Enjoying the (Somewhat) Cooler Weather
I agree with Kevin and Paul’s decline to get warped into the China buzz (sorry, Steve). I’m sure China and “what to do about Baidu” is on their minds, but Eric, Sergey, and Larry have a lot more to worry about. China is important to keeping Google growing in the long run, but the Good Ol’ USA is where the real revenue growth potential lies for the next 1–2 years. Spending to stay competitive at home is job one.
Sure, Google will have to do something strategic about China, and they may not even wait until this whole dispute over Kaifu Lee is straightened out. The longer they can wait the better, though. Baidu’s share price is off 47% from it’s high of last week, and 10-day stock chart is starting to look like the path of a on final approach – slowly, steadily downward. Even if they COULD buy Baidu outright, AND were going to pay cash, they wouldn’t wind up spending anywhere near $4 billion to do so.
Google’s chief barrier to buying Baidu isn’t money – it’s the Chinese government, and let’s not forget that. On their best days China’s policy-makers aren’t too terribly comfortable about foreigners owning large chunks of China’s Internet. (Yahoo! found that out when they bought , and I’m convinced that keeping regulators comfortable with the deal was part of the reason Terry Semel only took 40% of Alibaba. Conversation between Jack Ma and his regulators: “C’mon guys, don’t worry. They only own 40% of Alibaba. And we know what that means in China, right? Harharharharhar!”)
Baidu is a home-grown treasure, and the more conservative among China’s leaders going to put some very strict limits on Google’s ownership, either by action or by implied threat of action. What is more, there is a very conservative wind blowing through Zhongnanhai these days. The chill it has placed on the media business is having some severe effects on film and television, and the buzz in the Hutong is that Internet is next. Such an environment would make it even more difficult than normal for a foreign Internet firm like Google to buy enough shares to control a local company like Baidu.
Prediction: If Google doesn’t get Kaifu, and right soon, Google may even pull an Alibaba with Baidu, handing them Google’s local operations in China and a chunk of cash in return for a chunk of equity.