Zhongsou Online Takes on Heavyweights
South China Morning Post
2004-08-31

Zhongsou Online Software is promoting its desktop search application as an alternative to Baidu.com and Google, as the Beijing-based company takes on its cashed-up rivals in the potentially lucrative market for online search services.

Since launching its toolbar application in February which Zhongsou calls NetPig (internet personal information gateway), more than a million users have downloaded the program. The company hopes to reach five million by year-end and 30 million next year.

The desktop toolbar is a relatively new approach to online search. Most users are familiar with the clean, minimalist design of Google's search portal and imitators such as Baidu.

With the toolbar, users reading an e-mail, Word document, web page or other application can highlight a search term, clicking on the NetPig icon to conduct an inquiry. This automatically launches a search window without the need to copy and paste terms into a separate web browser.

"Desktop search is the way to go," chief executive Chen Pei said.

"We foresaw this and launched the service earlier this year. Now MSN say they will launch a toolbar soon and Google is looking into it as well."

NetPig can also be set to continually search the internet once a search term is entered. Users looking for MP3s of Jay Chou songs, for instance, will be notified every time NetPig finds a hit.

Baidu, however, dismissed the toolbar approach and said the portal model would remain the popular interface.

"Desktop and toolbar search applications are not commonly used in China, as we have found," a Baidu official said.

The programs were also difficult to use, moving opposite to the direction forged by industry leader Google.

"The development of the internet should lead us toward simplicity, not making things more complicated," he said.

The company had a toolbar application under development for about two years, but portal search would remain its core service.

Zhongsou also maintains its own portal which sports the clean look of Baidu and Google. Mr Chen, however, believed the company could offer a richer search experience, in the process generating new revenue streams beyond advertising.

For example, its MP3 search allows users to transfer songs to their mobile phones. Zhongsou shares revenue from the service with China Mobile. Text search results can also be transferred to phones.

These types of products account for just a small portion of the company's forecast 40 million yuan in revenue this year, but the segment is expected to grow.

Baidu did not believe wireless valued-added services would be a big revenue generator for search companies, saying mobile-phone screens were too small to display text results and there were a limited number of so-called smartphones in China.

"It's easy for a big company such as Baidu to enter the mobile market, but we don't think there will be much usage," the Baidu official said.

At stake in China is a search industry forecast to generate US$277 million in advertising revenue by 2006, according to iResearch.

Zhongsou claims to power 38 per cent of web traffic in China, 27 per cent through portals which have licensed the company's search technology. Other figures show Baidu with 48 per cent of all mainland search inquiries, followed by Google with 30 per cent.

Zhongsou could soon find itself facing a combined Baidu and Google, backed by the US$1.92 billion raised from the United States company's recent initial public offering. In June, Google took a small stake in Baidu, leading to speculation a buyout would follow later.

"From Zhongsou's point of view, we'd be happy to see that happen," Mr Chen said. "Eighty per cent of their offerings are overlapping."

Zhongsou, 57.6 per cent owned by HC International and 8 per cent by IDG, has hired Latitude Capital to look for venture capital.

By Michael Logan and Sidney Luk