There’s a Wall Street analyst cat fight going on right now about the prospects for the leading Red Chinese search engine, Baidu.com, including their relationship with MSN China. SeekingAlpha:
WR Hambrecht analyst James Lee issued a brief written response to a competitor’s claims that Baidu.com is close to inking deals with MSN China, China Telecom and China Netcom.
(Apparently, the “competitor’s claims” come from Piper Jaffray.)
According to a note issued by a competitor’s firm, Baidu is close to signing agreements to provide search functions to MSN China, China Telecom and China Netcom.
The note stated that these deals would add 50M in searches per day and $10-$20M in revenues in 2007. We spoke with our channels and have the following observations:
I’m a little puzzled about the China Telecom claim, since Microsoft signed a Windows Live Search deal with them in September, but here’s the really interesting part:
c) MSN China. MSN China’s top two managers recently resigned, leaving the company in uncertainty. We heard “an agreement” with Baidu was drafted (but not signed yet) prior to the management departure, but we are unsure what the nature of the deal is. Our sources indicated that Microsoft headquarters recently sent a representative to China to review and restructure the company’s operations. We believe it may take months for this “review process” to be completed before deciding on its pending agreement with Baidu.
Microsoft’s Chinese operations seem to be an inexhaustible source of turmoil (recall Kai-Fu Lee).
With that in mind, we believe this agreement could be on hold until a new management team is appointed in China. We feel that Microsoft is not likely to outsource its search engine functions to Baidu. This would represent the company’s admission that its search engine technology has completely failed in China. Even if the agreement includes such provision, we feel that the new Microsoft China management team may not be on board with the plan.
Ah, but Red China is a special case when it comes to Web search (and much else) and that wouldn’t necessarily reflect adversely on the prowess of Windows Live Search. As I have mentioned before, Baidu seems unusually “well attuned” to the whims of the restrictive Red Chinese government and it gets a significant fraction of its traffic from searches for unlicensed music files which a Chinese court just confirmed as legal. (If you are curious about free MP3 downloads, an inability to read Chinese is not a problem.)
So, instead of tweaking Windows Live Search to spiff up indexing of illicit music files and never find any criticism of the Red Chinese government, why not go with a proven winner like Baidu? It probably doesn’t hurt either that MSN China is actually a joint venture of Microsoft with the next best thing to the Red Chinese government and that presumably also rules out the option of Microsoft washing its hands of the whole dirty business.