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Baidu eyes Europe, Vipshop soars

Baidu's new foray into Europe is likely to fizzle unless it devotes more resources to the move, while Vipshop could be an e-commerce company to watch due to its niche focus.

PUBLISHED : Thursday, 11 October, 2012, 11:32am
UPDATED : Thursday, 11 October, 2012, 11:32am

A couple of interesting Internet stories have captured my attention today, including one that indicates online search leader Baidu (Nasdaq: BIDU) may be eying yet another global expansion; and another about recently listed e-commerce company Vipshop (NYSE: VIPS), whose fortunes have quietly jumped despite many obstacle it has faced this year. Let's take a look first at Baidu, by far the larger of the two companies, which appears to be looking to Europe in its latest search for growth outside its core China search market.

Baidu was in the spotlight earlier this week after its stock plunged 7 per cent one day on concerns about its future, and I've written several times about one of the first serious challenges it is facing in years from an aggressive and innovative new search service operated by security software specialist Qihoo 360 (NYSE: QIHU). Baidu has tried to diversify into a number of a new areas, including social networking and e-commerce, but most of those have ended in disappointment.

Now Baidu has just come out with an announcement saying it has hired an advertising firm called Charm Communications (Nasdaq: CHRM) to assist with an expansion into Europe. The announcement trumpets Charm, a China-based company, as an expert in search engine marketing, and says the company will market Baidu services across 42 countries.

Personally speaking this initiative looks a bit half-baked to me unless Baidu is preparing to invest lots of money into improving its search technology for European languages, which are quite different from Chinese. Furthermore, the choice of a Chinese ad agency to head this initiative seems a bit strange, since obviously a locally based company would be more familiar with European markets.

This initiative would follow Baidu's poor performance in Japan, the first global market where it has expanded but has yet to make much inroads after several years of operations. The company also reportedly expanded into Brazil in February, though it's still too early to say if that move will succeed. Still, I wouldn't hold out too much hope for Baidu in Europe unless it is prepared to invest significantly more resources in this new initiative.

Meantime, Vipshop, which went public in March, caught my attention after I read a report saying the company's market cap has passed that of Dangdang (NYSE: DANG), previously China's largest publicly listed e-commerce firm. Vipshop's current market cap has risen steadily in the last few months to reach nearly US$400 million, as Dangdang's has moved in the opposite direction and is now at around US$350 million.

The move marks a big turnaround for Vipshop, which is the only major Chinese web company to make a US listing this year due to a chilly investor climate. Vipshop's shares initially sold for US$6.50 each and fell to almost US$4 afterwards, but have come roaring back recently and now trade at around US$8. The company is also inching towards profitability, unlike Dangdang, which is sinking further into the red due to cutthroat competition in the general merchandise e-commerce space.

Perhaps Vipshop's key to success lies in its relatively niche focus in the bargain shopping space, which helps protect it somewhat from the rampant competition in the more mainstream e-commerce market. Regardless of the reason, this company and other niche retailers certainly seems like ones to watch as the cutthroat competition in the more mainstream e-commerce space is likely to continue through the end of this year and well into 2013.

Bottom line: Baidu's new foray into Europe is likely to fizzle unless it devotes more resources to the move, while Vipshop could be an e-commerce company to watch due to its niche focus.

The opinions expressed in this article are the author's own. To read more commentaries from Doug Young, click on youngchinabiz.com

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