As the internet continues to evolve, so have the web search engines used around the world. The beginning years of web-based search witnessed the invention of a number of major search engines including AOL, Yahoo, MSN, and Netscape to name a few. Since Google’s (GOOG) formation, these and other search engines have taken a back seat.
Generally accepted as an industry leader in web search engines, Google has rapidly developed into one of the most valuable companies in the world. Controlling roughly 67.5 percent of U.S. based search queries, Google has established itself as the leader in U.S. web searches, followed by Bing and Yahoo.
While Google has a stranglehold on U.S. search, the company continues to grow and offer services globally. Google has a foothold in markets around the world; in particular, Google’s presence in China, while minimal, is still apparent. Due to the complex nature of the Chinese political economy, industry leaders tend to have monopolistic control. Operating in the same space as Google, Baidu (BIDU) is China’s largest internet search engine with over 80 percent of the country’s search queries.
While aspects of both Baidu and Google’s web based operations are quite similar, the companies themselves vary immensely.
How Baidu Generates Income
As the market share leader in online search in China, Baidu generates a majority of revenue from web based services.
Baidu offers performance based market services and displays advertisements through its own website and other affiliated websites. Baidu advertises utilizing a Pay for Placement (P4P) platform. Companies and advertisers bid on certain keywords and placement for their advertisements and websites within Baidu. Advertisers bid on keywords in anticipation that certain keywords would trigger their ad. Likewise companies pay for premium placement on Baidu search results. Due to its large market control in China, companies are subject to working with Baidu to increase clicks and search impressions.
Similar to Google, Baidu also provides Pay per Click services. Advertisers pay Baidu to display their advertisements alongside the search of certain keywords. The company placing the advertisement is only charged when the ad is clicked. As a result, Baidu has an incentive to place ads from higher paying companies in prime locations. According to Bloomberg, 99.7 percent of Baidu’s $3.5 billion in 2012 revenue was generated from online marketing and advertising services. Baidu’s offers a variety of web based services that replicate Google's, including maps, news, video and encyclopedia searches.
How Google generates income
While Google and Baidu operate in similar web-based-services areas, Google’s ventures expand farther. Google's estimated 2013 revenue exceeded $57 billion from multiple business sectors such as advertising, revenue from the Android operating system and YouTube video technology. A majority of revenue is generated from advertising from the Google advertising platforms, AdWords and AdSense. 2013 financial data suggests that advertising generated $50 billion in revenue for Google.
Google AdWords is an online advertising program for companies and advertisers to reach new customers. Google allows companies to bid on the placement of an advertisement and keywords associated with company websites. As individuals search words or phrases related to a business, the company’s advertisement or website will appear on Google. Google generates revenues on a cost-per-click basis. As a result, companies are only charged when their advertisements are clicked. Similarly, Google AdSense places advertisements on personal blogs and company websites to generate increased click rates. The revenue generated from clicks within websites other that Google itself are split between AdSense users and Google.
While Google’s advertising systems generate a majority of its income, Google’s ventures also extend to video technology and mobile operating systems. YouTube, a Google company, generates revenue from video advertisements. In 2013, YouTube’s gross revenue was $3.5 billion. One key difference between Google and Baidu is the former's presence in mobile software. Google’s establishment of the Android operating system has rapidly grown to the most widely used smartphone operating system in the world.
Primarily known for web search capabilities, Google’s search queries continue to dominate globally. Google can be found in a majority of leading countries and is the search engine of choice. Conversely, Baidu‘s operations for the most part are within Chinese boundaries. Unlike its role in the rest of the world, Google does not have a large presence in China. Google’s search engine traffic controls about 3 percent of search market share. Due to China’s strict censorship, Google has been unable to create a foothold in Chinese search queries, even while it maintain dominance worldwide. Google effectively controls 90 percent of searches globally compared to the Baidu’s 1 percent market share worldwide.
The Bottom Line
Operating as a global leader in search engine traffic, Google's continued dominance has driven various other business ventures. With the acquisition of YouTube and formation of Android smartphones, Google's revenue sources are vast.
While most major countries predominantly use Google for web searches, China is the stark exception. Baidu, China’s dominant search engine, generates a majority of web searches within China. Due to Chinese censorship, Google has been restricted and unable to grow within China. Adhering to Chinese censorship, Baidu continues to operate with monopolistic control over web based searches there.
Due to the lack of competition, Baidu may suffer long term ramifications. With revenue coming solely from its search engine, Baidu has not diversified its sources of income. As a result Baidu's U.S. share price has not seen growth similar to Google's. Baidu’s shortcomings reflect a lack of global expansion in the technology market. While 99 percent of Baidu’s revenue comes from China, Google generates less than half of its revenue from the U.S.