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The year-over-year gains for Google that we saw in Nielsen Online’s October 2008 search engine rankings were mirrored in comScore’s rankings for the same month.

Google enjoyed a nice 63.1% share, up from 58.5% during the same time last year. Yahoo was at 20.5% down from 22.9%> Microsoft was at 8.5%, down from 9.7%.

There was one major difference between Nielsen and comScore. Nielsen said the number of searches declined, while comparing comScore’s October 2008 data to its 2007 data shows that the number of searches increased to 12.6 million billion up from 10.5 million billion.

Check out the rest of the data here:

It’s the day before Thanksgiving, where you show up at the office, but you’re really thinking about tomorrow’s good meal. You’ve worked hard to set up those search marketing campaigns to run strong on Black Friday and Cyber Monday.

So, I really hate to bring you the bad news, but keeping it from you would be a disservice.

Let’s just rip off the bandaid.

First up, eMarketer has lowered its projections for online advertising spending for 2009. The new growth number is 8.9%, down from 14.5% projected in August. They’re also expecting a long recovery, projecting 2010 growth to be just 10.9%. In five years, things will still be slower on the uptake (than in recent years). Projections for 2013 growth are at 13.5%. Silver lining: some of the tapering off is likely due to market saturation and not just the economy.

Next, eBay’s traffic is declining. In January of 2007, eBay saw 62 million unique visitors. Last month, they saw just 49 million. Sure, not all of that was due to the economy, but dipping below 50 million can’t be good for eBay.

I saved the worst for last. comScore has released data showing that online consumer spending for the first 23 days of November was down 4% from last year. That’s not a slow down in growth people, that’s flat out shrinkage.

But I’m not a total Scrooge. Unemployment numbers were better than expected this week. And at least one Slate columnist explains why fears of another Great Depression could be overblown (let’s hope he’s right!).

As we overdose on turkey, stuffing and pumpkin pie, let us not forget the ultimate strategy for marketing, business and life in general: Hope for the best but prepare for the worst.

Related Reading:
Selling SEO During an Economic Downturn
E-commerce Growth Slows to Just 1% in October 2008
Online Advertising Networks Struggle As Industry Growth Slows

Okay, I understand that we’re all trying to “give a jolt” to the economy. But I was still surprised today when Lycos provided a list of Christmas gift ideas two days before Thanksgiving Day. Aren’t we all supposed to wait until Black Friday?

Nevertheless, for shoppers who like planning ahead — or for online retailers and etailers looking for what will be hot this holiday season — Lycos just announced its ninth annual list of the most popular toys and video games, based on web search activity.

(For a complete list and commentary of the Lycos Top Toys and Video Games of 2008, go to the Lycos 50. You can also voice your opinion on this year’s list, and weigh in on weekly Internet trends and pop culture on the Lycos 50 Blog or follow the Lycos 50 on Twitter.)

It shouldn’t come as a shock that Apple’s iPod holds the top spot as the #1 most-searched for toy this holiday season. But this year, the Apple frenzy includes hot-searched items like the iTouch and iPod Nano.

Harry Potter, at #11, makes a fifth consecutive appearance in 2008, with Harry Potter games, books and DVDs dominating Harry Potter-themed searches.

New in 2008 is KOTA, the Triceratops Dinosaur (#15), generating more search interest than Fisher Price’s New Elmo Live (#19). Meanwhile, not so hot in 2008 are Hannah Montana-related toy items, which made a big splash in 2007, but fail to make this year’s list.

Spongebob Squarepants (#14) takes over as the top licensed character-themed toy of 2008. Spongebob was last seen on the Lycos Top Toy list in 2005. And when it comes to dolls, Barbie (#6) continues to reign, extending her run on the annual Lycos list of Top Toys and Video Games to nine consecutive years of appearing in the Top 10. But there’s not enough data on Caribou Barbie to see if that will be a big hit this year — let alone in 2012.

Gaming consoles see a big resurgence in search popularity in 2008, with the Nintendo Wii (#10) capturing the most search interest, generating 25% more search activity than the Xbox 360 (#12) and Playstation 3 (#13). Also seeing a resurgence in 2008 are old school classics like Monopoly (#17), despite the current housing market.

