Microsoft strikes deal with China's biggest search engine Baidu

Microsoft has signed a deal with Baidu, the biggest search engine in China, to provide English-language search results — but they will be censored to meet the Chinese government's demands.

The announcement of the deal is a boost to Microsoft, which has been struggling to boost the position of its Bing search engine against Google's dominance in almost every country around the world. It will also be a boost for Baidu, which has ambitions internationally.

Baidu has roughly 83% of the Chinese search market, but there are also up to 10m English searches per day, the company said. The Chinese market comprises roughly 470m users, despite only about 30% of the population having internet access.

Bing — which filters out results in China relating to controversial subjects, such as political dissidents, Taiwan or pornography, to be able to operate in the country — has a negligible share of the market, while Google has nearly 20% counting visits to its offshore sites, making it the second-biggest in China. Yahoo has 6% and Microsoft's Bing 4%, according to Net Applications.

English-language searches to Baidu will be redirected through Bing.

Kaiser Kuo, a spokesman for Baidu, said that Bing searches would not be censored any more "than they already do".

Google shut down its search service on the Chinese mainland in March 2010 after alleging that government-inspired hackers had broken into the systems for its email and source codes to its wider network. Google's founders, Larry Page and Sergey Brin, had been unhappy at the idea of submitting to China's censorship for search results, and declared after the hacking incident that they would stop censoring them. Instead the company added a simplified Chinese service for mainland users to its search operation in Hong Kong.

Some analysts were sceptical over how much demand there would be for English search on Baidu.

"It's a good thing, but I see very minimal impact for Baidu. I don't see a lot English keywords going through Baidu. It goes through Google," said Wallace Cheung, a Hong Kong-based analyst at Credit Suisse.

Search engine marketing company Greenlight said it saw the deal as positive for both sides, and could envisage the new partners dominating the Chinese search-advertising market.

"Whilst it represents an opportunity for Bing to make more money from the Chinese market, Baidu gets what it needs to expand overseas when it is ready to do so," said Greenlight Chief Operating Officer Andreas Pouros.

"Microsoft has entered the Chinese market slowly and has made some friends, in a way that the Chinese government will have no issue with. This should leave Baidu and Bing to control the Chinese search ad market without too much difficulty."

Baidu made $1.2bn in online marketing revenues last year, up 78% from 2009. Microsoft's total online advertising revenue in fiscal 2010, including a small contribution from Bing, was $1.9bn. However Bing loses almost as much money as it takes in.

Microsoft may be satisfied with delivering censored results. It acknowledged as long as as 2006 that it filtered certain words, including "democracy" and "freedom" from the Chinese version of MSN. At the time Brad Smith, Microsoft's general counsel, said that it was better to do business inside the country than to boycott it.

"We certainly think it is better for us to be present around the world rather than not," Smith said in 2006.