Search Industry, Born In The US, Struggles In China Which May Not Want Search At All

The search engine as a key part of the internet was born with the products of companies such as Altavista back in the late 1990s. The usefulness of search to consumers advanced as Yahoo! (NASDAQ: YHOO) began to improve the technology. It lost the market leadership to Google (NASDAQ: GOOG), which has about a 67% share in the US and higher levels in some European nations.

Google has never done terribly well in China. It has run a distant second to local firm Baidu (NASDAQ: BIDU) . Baidu announced results recently. Revenue in the third quarter was up 76% to $337 million. Net income rose 112%.

Baidu’s sales are dwarfed by those of Google. That is curious because China now has more people online than any other nation in the world–nearly 400 million. And, that number is less than a third of the population.

China may simply not be fertile ground for the search business. That means Google, Microsoft (NASDAQ: MSFT), and Yahoo! may not be able to succeed in the People’s Republic. The nation appears critical to the ability of the search industry to expand its revenue beyond the West and Japan. That chance may be little more than a dream. Other nations which would seem to be ripe for expansion may not be at all. Rediff , the largest search company in India, with an 81% market share, has struggled financially. Russia’s dominate search engine, Yandex, is not a very large company.

Why Baidu and the search companies in these other markets are not larger is a mystery, but it may be that search in not a useful utility everywhere. The Chinese must be concerned that the central government keeps track of their online activity. If so, the future of search there could be stunted indefinitely. Search is also more likely to be monitored in Russia and India than in many other large nations. Research In Motion (NASDAQ: RIMM) has learned a hard lesson about India’s desire to keep track of the “electronic” habits of its citizens.

The lack of large search markets in some of the world’s most populous nations makes the growth of mobile search in markets which have already matured in PC search activity even more critical. Google, in particular, has a great deal at stake. It is unlikely to improve its market share among people who are regularly using its service.  Most of those people have picked Google as their search engine of choice.  Its dominance has already drawn the interest of antitrust officials which could also limit is growth.

The notion that China is the next frontier of search may tempt the large search engine firms in the US, but there may be very little reward from their efforts to work a market which may not be there.

Douglas A. McIntyre