TECH TALK: Internet Tea Leaves: Baidus August Action

It has been a fascinating August. A number of events have focussed attention on the Internet and the future. I had originally intended to write a column to look at ten years of the Internet and mobile phones in India. In fact, I wrote a column on the New Internet for Business Today. (It appears on pages 98-99 of the latest issue. I will reproduce it here later in this series.). The Week too had a recent cover on the Indian Internets first decade. But Ill take up that discussion later. For now, we will take up the bigger discussion opened up by six events which took place in August.

The first was Baidus IPO. Baidu is Chinas leading search engine. The perception that it is Chinas Google set the stock on fire on its opening day as it rose from $27 to over $150. (It has since settled at around $80 giving it a market cap of $2.5 billion.) Baidu raised over $100 million. For a brief period, it seemed like the dotcom heydays once again as discussions on revenues and profits were set aside. Investors who perhaps missed out on Googles IPO last year dont want to be left out! (For the record, Googles IPO a year ago was priced at $85. Today, Google trades at about $280, giving it a market cap of $80 billion, making it the most valuable media company in the world.)

In an article shortly after Baidus IPO, the Wall Street Journal provided additional context about Chinas Internet in which to view the IPO:

Internet companies in China are fighting over a small pie. The Chinese Internet-search market attracted total ad revenue of just $148 million in 2004, according to iResearch Inc. of Shanghai. While China’s advertising industry is booming, many major advertisers focus big campaigns on banner ads posted on Internet portals such as those of Sina Corp. and Inc., which remain more popular than search sites such as Baidu.

“We treat the portals as a national medium, after TV and print,” says Ralph Szeto, the China director of WPP Group’s mOne unit, which buys media space for clients’ ads. “But user habits are changing toward searching,” he adds, giving sites such as Baidu a niche among an estimated 600,000 small and midsize Chinese companies that pay anywhere from three fen to five yuan per advertising link. The yuan trades at about 8.1 to the dollar.

Moreover, most Chinese can’t afford computers and the country’s electronic-commerce market remains immature. Many Chinese prefer to download entertainment and communicate with friends through mobile phones, which are less expensive than computers.

In the future, “Internet content will merge with mobile-phone technology,” putting even more of a premium on media companies that can offer attractive content, says Peter Tan, director of consumer insights for Interpublic Group’s McCann Worldgroup ad agency in China.

Baidus IPO was the first of two events related to the Chinese Internet. The second had to do with Yahoo and Alibaba.

Tomorrow: Alibaba and Yahoo

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Rajesh Jain

An Entrepreneur based in Mumbai, India.