“China’s search engine industry will face a sharp slowdown in the coming 18 months,” said Edward Yu, CEO of Analysys International, at the Search Engine Symposium held in Nanjing, China, on March 17, 2006. “The actual performance of search engines is far from people’s high expectations. Poor user experience, unstable advertising effects, and some irregular channel operations make the small and midsize enterprise customers of search engines suspicious of this new kind of advertising, which will lead to a slowdown in the growth of the search engine industry,” explained Yu.

According to Analysys International, about 100 million Internet surfers use search engines at least once a week in China, accounting for 84% of the total Chinese Internet user base. Search engine users and Internet surfers are both growing rapidly. Analysys International says, in 2005, advertising revenues from search engines reached RMB 950 million in China, accounting for 32.2% of the total online advertising market and increasing by 79% over the year 2004.

However, according to Analysys International’s business life cycle model, search engine industry in China is still in the initiation stage, characterized by high and fast growing market expectations. Search engines still can’t understand exactly what users want and the search results are usually not satisfying.

“The user experience is not satisfying. When a user types in a word to a search engine, it is likely the user doesn’t get what he or she exactly wants, which leads to low brand loyalty.” Analysys International says over 46% users turn to other search engines or portal websites when they don’t get what they want in a search engine.

Most important, Analysys International says, some small and midsize businesses that advertise on search engines are not satisfied with the advertising results. And the dissatisfaction is still increasing. Search engines haven’t brought the value they had expected to them. According to Analysys International’s research of 1500 samples, only 20% search engine advertisers obtained results that exceeded their expectations, while about 29% didn’t get the results they had expected and were considering reducing or suspending their search engine marketing expenses.

As customers become reasonable, Analysys International says revenue growth in China’s search engine sector will encounter a sharp slowdown in about 18 months.

However, Analysys International also says, as the industry chain improves and the business model gets clearer, the search engine sector will finally enter the stable growth stage.