Five of the top 25 toys in 2008 originate from the popular world of anime including Naruto (#3), Pokemon (#4), Dragonball (#5), Inuyasha (#7) and Gundam (#16). Meanwhile, one new toy making the 2008 list may be unfamiliar to most adults, but if search activity is any indication, expect the Bakugan Battle Brawlers (#24) to be flying off the shelves this holiday season.

On the video game front, the massive multi-player game RuneScape (#1) scores big with web users for the fourth consecutive year as the most-searched video game of 2008, while Final Fantasy makes its first appearance on the list since 2005, with Final Fantasy XIII (#3). Also racking up points online, making first-ever appearances on the top video games list, are war-themed games including Call of Duty: World at War (#9) and Gears of War 2 (#14), while Guitar Hero World Tour (#8) and Wii Fit (#15) are the most popular Wii-themed games based on web searches in 2008.

Also new in 2008 are Xbox 360 and PlayStation 3 games Fable 2 (#17), Fallout 3 (#18), Street Fighter IV (#10), Dead Space (#19), Far Cry 2 (#22) and BioShock (#25). This also marks the fourth consecutive year the Madden football-themed games fail to make Lycos’s Top Toys and Video Games list.

As for me, I don’t do any Christmas shopping until the very last minute. That way, I don’t have to figure where to hide presents where my three kids (or wife) can find them before December 24th. Yep, when I say “last minute Christmas shopping” I mean last minute shopping. You’d be surprised how simple decisions are on Christmas eve.

SearchIgnite has released data showing that the search ad spend for retailers is up 33% so far in the fourth quarter of 2008. The reason appears to be that multi-channel marketers are funneling more money to search, which has strong data on ROI.

“With the current economic climate leading up to the holidays, retailers are looking for ways to capture consumer spend and drive revenue in efficient ways,” said Roger Barnette, President of SearchIgnite.

Q4 spending is also up 58% over Q3 2008. Last year’s Q4 was up 40% over Q3 2007. And last year’s Q3 didn’t have an election to boost it’s numbers.

However, consumers are spending less per transaction. Still, the good news is that they are spending online at a steady rate of growth.

Related Reading:
SearchIgnite Releases Version 3.0 of Media Optimization Platform
SearchIgnite Releases Q1 Search Marketing Data

E-commerce growth slowed to just 1% last month, according to comScore. This is the lowest rate since comScore began culling the data in 2001.

Let’s just rip this bandaid off (more like ripping your heart out) with the raw data. Here are the growth rates for every month, beginning in June 2007 and ending October 2008.

For the visually-inclined:

After you’re done throwing things against the wall and cursing at your screen, feel free to leave a comment.

Related Reading:
Women Plan to Spend Less this Holidays, First Cuts Going to Themselves
Bill Tancer of Hitwise Analyzes Economy on SES Webcast
60% of Marketing Budgets Remain Unchanged by Economy
Landing Pages: Test Now or Forever Hold Your Peace

Yahoo! has announced that Jerry Yang will step down as CEO once his replacement has been found. Yang will remain on board as Chief Yahoo!

Yang became CEO in June 2007 at the request of the Board of Directors. Board Chairman Roy Bostock will lead the search for a new CEO. Here’s his official corporate-speak on the matter:

“Over the past year and a half, despite extraordinary challenges and distractions, Jerry Yang has led the repositioning of Yahoo! on an open platform model as well as the improved alignment of costs and revenues. Jerry and the Board have had an ongoing dialogue about succession timing, and we all agree that now is the right time to make the transition to a new CEO who can take the company to the next level. We are deeply grateful to Jerry for his many contributions as CEO over the past 18 months, and we are pleased that he plans to stay actively involved at Yahoo! as a key executive and member of the Board.”

Search Engine Strategies Chicago starts in four weeks on Dec. 8, 2008. Since SES Chicago is the only SEM conference in the Midwest, it is expect to attract more than 2,000 attendees, or “delegates.”

But as Butch Cassidy frequently asked the Sundance Kid, “Who are those guys?”

In the past, there was anecdotal information about the quality of attendees who came to Search Engine Strategies Chicago. And as a frequent speaker, I would often ask for a show of hands to get a sense of the percentage of first time attendees and SES veterans.

