China now has more people online than the US, 253 million to be exact. The China Internet Network Information Center says that the number of internet users was up 56% from June last year.

The AP writes that "The United States had an estimated 223.1 million Internet users in June, according to Nielsen Online." Given the Chinese grow rate, the gulf is likely to get much larger over the next several years.

Online businesses on the mainland are still small by US standards, which gives companies like Yahoo! (YHOO) and Microsoft (MSFT) a chance to compete with Google (GOOG) while the industry is still immature. Baidu (BIDU), China’s largest search engine by market share, had revenue of only $117 million last quarter. That was a 100% increase over the figure for the same period a year ago.

Baidu currently handles 60% of the searches in China. Google has 26% and Yahoo! about 10%. But, there are a lot of questions about whether a company as small as Baidu can hang on to its large lead for very long.

Microsoft has recently made it clear that it is willing to spend billion of dollars on getting what it believes should be its share of the search market. Yahoo! has some natural advantages in China. It owns a large interest in the country’s largest e-commerce company, Alibaba. That should give it access to a large part of the online population.

While the search habits of internet users in the US are set, in China they may not be. According to comScore, only 82 million people conducted searches on the mainland in April. That leave a tremendous portion of the online population who are not using a search engine at all.

Yahoo! and Microsoft have almost certainly lost the search wars in the US. China could have 500 million people online in the next two or three years.

If Microsoft wants to spend huge sums on the search business, it should go to Beijing.

Douglas A. McIntyre

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