising but being able to track readership. Lots of people and companies, including the new Rojo.com, are thinking about the problem of being able to wade through hundreds or thousands of feeds and find the most important stories. I’m not yet sure how I feel about this. My instincts say that humans are incredibly good at filtering out unimportant information, and that many users will only want to subscribe to a few feeds. So for a lot of people it might be perfectly reasonable to just skim through every new message, and ignore the ones they aren’t interested in. I could be wrong on this, and time will tell. In any case, I came away with the feeling that nobody is really sure how the average net user is going to use RSS. Lots of startups are making bets, though.

Wikis. Web 2.0 had a wiki, Ross Mayfield from SocialText did a workshop on using Wikis in the enterprise, Joe Kraus introduced his new company, which is selling a Wiki. It’s interesting to see the life cycle of a technology like Wikis. They’ve been around for almost ten years with a limited but enthusiastic following, gained credibility with big projects like wikipedia, became a standard tool for software projects, and now all of a sudden there are two start-ups selling commercial software, and betting that wikis are going to take off in the enterprise.

Web APIs. The theme of the conference was “the Web as Platform”, and a lot of the sessions touched on APIs. All the big sites – Amazon, Google, Ebay, PayPal, etc. – are opening up some functionality through web services. These companies seem to have put some thought into providing web services that enable developers to use their platform without giving away their sources of revenue (although it will be interestingn to see their reaction when people start to use the APIs in unpleasantly unexpected ways). Amazon’s services in particular look cool – I’ll have to find come time to play with them.

Mark Mahaney wrote about his lasting impressions:

Peter Norvig, the director of search quality at Google Labs, unveiled three initiatives that Google is currently working on — statistical machine translation, named entities, and word clusters. The goal of these is to improve the understanding of meaning in written words. To the uninitiated — including us — statistical machine translation means language translation (as far we can tell). Peter demo’ed Arabic to English and Chinese to English language translations that appeared fairly accurate….well, at least, the English phrasing appeared generally correct.

Representatives from Yahoo!, MSN, Ask Jeeves, and Amazon.com’s A9 search unit appeared to agree during a panel that two of the most important innovation focus areas for search now are integrated desktop search and personalization. In general, the representatives from these companies expressed a high level of confidence in the future growth drivers for search advertising – term coverage, pricing, search traffic, etc.

Idealab CEO Bill Gross launched a new search engine at www.snap.com , which contains some significant new features, such as refined subset search functionality, the ability to sort search results by click-thru rates, flexible payment structures for advertisers (pay per click, pay per transaction, pay per action, etc…), and substantial metrics transparencyThe simple take-away for us is that no one company has a monopoly on search innovation.

Tomorrow: Observations (continued)

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