INTERNET: Baidu Ends Search For Japan, Hangs Out Egyptian Shingle

By newsdoug on April 24, 2015

Bottom line: Baidu’s new go-slow global expansion strategy focused on emerging markets like Brazil and Egypt looks smart, but will provide limited contributions due to the small size of those markets.

Chinese online search leader Baidu (Nasdaq: BIDU) is making some major strategic adjustments in its global expansion, turning to developing markets and away from more lucrative but also extremely competitive western ones. That’s my main conclusion, following reports that Baidu has finally pulled the plug on its struggling Japan search service 8 years after choosing the market for its first foray abroad. At the same time, the company is making initial moves into Egypt with its first Arabic-language website, following earlier moves into Brazil and more recently into Thailand.

Baidu confirmed the Japan pull-out, but was understandably keen to keep the move low-profile. It’s also been similarly low-profile on this latest move into Egypt, which I first learned about earlier this year when a source told me the company was making a push into Arabic language services. (previous post) Perhaps the low-profile decision in Egypt is aimed at avoiding too much expectation, after the high-profile flop in Japan.

I’m not a huge fan of Baidu in general, because I believe its search services are far less transparent than those offered by global rivals like Google (Nasdaq: GOOG), Yahoo (Nasdaq: YHOO) and Microsoft’s Bing. But that said, I do think its emerging global strategy of targeting developing markets looks smart, since such markets share many characteristics with its home China market, perhaps including more tolerance for lower degrees of transparency.

Such markets are also less competitive in general, though Baidu will have to compete with homegrown players that probably have a better understanding of local web surfers’ tastes. In those markets, Baidu’s advantage will be its superior search and associated search monetization technology, which it has carefully crafted over the last decade to build itself into an extremely profitable and valuable company.

Let’s begin with the headlines reporting that Baidu has formally stopped supporting its Japan search engine, though it still continues to maintain its old site at jp.baidu.com. (English article; Chinese article) A visit to that site contains the English-language message saying Baidu’s mission is to provide “the best and most equitable way for people to find what they’re looking for”, but there’s no longer a search box.

The site was actually shut on March 16, one media report cited a Baidu spokesperson saying, adding that traffic numbers had been steadily declining since it stopped updating the index in 2013. Baidu first launched the site in 2007 as its first step into global search services, but never gained any traction in the market. Thus this particular move doesn’t come as a huge surprise, and is probably something the company should have done a year or two earlier.

Meantime, a visit to the site eg.baidu.com reveals that Baidu has launched a beta site there for the Egypt market. Baidu also has a similar beta site for Thailand. It’s worth noting that Baidu appears to be taking its time about launching these new sites as it looks for better luck with developing markets. It announced its plan to enter Brazil back in 2012, but didn’t formally remove the “beta” tag from its search engine there until last year. More recently, the company has added an investment in a local e-commerce company to its Brazilian foray. (previous post)

This kind of slow-go approach focused on emerging markets shows that Baidu has learned some lessons from the Japan misadventure, and intends to take its time when entering new search markets. It’s still too early to say if it will succeed in any of these new initiatives, and I personally don’t know enough about the individual markets to say what the local competition looks like.

I would expect Baidu will probably do reasonably well in at least some of these regions, perhaps gaining up to 20 percent. But that said, the relatively small size of these countries means their potential to contribute to Baidu’s revenue and profits will be relatively limited. Instead, any really big rewards will still have to come later if and when it decides to make a new play again for some more lucrative western markets.