A "search" for the ideal...?

Chinese for Google

August 26, 2008

Baidu.com (BIDU) takes its name from a 12th century poem that conveys one man's desperate search for his lover in a large crowd. Talk about deep! The poetic name is fitting because Baidu wants the world to remember its heritage. But for me, Baidu is simply Chinese for "Google."

China's search engine offers its users all the same perks as its American counterpart with one striking difference: Baidu's features are offered in Chinese. This site's compatibility with China's ideogram-based language sets it apart from Internet search rivals, pretty much guaranteeing its dominance in what is now a global industry.

By focusing on what it knows best–Chinese language search–Baidu grabbed more than 60% of China's search market revenue in 2007, significantly beating out Google (GOOG) and Yahoo (YHOO). Compared to the same batch of competitors, Baidu also has higher page views.

Baidu's dominant position is also bolstered by its patriotic brand name, which strikes a personal chord with its Internet users. Similarly, the company has a better understanding of the wants and needs of the Chinese people and can adapt more easily to changing trends.

Also, given that Internet content is severely restricted by China's government, Baidu has a much better opportunity to form cooperative relationships with government organizations than its foreign competitors. This is especially important as the company tries to develop search databases in areas such as law and official government websites.

Baidu's paid search revenue has grown at a whopping 154% annual rate since 2004. That's huge! What's more, 60% of the company's total assets are in cash, which further indicates Baidu's capacity for continued growth.

China's growth spurt has only just begun. As I told you in a recent e-letter, it's one of the largest untapped market's in the world. And Baidu is a great way to take your first steps abroad as an investor.

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