Recruiting in China

Beijing -- Baidu.com, the most popular search engine in China, is throwing its hat into a new instant messaging (IM) service designed to let Internet users in the country communicate with one another, a fast-growing market dominated by Tencent’s QQ and Microsoft, with this morning’s introduction of Baidu Hi.

Baidu said in a statement released on Friday that it has started testing the service internally of its IM product “Baidu Hi,” which only Baidu employees who have submitted applications through internal networks can get approval to download.

“IM is one of Baidu’s few ‘strategic’ products and it has been developing it for over a year,” a company statement said.

Baidu is currently recruiting new developers and engineers to help develop the software, but the company refused to disclose the scale of the test, and stopped short of saying when the instant-messaging service would be offered to the general public.

The move makes perfect sense. Baidu has used its search engine prowess to launch sticky community sites devoted to everything from discussion boards to social networking. It is the perfect pivot point. If folks are text chatting in real-time online, why would not Baidu want a piece of that?

It is also a booming market. According to Web information company Alexa, QQ.com is the second most popular website in China, trailing only Baidu. Yes, the hot IM platform is getting more traffic than SINA and Google. It is not as easy to monetize an IM application as it is with search, but it is more about keeping up with the trends and eyeballs than the pocketbooks.

Since last year, rumors have been rife that Baidu has been eyeing the IM market in the hope of finding another revenue generator outside its online search business, in order to maintain rapid growth.

The Beijing-based company stated that all aspects of Baidu Hi development will be done completely in-house, eliminating the need for jobs to be contracted out to other companies.

“The statement did not say whether Baidu Hi will offer features besides messaging, such as the ability to make voice over IP (Internet Protocol), or VoIP, calls.”

Baidu may dominate Internet search in China and routinely trounce Google in market-share surveys there, but that is unlikely to translate into dominance of the instant-messaging market in China.

“That market is currently dominated by Tencent, a Shenzhen-based company that runs the popular QQ instant-messaging service.”

The company has 580 million registered users and earned 1 billion yuan in the third quarter of last year, mainly through providing Internet value added services.

“Microsoft’s MSN is a distant second and attracts many white-collar workers.”

Liu Bin, an analyst at research firm BDA China, said Baidu’s entry into China’s IM market will not trigger direct competition with Tencent and Microsoft in the short term because it will be difficult for Baidu to attract users from other providers.

“Baidu’s IM software will have a significant impact on Tencent and Microsoft in the next two to three years,” he said.

Many search engines, facing an increased level of competition, have been forced to adapt and launch complimentary services to keep users coming back to the site for more than basic Internet searches.

The key to success comes from paddling into new revenue streams without diminishing the brand as a search engine workhorse. Yahoo! did not necessarily fall behind Google in search usage because it dove into things like job listings, dating personals, and instant messaging, but the lack of focus probably did not help.

Baidu stormed on the Internet search engine scene with its “MP3 Search” feature, which made it fast and easy for users to locate and download free music from Chinese and other artists. Another example is Google; the top search engine in the United States has a full range of software and services in development and available to users.

Baidu also branched out by launching a Japanese language search engine, though it does not appear the Chinese search giant has plans to launch a site for the US market.

The good news is that Baidu has not slipped despite launching dozens of similar forays in the past. Even more recent moves like launching its search engine in Japan and developing an eBay clone have not diluted the brand’s popularity. New initiatives also have not materially weighed down the company’s earnings power, going by this month’s fourth-quarter report, which found earnings soaring 79% despite the Japanese expansion.

Since 2005, Baidu has posted annual growth rates of over 100 percent. But Liu said the company's growth rate may decline to 30 percent within five years due to a larger revenue base.

“Although IM may not bring direct revenue for Baidu in the short term, it will be lucrative if Baidu can combine it with other services.”

“Baidu declined to comment when asked about Baidu Hi and its future endeavors in the instant messaging space.”