Google Still Rules All
Never mind the fact that BIDU shares are overbought; that condition can be negated by time and patience for traders willing to wait for a safer entry point. No, even if Baidu shares were to cool off and regroup, GOOG would still be the stronger play.
That’s not a chic, hip stance right now. China’s foray into the internet era as well as the smartphone era is still accelerating, while the rise of smart devices in United States is slowing. For reference, there are an estimated 246 million web-connected devices in China, a country with a population of more than 1.1 billion. Conversely, 221 million smartphones and tablets are in use in the United States compared to a population of 300 million. The numbers suggest Baidu has the bigger and better opportunity to tap into, especially now that it’s turning the heat up on mobile revenue venues.
But Google still has the relative edge.
For the record, while Baidu is still the top name in Chinese search engines, young up-and-comer Qihoo took a huge bite out of Baidu’s dominance in that arena over the past 12 months. As of June 2012, Baidu.com fielded 81% of China’s web searches, versus none for Qihoo. A year later, however, Qihoo is the search engine of choice for 15% of China’s web surfers, and Baidu only owns 69% of the search market now. Google has fended off its search competition with much greater success.
That being said, there’s little doubt that the new battleground will be on the mobile front (mobile device search and advertising), and Baidu is building a huge weapons cache for that war. Google’s is still better, however, and Google’s leadership on the mobile front is much more experienced.
See, not only does Google own the key mobile search site, it also owns the key platform making those devices work — Android. While Google’s app store is still playing second fiddle to the Apple (AAPL) app store, it’s catching up with Apple’s dominance. The acquisition of 91 Wireless will certainly give Baidu a meaningful app store of its own, but Google and Apple are still the ultimate gatekeepers in that arena, as they manufacture the operating systems for the mobile devices most Chinese consumers use to access the internet.
Google is making a small dent in the hardware market too, via its Nexus line, and more recently, a web-to-TV technology called ChromeCast (which is a direct shot at AppleTV, Roku and other web-to-TV devices). While the end-purpose of Google Glass is still unclear, there’s little doubt that the company will be able to monetize it.
There’s no Baidu hardware anywhere on the radar.
Yes, Google’s bread-and-butter ad business slipped last quarter. But Google’s concept of integrating itself into every facet of your life is not only well-conceived (even if a tad creepy), the company’s making consistent progress to that end — the ad revenue will come. While Baidu’s certainly doing a lot of things right, it’s buying its growth, and it may be years before it integrates itself into the all-encompassing tech company that Google is in the western hemisphere.
James Brumley does not have a position in any of the aforementioned securities.