But now, there is survey data that provides a clearer picture of the demographics of delegates from last year’s event. And I suspect it’s the kind of information that exhibitors and sponsors of the SES expo have been asking for:
• 87% of delegates are new to SES, 13% are alumni;
• 85% of delegates approve or recommend purchasing decisions;
• 52% of delegates have a high level of experience within search marketing;
• 36% of delegates are from a company of 100+ employees;
• Nearly 1,300 unique companies attended SES Chicago 2007, 27% of these companies sent two or more staff.

In addition, 41% of the attendees are in marketing or management; 27% are in web design or e-commerce; 23% are in corporate management or owners; and 9% are non-marketing professionals. And 57% approve or specify purchases, 28% make recommendations, and only 15% have no involvement in purchases.

That’s why you’ll see 40 sponsors and exhibitors at the Search Engine Strategies Expo. Savvy search engine marketers understand the value of quality attendance.

As Bill Muller, the VP Marketing for iProspect, has said, “SES is a terrific event series, one that we plan to be at in New York, San Jose, and Chicago.” Or as Ginny Redgate, VP Marketing for Hitwise, has said, “SES provides us great brand visibility within the search marketing community as well as quality leads. It is a great place for us to connect with our clients.”

I don’t think Butch Cassidy and the Sundance Kid could have said it better.

Microsoft announced its earnings for the fiscal quarter ending September 30, 2008. For them, it’s the first quarter of their fiscal year, while other companies go with the traditional calendar and call it their third quarter.

Their net income increased by 2%. This was due largely in part to XBox360, a gaming console which recently received a price slash.

It has been widely noted that Microsoft has a bunch of cash on hand, especially since they didn’t end up acquiring Yahoo after all (yet). MSFT was up .28 at the time of this post. Though with the markets as volatile as they are, that could change at any minute.

Here’s the press release:

Microsoft Reports Record First-Quarter Revenue
Thursday October 23, 4:10 pm ET
Revenue surpasses $15 billion with healthy sales of enterprise software and Xbox 360 consoles

REDMOND, Wash., Oct. 23 /PRNewswire-FirstCall/ — Microsoft Corp. today announced revenue of $15.06 billion for the fiscal quarter ended Sept. 30, 2008, a 9% increase over the same period of the prior year. Operating income, net income and diluted earnings per share for the quarter were $6.00 billion, $4.37 billion and $0.48, respectively.

Microsoft showed particular strength in multiyear annuity sales, which grew more than 20% during the quarter from the combined businesses of Client, Microsoft Business Division and Server and Tools.

“Our customers are asking how they can save money and do more with less,” said Kevin Turner, chief operating officer at Microsoft. “Microsoft is uniquely positioned to help our customers save money through supplier consolidation, increased productivity, and a low total cost of ownership through the depth and breadth of our product portfolio and solutions.”

Microsoft continued to add to its product and services portfolio with innovative offerings such as Microsoft SQL Server 2008, Microsoft Hyper-V Server 2008 and the first service update to Microsoft Dynamics CRM Online.

“In a challenging economic environment, the first-quarter results exhibit the strength and diversity of our business model,” said Chris Liddell, chief financial officer of Microsoft.

Business Outlook

Microsoft’s business outlook reflects a balance of risks and the likelihood of a continued economic slowdown. The trends seen late in the first-quarter are now forecasted to continue, whereas previous expectations were for the economy to improve in the second half of the fiscal year. In this economic environment, the company is focused on three main actions; working with customers to provide high value products at the lowest total overall cost of ownership, increasing focus on expense management and targeting investment into the highest priority strategic opportunities.

Microsoft management offers the following guidance for the quarter ending
Dec. 31, 2008:
— Revenue is expected to be in the range of $17.3 billion to
$17.8 billion.
— Operating income is expected to be in the range of $6.1 billion to
$6.4 billion.
— Diluted earnings per share are expected to be in the range of $0.51 to
$0.53.

Management offers the following guidance for the full fiscal year ending
June 30, 2009:
— Revenue is expected to be in the range of $64.9 billion to
$66.4 billion.
— Operating income is expected to be in the range of $24.4 billion to
$25.5 billion.
— Diluted earnings per share are expected to be in the range of $2.00 to
$2.10.

