Baidu to Share Revenue With Apple on China IPhone Deal

By Mark Lee - Jun 15, 2012 6:33 AM GMT+0700

Baidu Inc. (BIDU) said Apple Inc. (AAPL) will be entitled to a share of advertising sales after the Chinese company’s search engine was added as part of a software upgrade for iPhones in China.

The revenue-sharing agreement with Apple follows similar accords between Baidu and manufacturers of handsets that use Google Inc. (GOOG)’s Android operating system, Wang Jing, vice president at Beijing-based Baidu, said in a phone interview yesterday. He declined to disclose the commercial terms.

Apple said this week it will offer Baidu’s search engine as an option for iPhone and iPad customers and add Chinese-language support for its Siri voice technology, as the world’s most valuable company tailors its products for Chinese consumers. Baidu, which fields about 80 percent of China’s Web searches, is prepared to incur costs to add smartphone users by offering services such as music streaming for free, Wang said.

“Previously they were sharing revenue with websites to bring in search-engine traffic, and now they are sharing it with smartphone manufacturers,” said Eric Wen, who rates Baidu buy at Mirae Asset Securities in Hong Kong. He estimates Baidu distributes less than 10 percent of revenue generated from smartphones to device makers.

Baidu rose 0.8 percent to $117.64 at the close in New York. The stock has gained 1 percent this year, underperforming the 44 percent gain in the Hong Kong-traded shares of Tencent Holdings Ltd. (700), China’s biggest Internet company.

Carolyn Wu, a spokeswoman at Apple in Beijing, didn’t immediately return messages to her office and mobile phones seeking comment.

Focus on Smartphones

Baidu and Tencent both need to invest in their mobile Internet operations as more people in China access services on smartphones instead of computers, according to Mirae’s Wen.

Baidu is sharing advertising revenue with hardware partners to encourage them to install its search engine on their products before shipping. About 80 percent of branded phones based on the Android technology have Baidu preloaded, billionaire Chief Executive Officer Robin Li said in April.

Users of the new iOS 6 operating system that runs iPhones and iPads will have increased access to Chinese Internet services including Baidu, Sina Corp. (SINA)’s Weibo microblog, and online videos from Youku Inc., (YOKU) Apple said this week. The Cupertino, California-based company tripled its revenue in China last quarter, making the Asian country its biggest market outside the U.S.

Baidu introduced its “Cloud ROM” software for download by users of Android devices this month, giving them access to services including remote data storage and free music streaming.

“We are very willing to pay the costs, we are happy these services are free,” Wang said.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net