INTERNET: Microsoft Cozies with Baidu, Bing Set for China Exit?

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Bottom line: Microsoft’s new tie-up with Baidu could presage a major scale-back for its China-based Bing search engine, paving the way for Baidu technology to power the struggling service.

Microsoft, Baidu in new China search tie-up

An interesting new dance is taking shape between global software titan Microsoft (Nasdaq: MSFT) and leading Chinese search engine Baidu (Nasdaq: BIDU), paving the way for a potential exit of Microsoft’s Bing search engine from China after years of disappointing results. After announcing a new tie-up that will see Baidu promote Microsoft’s upcoming Windows 10 operating system in China, the pair are saying said that Baidu will now become the default search engine on the web browser associated with the newest Windows.

Microsoft will clearly benefit from the first move, which should help it to sell more legal copies of its core Windows OS in China. Baidu is the clear beneficiary from the second move, making this look somewhat like an even trade-off. But while the first move is relatively neutral to Baidu, the second will see Microsoft effectively sacrifice Bing in China. That’s because very few people use the search engine, and now that number will drop even more if Bing loses its default status on the new Windows browser.

It’s probably too soon to say that Microsoft is preparing to jettison its Chinese version of Bing, but I wouldn’t be surprised if that’s the ultimate end game here. Despite operating in China for around 6 years, Bing has yet to find a major niche in a market that’s currently dominated by Baidu, as well as Qihoo’s (NYSE: QIHU) up-and-coming Souhao and Sohu’s (Nasdaq: SOHU) Sogou. Even Google (Nasdaq: GOOG), which formally shuttered its China search site in 2010, still brings in far more search revenue from China than Bing.

This new Microsoft-Baidu partnership was just one of several announced during the recent trip by Chinese President Xi Jinping to Microsoft’s hometown of Seattle. (English article) The heads of both Microsoft and Baidu were part of a large contingent of some of the world’s biggest tech leaders to meet with Xi, underscoring the importance of the huge China market to not only Microsoft, but also other names like Amazon (Nasdaq: AMZN) and Apple (Nasdaq: AAPL).

Tiny Player

The Microsoft-Baidu tie-up was largely overlooked among the flood of other announcements during Xi’s visit, but it does look quite significant for the future of Bing in China. While the Microsoft search engine has gained significant global market share in recent years, the same hasn’t been true since its beta launch in China in 2009 and formal launch 3 years after that.

In terms of market share by actual searches, Bing is a tiny player in the market with less than 5 percent share, well behind Baidu, Haosou and Sogou. In terms of search revenue, Bing is equally small, with Baidu accounting for a whopping 80 percent of the market, followed by 10 percent for Google and about 6 percent for Sogou.

It’s interesting to note that this isn’t the first search tie-up between Microsoft and Baidu. The pair announced another alliance 4 years ago that saw Bing become the official engine for English searches on Baidu. (previous post) I called that alliance trivial and insignificant at the time, since English accounts for a tiny fraction of overall search traffic in China.

Still, that particular model could become a template for a Bing withdrawal from China. Such a model would see Microsoft quietly close down its Bing search technology development team, while leaving the actual site active and powered by Baidu search technology.

Such a model is already widespread around the world, and often sees big names like Google provide the actual backbone technology for searches on other companies’ web sites. Perhaps we’ll see such a move come soon for this new Microsoft-Baidu alliance, though I really don’t see much room for other synergies between these 2 big companies.

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