Liddell noted that “we feel extremely good about our relative competitive position and our ability to continue outgrowing IT spend. We believe our exceptionally strong cash flow, product pipeline and financial strength will allow us to weather economic conditions well.”

Webcast Details

Microsoft will hold an audio webcast at 2:30 p.m. PDT (5:30 p.m. EDT) today with Chris Liddell, senior vice president and chief financial officer, Frank Brod, corporate vice president and chief accounting officer, and Bill Koefoed, general manager of Investor Relations, to discuss details of the company’s performance for the quarter and certain forward-looking information. The webcast will be available for replay through the close of business on Oct. 23, 2009.

About Microsoft

Founded in 1975, Microsoft (Nasdaq: MSFT - News) is the worldwide leader in software, services and solutions that help people and businesses realize their full potential.

Forward-Looking Statements

Statements in this release that are “forward-looking statements” are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors such as:

— challenges to Microsoft’s business model;
— intense competition in all of Microsoft’s markets;
— Microsoft’s continued ability to protect its intellectual property
rights;
— claims that Microsoft has infringed the intellectual property rights
of others;
— the possibility of unauthorized disclosure of significant portions of
Microsoft’s source code;
— actual or perceived security vulnerabilities in Microsoft products
that could reduce revenue or lead to liability;
— government litigation and regulation affecting how Microsoft designs
and markets its products;
— Microsoft’s ability to attract and retain talented employees;
— delays in product development and related product release schedules;
— significant business investments that may not gain customer acceptance
and produce offsetting increases in revenue;
— changes in general economic conditions that affect our investment
portfolio or demand for computer hardware or software;
— adverse results in legal disputes;
— unanticipated tax liabilities;
— quality or supply problems in Microsoft’s consumer hardware or other
vertically integrated hardware and software products;
— impairment of goodwill or amortizable intangible assets causing a
charge to earnings;
— exposure to increased economic and regulatory uncertainties from
operating a global business;
— geopolitical conditions, natural disaster, cyberattack or other
catastrophic events disrupting Microsoft’s business;
— acquisitions and joint ventures that adversely affect the business;
— improper disclosure of personal data could result in liability and
harm to Microsoft’s reputation;
— outages and disruptions of online services if Microsoft fails to
maintain an adequate operations infrastructure;
— sales channel disruption, such as the bankruptcy of a major
distributor; and
— Microsoft’s ability to implement operating cost structures that align
with revenue growth.

For further information regarding risks and uncertainties associated with Microsoft’s business, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of Microsoft’s SEC filings, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained by contacting Microsoft’s Investor Relations department at (800) 285-7772 or at Microsoft’s Investor Relations Web site at http://www.microsoft.com/msft.

All information in this release is as of Oct. 23, 2008. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company’s expectations.

Microsoft Corporation
Income Statements
(In millions, except per share amounts) (Unaudited)

Three Months Ended
September 30,
2008 2007

Revenue $15,061 $13,762
Operating expenses:
Cost of revenue 2,848 2,675
Research and development 2,283 1,837
Sales and marketing 3,044 2,683
General and administrative 887 718
Total operating expenses 9,062 7,913
Operating income 5,999 5,849
Other income (expense) (8) 367
Income before income taxes 5,991 6,216
Provision for income taxes 1,618 1,927
Net income $4,373 $4,289

Earnings per share:
Basic $0.48 $0.46
Diluted $0.48 $0.45

Weighted average shares outstanding:
Basic 9,084 9,380
Diluted 9,183 9,513

Cash dividends declared per common share $0.13 $0.11

Microsoft Corporation
Balance Sheets
(In millions)

September 30, June 30,
2008 2008 (1)
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $9,004 $10,339
Short-term investments (including
securities pledged as
collateral of $1,011 and $2,491) 11,718 13,323
Total cash, cash equivalents, and
short-term investments 20,722 23,662
Accounts receivable, net of
allowance for doubtful accounts of
$168 and $153 9,535 13,589
Inventories 1,640 985
Deferred income taxes 1,974 2,017
Other 3,331 2,989
Total current assets 37,202 43,242
Property and equipment, net of
accumulated depreciation of $6,622
and $6,302 6,552 6,242
Equity and other investments 4,381 6,588
Goodwill 12,291 12,108
Intangible assets, net 1,899 1,973
Deferred income taxes 1,041 949
Other long-term assets 1,751 1,691
Total assets $65,117 $72,793

