Welcome to the Digital Marketing Inner Circle

Thanks to AdAge China who printed my Viewpoint story in their latest edition. I have also included the copy below for those who may not have seen it.

BEIJING (AdAgeChina.com) — There is an interesting dynamic occurring in the Chinese search market. For the past few years, the search landscape in China has been dominated by Baidu and Google .

These two search engines account for 61.6% and 29.1% of the search market respectively. However, in recent times, a number of new entrants have appeared who are determined to erode the two incumbents’ market share.

The more significant of the newer search engines are Tencent with Soso , Netease with Youdao and Microsoft with Bing .

These three publicly-traded companies all have momentum and large revenues from their existing internet businesses as well as a history of success.

According to data released this week by Analysys International, a local market research firm, Soso and Youdao registered small gains in market share during the last quarter. Where’s Bing? Expect to see traction in the next couple of quarters.

The search engine market in China reached $199.8 million during the first quarter of 2009, up 46% from the same quarter last year. Advertisers are increasingly shifting ad budget into online, which means more growth is expected. Search has the ability to measure return-on-investment performance, an attractive feature for advertisers looking to justify their marketing spends. It’s no wonder new search engines want to take a bite of this digital marketing apple.

Further, the growth of internet users in China is nothing but incredible. The China Internet Network Information Center recently reported China added 40 million users in the first six months of 2009, for a total of 338 million internet users, up 13.4% from late 2008.

The number of internet users shopping online grew by 14 million in the first half of 2009, to 87.88 million. A total of 23.7 million Chinese were using online payment services by June 2009, indicating a bright future for the internet in China.

So how does this relate to new search engines wanting to play? Well, it is estimated that the number of people using a search engine on a typical day is about 60% of the total internet user population. That’s a big number using the web to research, read reviews, watch videos, download music, or simply find things. So given the ability for the search engines to paste text ads (and now banners) alongside the results, there is a financial incentive to make this the new battle ground in the Chinese internet wars.

Competition has already been heating up. Google China tapped into the desire of Chinese music-seekers earlier this year by offering a free music download service called top 100.cn to compete with Baidu’s MP3 search.

We’re also seeing more specialization. Vertical search, for example, is occurring with the likes of Netease building a shopping search channel. A smallish Chinese travel search engine called Qunar is tapping into the niche travel search vertical.

Many of these new search engines already boast large communities of users. Baidu is the largest operator, and boasts stable users for its major services, including Zhidao, Baike, Post, Space and Map. Tencent owns QQ , the world’s largest instant-messaging audience with over 340 million active members.

Even though MSN has a smaller following in China, it is a known brand that can be leveraged. Google has a recognized brand and a growing reputation as a good Chinese search engine among educated city dwellers. Even Netease still has a following with the younger online game players.

With so many players, it is interesting to ponder the fate of Baidu. Can this search bellwether maintain its large lead? Will the growth in search offset any reduction in market share? Have Baidu’s golden years come to an end?

It’s too early to draw conclusions about who will win or lose, but the Chinese search market has clearly entered a new and exciting period that will offer users new innovations and choice.

Mathew McDougall is group CEO and executive chairman of SinoTech Group in Beijing.