Microsoft will provide China Telecom with a Web search in an attempt to help the nation's biggest Internet service provider improve its market share.
China Telecom, a leading fixed-line phone operator in China, has joined the country's fierce Internet search engine competition with Microsoft as its technical partner.
Microsoft will provide its “Live Search” service to China Telecom's 25 million broadband customers and more than 80 million Internet users, the two companies said at a briefing in Beijing. China Telecom will use Microsoft technology to expand the voice search service it currently provides customers through its Best Tone business.
With the increasing influence of Google on the internet and IT industry, Microsoft has become aware of the importance of a comprehensive internet service platform. Microsoft announced it would establish Windows Live soon after Bill Gates' retirement, a sign of the shift in Microsoft's strategy. The new internet platform, Windows Live, integrates MSN, blog server MySpace, search and personal internet services and software.
Microsoft has been looking for an opportunity to get into the search market since Baidu.com, Yahoo! and Google joined. The launch of Live Search is undoubtedly strategic.
The agreement will allow Microsoft to tap into "China Telecom's strong broadband subscription base," said Jenny Szeto, an analyst at Daiwa Institute of Research. Szeto has an "outperform" rating on China Telecom's stock.
China Telecom is China's largest immobile network operator and internet provider, providing 210 million customers with voice service and 25 million customers with broadband service. It has more than 80 million internet users and over 400 city portal webs.
Microsoft is working with China Telecom to raise its share of the Internet market in China, whose users are expected to double in five years, according to the market researcher IResearch. The world's biggest software maker has invested hundreds of millions of dollars on its search engine to lure customers away from Google. Microsoft trails Baidu.com, Google and Yahoo! in China.
Microsoft's Windows Live technology will be used to power China Telecom's 114 Web search network, the companies said.
A search engine titled "114," an established telephone inquiry service in China, has appeared on China Telecom's partner website, www.vnet.cn.
The service is still in trial period and formal service will be started in early October, a source at China Telecom told Xinhua.
"The implementation of the 114-based Internet service will enable voice, Internet, IPTV and mobile searches," said Yang Keke, general manager of China Telecom's Internet unit. "Through this cooperation, China Telecom will further build its expertise in the delivery of popular Internet search services."
The website now provides for web-page and yellow-page search services, as well as BBS and Blog search services. Search services for local information, pictures and video images will be unveiled in two months, the source said.
"The agreement significantly extends the reach of Live Search and will open up new opportunities for Microsoft's online advertising customers in China," said Luo Chuan, managing director of Microsoft's Windows Live unit.
Before entering into the agreement with Microsoft, China Telecom terminated its cooperation with Yahoo! in search services in August. China Telecom has also instructed its provincial branches and portals to adopt Microsoft technologies and terminate cooperation with other search engines.
China was home to 123 million Internet users at the end of June, up from 111 million at the end of last year, according to government data. The United States had 204.4 million Internet users as of March, according to Nielsen/NetRatings.
The number of Web users in the world's second-biggest Internet market may rise to 232 million by 2010, IResearch said.
Earlier media reports said the cooperation would last till 2008, and that China Telecom would share revenues of the search engine service with Microsoft on a 70-30 split in 2007 and 50-50 in 2008.
In addition, Microsoft will pay 21 million U.S. dollars to China Telecom as a base income. Both parties declined to confirm the report.