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $3,351 $4,034
Short-term debt 1,975 -
Accrued compensation 2,138 2,934
Income taxes 514 3,248
Short-term unearned revenue 11,815 13,397
Securities lending payable 1,070 2,614
Other 3,520 3,659
Total current liabilities 24,383 29,886
Long-term unearned revenue 1,662 1,900
Other long-term liabilities 5,478 4,721
Commitments and contingencies
Stockholders’ equity:
Common stock and paid-in capital -
shares authorized 24,000;
outstanding 8,977 and 9,151 61,655 62,849
Retained deficit, including
accumulated other comprehensive
income of $877 and $1,140 (28,061) (26,563)
Total stockholders’ equity 33,594 36,286
Total liabilities and
stockholders’ equity $65,117 $72,793

(1) Derived from audited financial statements

Microsoft Corporation
Cash Flows Statements
(In millions) (Unaudited)

Three Months Ended
September 30,
2008 2007
Operations
Net income $4,373 $4,289
Depreciation, amortization, and
other noncash items 585 435
Stock-based compensation expense 443 333
Net recognized losses (gains) on
investments and derivatives 36 (187)
Excess tax benefits from stock-
based payment arrangements (44) (69)
Deferred income taxes 376 357
Unearned revenue 4,186 3,821
Recognition of unearned revenue (6,044) (4,965)
Accounts receivable 3,985 2,806
Other current assets (558) (235)
Other long-term assets (116) (11)
Other current liabilities (4,552) (1,189)
Other long-term liabilities 700 493
Net cash from operations 3,370 5,878
Financing
Proceeds from short-term debt 1,975 -
Common stock issued 228 646
Common stock repurchased (6,493) (2,930)
Common stock cash dividends (998) (938)
Excess tax benefits from stock-
based payment arrangements 44 69
Net cash used in financing (5,244) (3,153)
Investing
Additions to property and
equipment (778) (510)
Acquisition of companies, net of
cash acquired (377) (5,396)
Purchases of investments (4,246) (5,997)
Maturities of investments 464 330
Sales of investments 7,075 9,120
Securities lending payable (1,543) 196
Net cash from (used in) investing 595 (2,257)
Effect of exchange rates on cash and
cash equivalents (56) 58
Net change in cash and cash
equivalents (1,335) 526
Cash and cash equivalents, beginning
of period 10,339 6,111
Cash and cash equivalents, end of
period $9,004 $6,637

Microsoft Corporation
Segment Revenue and Operating Income (Loss)
(In millions) (Unaudited)

Three Months Ended
September 30,
2008 2007
Revenue
Client $4,218 $4,139
Server and Tools 3,406 2,900
Online Services Business 770 671
Microsoft Business Division 4,949 4,117
Entertainment and Devices Division 1,814 1,929
Unallocated and other (96) 6
Consolidated $15,061 $13,762

Operating Income (Loss)
Client $3,267 $3,388
Server and Tools 1,151 959
Online Services Business (480) (267)
Microsoft Business Division 3,311 2,700
Entertainment and Devices Division 178 167
Corporate-level activity (1,428) (1,098)
Consolidated $5,999 $5,849

Source: Microsoft Corp.

Chinese search engine Baidu saw a whopping 91% increase in the third quarter of 2008. The search engine had been seeing explosive growth leading up to the Beijing Olympics, which occurred during the third quarter.

Baidu expects profits in the fourth quarter to be around 80-85%. In the second quarter, Baidu’s profits increased by 87%.

