It shifts strategy to focus on development of mobile operations, 'but may return later'

Search giant Baidu Inc has announced that it has shut down its search engine unit in Japan to focus on its mobile business in the country.

"Baidu stopped updating its search index for Japan in 2013, and it finally exited the Japanese search market in mid-March of this year to focus on other parts of the business, like the mobile input method editor, Simeji", explained a company representative.

Although Baidu did not elaborate on the move, analysts said that the Chinese company had been struggling to compete with the leading players in the region.

John Fang, business analyst at China Market Research Group, said: "Baidu officially entered the Japanese market in 2008, but the company only had a 2 percent market share. One reason might be that Japanese Internet users are sort of conservative, lacking interest in exploring new things."

Yahoo Inc and Google Inc, both from the United States, were the first companies to enter the Japanese search market, and they have become the dominant players with a combined 94 percent market share. Consequently, the Japanese search engine industry represented only a niche market for Baidu.

Baidu said that it would not close its Tokyo office as the company will continue to develop other areas, particularly mobile-related operations.

"Baidu's decision to shift its research and development budget to mobile Internet development and online-to-offline applications is not a setback for the company. It is just strategic adjustment," said Fang.

Jane Zhang, an analyst in the consumer technology sector at Gartner Inc, said: "The challenge for search engine companies is that revenues from desktop search are shrinking, while bigger revenues need to be found in mobile search.

"Integration with mobile applications and social context are key issues to look at. That is where the future of the business is".

Baidu did not rule out the possibility of making a comeback to the search market in Japan.

"We are not ruling out the possibility that we may re-introduce search in Japan when the time is right," a company official said.

Neil Shah, research director at market research firm Counterpoint Technology Market Research, said: "It will be tough to return to the market but if Baidu can partner with Japanese operators or original equipment manufacturers or even acquire or form a partnership with any other bigger popular players such as e-commerce operator Rakuten Inc or NHN Japan Corp, then it could have some chance."

However, Baidu's future looks brighter in emerging markets, as mature markets have already been saturated by competitors such as Google and Yahoo.

Baidu currently focuses on three regions outside the Chinese mainland. In Southeast Asia, the company operates in Thailand and Indonesia.

In Latin America, the company is targeting Brazil, one of the biggest markets in the region.

In the Middle East and North Africa, the company is based in Egypt where it develops products for all Arabic-speaking markets in the area.

The company said it recently launched a search system service in Brazil in the Portuguese language and it would launch Thai and Arabic search services in the coming months.

"Baidu needs to focus on emerging markets. When you enter mature markets, you need to address a specific need, but when you access an emerging market you need to look at integrated services, and that has more potential for search engine companies to grow," said Zhang.