1 Key Difference Between Mobile Search in China and America

Baidu, and other Chinese search engines, have an opportunity unavailable to U.S. companies.

Jan 16, 2014 at 11:00AM

"Mobile users in China increasingly are expecting an end-to-end solution instead of just fact finding."-Robin Li CEO of Baidu

One thorn in the side of global search giant Google (NASDAQ:GOOGL) has been the rise of mobile web users. Certainly, being able to access the web at any time and any place is beneficial to the search company, but mobile ad rates have put pressure on the company's average ad price. Similarly, Facebook (NASDAQ:FB) has experienced a similar issue monetizing its mobile users.

In China, Baidu (NASDAQ:BIDU) has experienced issues gaining traction with customers on mobile. It won't even release information regarding the gap between ad prices on PC and mobile. But the key difference -- the one Robin Li pointed out on Baidu's last conference call -- means there's tremendous opportunity for the Chinese search companies to improve mobile revenue.

Google's mobile woes
Google has experienced eight straight quarters of year-over-year declines in cost-per-click, or CPC, for its aggregate advertising business. As searches through mobile devices increase at a faster pace than PC-based searches, Google is feeling the pressure to offset the declining ad rates while closing the price-gap.

So far, its Android OS has done more than enough to increase the total volume of searches. Smartphone clicks more than doubled in the fourth quarter last year according to research from RKG.

As the number of smart devices continues to grow with the advent of wearables, advertising opportunities will grow also. Still, one might imagine advertising on a watch or glasses would demand even lower prices than smartphones and tablets.

Google attempted to close the mobile price gap last year when it introduced Enhanced Campaigns, which made it easier for customers to buy mobile ads as part of an overall campaign. The idea was to increase the number of mobile ad buyers, which would increase the price paid per ad -- supply and demand.

Google, however, has failed to address the underlying issue -- mobile ads don't convert as well as PC ads because U.S. users often don't use smartphones and tablets for an end-to-end service. This is where Facebook and Baidu are a step ahead.

Facebook focusing on advertisers
Last year, Facebook rolled out app-install ads -- ads that, when clicked on, will take you to download and install an app on your phone. They have been rather successful, and have helped increase Facebook's average ad price on mobile.

Facebook found a lot of mobile advertising success in 2013 as it increased its mobile revenue nearly six-fold from $152 million in the third quarter of 2012 to nearly $900 million in the third quarter of 2013.

One key was a shift in focus toward the advertiser objectives. Facebook is making its advertising products, with the idea of what the advertiser is trying to accomplish, and that is to get people to install my app, or get people to my website. The ad buying process focuses on one of eight objectives.

Facebook's process is easier to grasp, providing advertisers with one question to answer -- how much is this one objective worth?

Baidu's opportunity
Baidu has an opportunity to provide users with the end-to-end mobile experience that CEO Robin Li says there's a demand for in China.

Last year, Baidu -- also a leader in the mobile app assistant market in China -- started rolling out Light Apps. Light Apps is Baidu's attempt to capitalize on the 99.9% of apps that generate a minority of app revenues. They're web apps that don't have to be installed, increasing the likelihood of usage.

Baidu can advertise Light Apps in its search results leading users to the end experience they desire -- buying movie tickets, playing a quick game, whatever. App developers are more likely to pay more for such ads since their products are designed for mobile devices. Through ads like this, Baidu could further reduce the friction of finding and using these apps. They could potentially be more effective than Facebook's app install ads.

Additionally, Baidu has recently introduced an Internet banking service. There's opportunity for the company to leverage its growing position in that market to facilitate m-commerce and increase conversions of mobile ads.

Smartphones need smart ads
The key is the demand for such products in China is already there. More people in China are using smartphones as their sole or primary device for Internet access compared to people in the U.S. Most Americans have PCs and are used to carrying out transactions on a desktop. That will take a long time to change even if the advertising products improve.

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Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Baidu, Facebook, and Google. The Motley Fool owns shares of Baidu, Facebook, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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