March 10, 2004

Some of China's search engines are profitable and are starting to make money from sponsored links, where clients pay to have their Web address appear at the top of a results search.

China's homegrown Internet search firms said on Wednesday they were upgrading technology in a bid to take on Google just weeks after the search giant's foray into a market seen worth some $100 million in 2004.

The three main domestic players are Baidu.com, styled after Google, Yahoo Inc (nasdaq: YHOO - news - people) subsidiary 3721.com and Zhongsou.com, which powers search services at three Nasdaq-listed Internet firms.

Google, the world's largest search engine, rolled out Chinese-language ad services in February and is expected to launch a closely-watched initial public offering this year.

"My job in China is to kick Google's ass," said Zhou Hongyi, the bespectacled founder and chief executive of 3721 Network Software Co Ltd, that was bought by Yahoo for $120 million in cash last November.

Yahoo, which is beefing up its search services to compete against Google and Microsoft Corp's (nasdaq: MSFT - news - people) MSN Internet division, said in February it was starting to switch to its own search technology and dropping the use of competitor Google.

Zhou said the battleground had extended to China, the world's second-largest Internet market by users with some 80 million Web surfers.

"China's market for Internet services and search has just started. If this is a marathon, we're only at the 1,000 metre mark," he told an audience of fund managers.

Zhou said 3721 was working feverishly to meld Yahoo's search technology with its own service, in an effort to win market share in an industry expected to soar to more than $200 million by 2006.

The company's Chinese-language "search index", a database of searchable Web sites, was already at 150 million, he added.

Robin Li, the leather jacket clad co-founder of Baidu, said his firm had an impressive index size of 220 million and would grow to 300 million in the next few months.

Baidu, which analysts said would be a prime takeover target for Google, broke into the black last year. About 80 percent of its sales last year came from sponsored links.

Bo Chen, chief operation officer of Zhongsou.com, said his firm had the largest search index of 280 million. Zhongsou, which means "China Search", provides search services to Sina.com (nasdaq: SINA - news - people), Sohu.com (nasdaq: SOHU - news - people) and NetEase.com (nasdaq: NTES - news - people).

But on Tuesday, Sohu said it planned to drop Zhongsou in order to expand into the Internet search market.

Safa Rashtchy, an Internet analyst for Piper Jaffray & Co who moderated the discussion panel, said the market was ripe for acquisition.

Baidu had the more established search brand, he said, while 3721 stood to benefit technically from Yahoo and Zhongsou had a strong domestic strategy.

"Clearly, search has picked up momentum from the last time when I was here," Rashtchy said. "It's still too early, frankly, to say who will win."

Source: Forbes

        

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