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Why Microsoft Picked Baidu As The Default Search Engine For Windows 10 Computers In China

Bing.com is not banned in China.

Microsoft still negotiated a deal with Baidu to make it the default home page/search engine for Chinese users of Windows 10.

Microsoft wants the 600 million Baidu users to upgrade to Windows 10 as soon as possible.

Nadella deserves another pat on the back for successfully persuading Baidu (NASDAQ:BIDU) to be one of Microsoft's (NASDAQ:MSFT) partners in propagating the advertising-friendly Windows 10 operating system. Bing.com is not blocked in China but I understand why Microsoft wants the backing of Baidu.

Baidu is the biggest internet portal in China. It has risen to fill the gap left when Google (NASDAQ:GOOGL) abandoned its search engine business in China in 2010.

Baidu has 600 million users. Microsoft wants to convert more people to Windows 10 using Baidu's "Windows 10 Express" service. China is emerging as a fast-growing giant opportunity for digital advertising. Google's continuing absence in China is something that Microsoft wants to exploit immediately by piggybacking on the success of Baidu.

Due to the emergence of China as a growing market for search/digital advertising, Baidu is now second only to Google when it comes to annual sales from global search advertising spending. Baidu's 8.8% market of the $81.59 billion search advertising industry is far higher than that of Microsoft Bing's 4.2% share last year.

Getting more Chinese people to upgrade to Windows 10 is perfect for Microsoft's greatly enhanced personal data mining initiative. Like I previously mentioned in my Microsoft article, Windows 10 has several invasive personal data mining and activities settings turned on by default. Only a savvy computer user will take time to turn off all the data gathering channels of Microsoft.

I suspect that making Baidu the default home page and search engine for China users of Windows 10/Edge browser likely entailed a revenue sharing agreement that Microsoft found favorable.

China has a big internet-using population. Baidu is the biggest gateway for Microsoft to instantly access those 600 million pairs of advertising eyeballs.

Microsoft is trying to imitate Google's widespread intrusive personal data mining to improve its digital advertising business. Google has been doing it for decades and helped it became the world's biggest provider of personalized digital advertising services.

The shift toward a freemium strategy means Microsoft is now more inclined to give away free software in exchange for people's data and their computing habits. Microsoft cannot hope to steal advertising clients away from Google if it doesn't have the same massive library of personal data.

The whole concept of hyper-local, hyper-targeted ads means paying advertisers want as much information as possible from targetaudience.

The more Baidu users that get enticed to upgrade to Windows 10 and Edge, the better chances that they will not turn off the privacy settings which Microsoft uses to gather personal data and online activities. The bigger the personal data library of Microsoft becomes, the more attractive it becomes to digital advertisers.

The economic benefit of having more Chinese people using Edge browser to surf online is also fairly obvious when we take into account that it is the only latest browser that doesn't support third-party extensions.

Unlike Apple's (NASDAQ:AAPL) move to enable third-party ad blocking in its mobile/desktop Safari browser, Microsoft has not shown any interest in letting other people sell ad-blocking browser extensions for Edge.

This immune-to-ad block nature of Edge makes it very attractive to digital advertisers/content marketers.

China is an important market that Microsoft needs to get a foothold of. The deal with Baidu is a major tailwind for Microsoft's future in China's fast-growing digital advertising business. As long as Google's services remain blocked in China, Baidu/Microsoft has a great chance of improving their market share in global search ad spending.

Nadella's willingness to promote Baidu's search engine and web portal instead of Bing.com is a sign of his great leadership. Cooperative competition is always good for rivals. Microsoft and Baidu's ad platforms will fight it out outside of China… but they will cooperate inside the Middle Kingdom.

MSFT is a Buy. BIDU is a Buy.


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