HispanicBusiness

Despite its wonderful third-quarter report, shares of Chinese search service provider Baidu.com finished off down 11.4% on October 29, as investors feared the company's shift to a new advertising system could put revenue growth on hold into 2010.

Baidu said it would pull off the shift to the new search ad platform, called Phoenix Nest, during the current quarter.

Phoenix changes how Baidu delivers advertisements. The new system copies the convention established by Google, Microsoft and others, in that the search ads will be clearly distinguished from the normal, or organic, search results. Baidu had mixed the paid and organic results.

The new system may drag down Baidu's fourth-qarter sales by 10 percentage points, according to Baidu CEO Robin Li. The Chinese search engine giant expects revenue of only CNY 1.19 billion to CNY 1.23 billion this quarter, far below CNY 1.36 billion previously projected by Wall Street analysts.

Industry analysts say Baidu's strategic transition will not only drive down its earnings, but also put itself at a serious competitive disadvantage while leaving its rivals in a good position.

Baidu has been making big best on Phoenix Nest. Its third-quarter report shows that its research spending soared 49% to CNY 116.7 million during the period.

Baidu said the company is gaining 20% of its revenue through Phoenix Nest. It expects to get all of its advertisers enrolled in Phoenix Nest by this December. Shifting the remaining 80% of company revenue to the new system by then could be difficult. How the change will affect Baidu is hard to predict, analysts say.

Late Monday, Baidu posted a 42% jump in third-quarter profit, beating analysts' expectations, but said it expects a temporary negative impact on fourth-quarter revenue as it completes the shift to its new online advertising system.

Total revenue rose 39% to CNY 1.2787 billion. Revenue from online marketing services climbed 39% to CNY 1.2782 billion.

The number of active online marketing customers rose to 216,000, up 11% from a year earlier. It said revenue per online marketing customer rose nearly 26% to CNY 5,900.

Latest statistics from Analysys International indicate that China's Internet search market is valued at CNY 2 billion for the July-September period, up 38% on a year-on-year basis.

Baidu retained the top spot with a market share of 63.9%, followed by Google, 31.3%, versus 29.1% in the second quarter.