Google Takes a Stake in Baidu
South China Morning Post
2004-06-16

Internet search giant Google has taken a small stake in Baidu.com, the mainland's largest search-engine company, in an investment which could lead to greater co-operation.

Baidu chief executive Robin Li confirmed the investment yesterday, but declined to disclose the amount.

Google was one of eight investors in the company's third round of venture capital financing.

"We are open to future business co-operation discussions with Google. But Google's investment at this time is not pre-conditioned on any business co-operation," Mr Li said.

Market watchers said the stake sale could give Baidu access to Google's technology. The United States company might gain access to Baidu's mainland sales network.

Google is the second most popular search engine in the mainland with a 30 per cent share of search inquiries, according to Shanghai-based iResearch. However, it derives no advertising income from the mainland and is looking to increase profits there. Baidu is the market leader with a 48 per cent share.

Latitude Capital Group managing director Frank Au said the small size of the stake gave Google "option value", meaning it could increase its holdings later or simply hold on to its shares and develop its mainland business separately.

Taking on a mainland partner would make sense for Google. The central government - concerned about keeping a tight rein on the internet - might not be keen to see the search-engine market fall into the hands of a foreign company.

"There are sensitivities, especially with news searches," Mr Au said.

Leading the third round of investment was venture capital firm Draper Fisher Jurvetson. Baidu raised US$1.2 million in December 1999 and $10 million in September 2000.

The mainland search-engine market was forecast to grow to US$277 million by 2006 from $62 million last year, iResearch said.

By Hui Yuk-Min and Michael Logan