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Baidu Beating Google At Its Own Game Case Solution

Solution Id Length Case Author Case Publisher
2037 4975 Words (16 Pages) Didier Cossin, Jinxuan Zhang Institute for Management Development : IMD-1-0275
This solution includes: A Word File A Word File is a Chinese based internet company with a significant market share in the region. It was able to beat Google as it provided internet search solutions to Chinese portals in the Chinese language. There are two main players in the internet industry- Google and Baidu. Yahoo! holds a significantly smaller share in the Chinese market. The business model of Google and Baidu is much alike as both derive their revenue through online advertising. The macro-environmental forces are in favor of Baidu as the economic growth would result in increased online advertising spending. While Porter's five forces indicate that buyer power is high, this is consistent with Baidu's continuous technological innovation practices that will allow it to continue to penetrate the market. Also, its customer support system is strong, establishing a large base of users for it. The business enjoys a competitive advantage in the Chinese market, but Google has entered and is learning Chinese culture at a speedy pace. Also, new firms may enter the industry, which may dilute Baidu's market share. The major strategic issues that were identified were lack of international penetration, piracy, and censorship issues, and the small scale of Baidu against Google. To deal with these and improve the overall performance of Baidu, it has been recommended that Baidu continuously innovates and enters in new technology areas like mobile applications and optimize its search engines accordingly to attract even larger volumes of traffic. Also, Baidu needs to make revenue-sharing agreements with IP holders for content protection and start targeting the Asian markets where the Chinese language is still widely spoken to boost its market share. These strategies will, therefore, help increase the overall global market share of Baidu, and as its scale will increase, its traffic acquisition costs will further decrease, resulting in even high returns on equity and generating a high level of profitability. 

Following questions are answered in this case study solution

  1. Executive Summary

  2. Introduction

  3. Industry Description

  4. Macro-Environmental Forces of the Industry

  5. Driving Forces of the Industry

  6. Porter’s Five Forces Analysis- Impact on industry

  7. Key Success Factors for Industry

  8. Strategic Group Map Analysis

  9. Attractiveness of the Industry

  10. Financial Analysis

  11. Value Chain Analysis

  12. SWOT Analysis and Strategic Relevance

  13. Competitive Strength Assessment Matrix

  14. Company’s Mission Analysis

  15. Firm’s Generic Strategy

  16. Strategic Issues faced by the Firm

  17. Recommendations for Strategic Change

  18. Action Plan

Case Analysis for Baidu Beating Google At Its Own Game

2. Introduction 

Baidu is a website company which is also known as China's Google and was found on January 18, 2000, and was co-founded by Robin Yanhong Li and Eric Yong Zu, both of whom had studied and worked in Canada before they returned to China. With the passage of time, Baidu grew its share significantly as it established itself as the number one website in China and the largest website outside the United States. It gained a first-mover advantage as it explored the untapped Chinese online search market and provided information in local Chinese language giving users ease of online searching. The following report will analyze the case of Baidu by evaluating the industry through using various strategic tools and models and outline the actions required to improve the overall performance of the company.

3. Industry Description

Baidu operated in the information technology industry and is gradually gaining its market share to come in direct competition with Google. The major players in the industry are Google and Baidu, with Google operating on a larger scale. The revenue is earned through online marketing activities conducted on the website by selling ads based on the keywords entered by the users in their searches. Hence, the number of players in the industry is quite low with huge potential of profit-making as the trends of digitization have emerged, and the number of users using internet search services increasing exponentially, giving marketers more reasons to engage in online advertising. The industry, therefore, shows a growing trend. Retaining market share in the industry is challenging as the customers do not have any brand preference; rather, they shift to the search engine that provides the most relevant search results.

Apart from this, the legal regulations faced by the players in the industry varies region-wise as in China, there is a high restriction on internet content and advertising services for the foreign-owned companies. Overall the industry is growing as the revenue generated through advertising on sites has consistently increased for both the companies for the past 6 years. Also, global trends are emerging from 2003 to 2008; the revenue generated from international sources for Google increased from 29% to 51%. Furthermore, there are rising trends of acquisitions within the industry, as can be seen in the case of both the companies Google and Baidu. Google acquired small startup companies with innovative IT concepts to provide the users with a better ran of products and services outside its sponsored search domain, to continually evolve and maintain its organic growth as well as growth through acquisition strategy. Similarly, acquisition trends can also be observed for Baidu as it continued to acquire business, technologies, and assets to further enhance its capabilities as these were focused on increasing the traffic inflow on its website which was further leveraged to form a strategic alliance with online marketers for lead generation for their businesses. 

4. Macro-Environmental Forces of the Industry

To evaluate the macro-environmental forces influencing the industry, PEST analysis will be done to understand the external forces better. Firstly, the Chinese government has certain regulations that restrict the power of foreign companies to provide content related to the internet and other advertising services, which protects the domestic and local subsidiaries. Hence, for entering China, Google was compelled to abide by the Chinese government regulations to be able to start with its operations. Furthermore, the Chinese RMB was used as a mode of reporting currency in Baidu; however most of its assets were denominated in US currency. Hence, with the free floatation of RMB by the Chinese Government, the RMB appreciated significantly against the dollar.

Hence, the high extent of volatility posed a challenge for the players in the industry, which dealt in multiple currencies. This also posed a threat a decline in the potential revenue from its foreign operations. However, a benefit is that because the company comes under the category of having undertaken foreign investments, it is placed in the high tech zone, which makes it entitled to enjoy preferential tax treatment and even a lower effective tax rate. Apart from this, it should be kept in mind that the advertising revenue is linked closely with the rise in the GDP. Hence, declining economic growth may result in a substantial fall in the revenue for the business.

Moving on, in China, most SME customers are not very much comfortable in conducting their business online. This, coupled with poor logistics and payment infrastructure, require extensive user education and a proper support system to be able to better instruct the users on how to use and navigate through the internet. Hence, this is an important aspect that needs to be dealt with efficiently. Secondly, the Chinese are much prevalent across China as the official language; hence, Baidu's use of the Chinese language for its search engine gives it a competitive edge against its competitors like Google. Thirdly, China is a speedily growing market as 2007 indicated a significant rise in the search requests in China, which surpassed the number of internet users in the United States in 2008. Furthermore, the trends show that the market for search engine advertising is expected to rise to 36% by 2011. 

The industry is highly sensitive to the technological changes as users demand complete coverage, easy to use, and new features. This is why both Google and Baidu are continually involved in innovating and acquiring new products and technology to enhance their offering as a means of retaining the market share. Furthermore, Baidu has been consistently evolving itself technologically as it made use of two-byte search algorithms, which gave it a competitive edge in China as it could not be developed by someone not familiar with the Chinese language. 

Hence, the overall environment is favorable for Baidu considering the initiatives it has taken so far to improve its market share and establish itself against Google. However, as it would enter the United States, it would have to alter its strategy to meet the local needs there.

5. Driving Forces of the Industry

There are a number of factors that have driven the growth of online advertising. This, in turn, has raised the need for search engine optimizations and pay for performance search advertisements that is the main source of revenue for companies like Google and Baidu in the multimedia industry. Firstly, with the growth in the e-commerce trend, there was a need for online platforms where the businesses could engage with internet users and generate leads. Hence, although the e-commerce infrastructure was underway development, the huge revenue potential encouraged Baidu to establish a sales force to help the business owners navigate through the internet as the user traffic gets diverted through the business. 

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