What Does Microsoft Give Up With China Baidu Deal?

24/7 Wall St. wrote Baidu (NASDAQ: BIDU) and Microsoft (NASDAQ: MSFT) about their new English search joint venture and the response was “Baidu and Microsoft announced that Bing, Microsoft’s decision engine, will provide English search results to Baidu users in China.” That leaves a great deal open to interpretation.

Google’s (NASDAQ: GOOG) position in the search market in the People’s Republic has been substantially weakened since its dispute with the government about hacks into Gmail accounts a year and a half ago. Google has also resisted Chinese censorship of its results there. Google has even withdrawn access to its search results in China for a time. The U.S. firm, which once posed a threat to the search leadership of local company Baidu, now runs a distant second in market share, and may have lost that position as well.

Microsoft (NASDAQ: MSFT), which has constantly chased Google in the U.S. search market, has a chance to hurt Google’s prospects in China. Still, Microsoft’s joint venture with Baidu will not help its China language search business, and it may do little to help its position in China at all. Baidu knows better than to aid any big U.S. company for fear it will become a rival like Google has been. Microsoft may be able to deliver English language search results for Baidu, but that market must be tiny for Baidu to give it over to another company at all. That means the Baidu venture may be little more than a press release.

Baidu has decided that in Microsoft’s case it will keep its enemies closer than its friends, which are other Chinese internet firms that use its search technology. Google is crippled in China. Microsoft should have been tempted to enter the market in the People’s Republic with the goal of taking market share from both Google and Baidu. The real prize in China is not English-based search. It is Chinese language service. Microsoft cannot compete with Baidu and work directly with it at the same time.

Baidu let the People’s Republic’s central government thwart Google’s plans. The Chinese company has accomplished a similar feat with Microsoft through a business partnership.

Douglas A. McIntyre