Technology

Baidu's Rapid Growth in China Falters Despite 721 Million People Online

Douglas A. McIntyre

Published: June 14, 2016 9:45 am

Last Updated: January 13, 2020 6:50 am

Baidu Inc. (NASDAQ: BIDU) has so many advantages in China. It owns over 80% of the search market in the world’s largest nation as measured by internet users, estimated at 721 million, and a mobile market that represents a huge portion of that. Baidu’s growth should be extraordinary. However, it is not. Its dominant position in China has become its enemy as the government alters how internet search may be used.

The search company announced:

Baidu currently expects estimated second quarter 2016 revenue to be in the range of RMB18.100 billion ($2.807 billion) to RMB18.200 billion ($2.823 billion), compared to the previously stated range of RMB20.110 billion ($3.119 billion) to RMB20.580 billion ($3.192 billion).

The $2.8 billion figure seems small compared to the vast number of people online in China.

The government has been an enemy of search for a long time. However, the problem has been worse for Alphabet Inc.’s (NASDAQ: GOOGL) Google, which has tried to penetrate the Chinese market, only to be beaten back. Google has essentially abandoned the People’s Republic, despite the chance that it eventually might be the American search company’s largest user base.

Baidu finally has been damaged by government activity as well. The problem:

First, regulatory authorities continue to review the online marketing practices of medical, pharmaceutical, healthcare and other similar businesses, and have also implemented stricter advertising regulations for medical organizations. The review is being rolled out with varied timing with different levels of implementation and interpretation across geographies. While the review is underway, the Company has observed a reduction or delay in spend from a significant portion of medical customers. These customers may be in the process of receiving instruction from regulatory authorities, gathering and submitting required documentation and adjusting their practices to comply with new regulations.

Baidu also said it had cut the number of sponsored links it shows. That, at least, is its own decision.

Baidu’s biggest future risk is its home market’s own government, and the fact the People’s Republic could cripple it further on a whim.