Chinese search engine giant Baidu’s third quarter revenue fell short of the $1 billion analysts had forecast. That was partly because Baidu—like Google, which recently reported disappointing revenues—has not yet fully figured out how to make money off the mobile-phone version of its search engine. But in Baidu’s case there’s an emerging-market twist. It needs to teach small Chinese businesses, including farmers and restaurant owners, why its worth their advertising on mobile search. That is going to be hard.
Baidu is not yet making enough money from mobile search, though traffic is soaring.
On a call with investment analysts following today’s results announcement, Baidu CFO Jennifer Li said that “mobile traffic as a percentage of total search continued to grow.” She said that in the third quarter of this year, mobile search traffic “rose triple digits” percentage-wise compared to the same period in 2011. Yet she acknowledged that mobile search advertising wasn’t increasing at the same rate, saying “We expect this will take a couple of years to close the gap.”
Google and Facebook have similar problems. Mobile screens are smaller than desktop screens. There’s less space for ads, and consumers are less likely to make big purchases from their phones than they are on computers. Search-engine companies must come up with a way to convince businesses that mobile is an opportunity to advertise smarter. The industry is still scratching its head over this one.
Most of Baidu’s future growth will come from small Chinese companies. These aren’t the firms from skyscraper-filled Beijing, Shanghai and other urban centers, where the small group of beneficiaries of the country’s economic boom drive Ferraris and wear Gucci. These are farms, factories and restaurants whose owners probably did not go to college, and who dress in overalls, drive electric bicycles and eat five kuai (US$0.79) meals of pork dumplings and beef noodle soup from roadside shacks with corrugated iron roofs and no fridge. They are the lifeblood of China’s private-sector economy, but their owners don’t have the online advertising experience of marketing executives from Coca-Cola and Nestle.
Li said the company hopes to sell mobile search engine advertising to these smaller firms. “These are smaller businesses that may have little marketing budget to begin with,” she said. Educating such businesses about mobile search “will be time consuming and it will take a lot of efforts from our end.”
Does anyone know of a company Baidu can buy to help it make money on mobile? Shanghai and Silicon Valley investment bankers will be frantically scrolling through their smartphone contacts. After admitting it was going to be tough to make money from mobile search in China, Li said Baidu “might leverage M&A” as a solution. That sounds like a company without much of a plan.