Here’s the full press release:

Baidu Announces Third Quarter 2008 Results
Wednesday October 22, 5:00 pm ET

BEIJING, Oct. 22 /Xinhua-PRNewswire/ — Baidu.com, Inc. (Nasdaq: BIDU - News), the leading Chinese language Internet search provider, today announced its unaudited financial results for the third quarter ended September 30, 2008. (1)

(Logo: http://www.newscom.com/cgi-bin/prnh/20041011/BAIDULOGO )

Third Quarter 2008 Highlights
— Total revenues in the third quarter of 2008 increased to RMB919.1
million (US$135.4 million), representing an 85.1 % increase from the
corresponding period in 2007.
— Operating profit in the third quarter of 2008 increased to RMB368.3
million (US$54.2 million), representing a 119.1% increase from the
corresponding period in 2007.
— Net income in the third quarter of 2008 increased to RMB347.9 million
(US$51.2 million), representing a 91.4 % increase from the
corresponding period in 2007.
— Diluted earnings per share (”EPS”) for the third quarter of 2008 were
RMB10.00 (US$1.47); diluted EPS excluding share-based compensation
expenses (non-GAAP) for the third quarter of 2008 were RMB10.49
(US$1.54). Costs and expenses related to Baidu’s Japan operations,
incurred in both Japan and China, in the third quarter of 2008 were
RMB32.7 million (US$4.8 million), which reduced diluted EPS by RMB0.94
(US$0.14).
— The number of active online marketing customers during the third
quarter grew to over 194,000, an increase of 7.2% from the previous
quarter.

“I’m pleased to announce solid results for the third quarter,” said Robin Li, Baidu’s chairman and chief executive officer. “As China’s leader in paid search, Baidu has a large and diverse customer base covering numerous industries and sectors. Such diversity gives us great stability and positions us to capture future growth. Companies throughout China are increasingly recognizing the value of Baidu’s paid search as an effective marketing tool and we remain confident in our long-term growth potential.”

Jennifer Li, Baidu’s chief financial officer, said, “The impact of the 2008 Beijing Olympics on our business was in line with our projection for the quarter. We were also able to improve our operating margin again this quarter, highlighting the scalability of our business.”

Baidu recently launched the beta version of an online C2C platform that enables merchants to sell their products and services online via a Baidu- registered store. The new platform complements Baidu’s search business, enabling transaction fulfillment among our users. E-commerce is an emerging industry in China and there are vast opportunities for future growth in the sector. Baidu will continue to focus on providing the best quality experience for Internet users.

Third Quarter 2008 Results

Baidu reported total revenues of RMB919.1 million (US$135.4 million) for the third quarter ended September 30, 2008, representing an 85.1% increase from the corresponding period in 2007.

Online marketing revenues for the third quarter were RMB918.2 million (US$135.2 million), representing an 85.1% increase from the third quarter of 2007. Growth was mainly driven by increases in both the number of active online marketing customers and revenue per customer. Baidu had more than 194,000 active online marketing customers in the third quarter of 2008, representing a sequential increase of 7.2% and an increase of 35.7% from the corresponding period in 2007. Revenue per active online marketing customer for the third quarter increased to approximately RMB4,700 (US$692), a sequential increase of 6.8% and an increase of 34.3% from the corresponding period in 2007.

Traffic acquisition costs (TAC) as a component of cost of revenues were RMB108.8 million (US$16.0 million), representing 11.8% of total revenues, compared to 11.9% in the corresponding period in 2007.

Bandwidth costs as a component of cost of revenues were RMB48.0 million (US$7.1 million), representing 5.2% of total revenues, compared to 6.4% in the corresponding period in 2007. Depreciation costs as a component of cost of revenues were RMB56.9 million (US$8.4 million), representing 6.2% of total revenues, compared to 8.2% in the corresponding period in 2007.

Selling, general and administrative expenses were RMB163.2 million (US$24.0 million), representing an increase of 48.0% from the corresponding period in 2007, primarily due to the expansion of the direct sales force and an increase in customer service staff.

Research and development expenses were RMB78.2 million (US$11.5 million), representing a 109.0 % increase from the corresponding period in 2007, primarily due to an increase in research and development staff.

Share-based compensation expenses, which were allocated to related operating cost and expense line items, increased in aggregate by 211.1% to RMB17.0 million (US$2.5 million) in the third quarter of 2008 from RMB5.5 million in the corresponding period in 2007. The increase in share-based compensation expenses primarily reflects an increase in the number of options granted to employees.

Operating profit was RMB368.3 million (US$54.2 million), representing a 119.1% increase from the corresponding period in 2007. Operating profit excluding share-based compensation expenses (non-GAAP) was RMB385.3 million (US$56.8 million) for the third quarter of 2008, a 122.0% increase from the corresponding period in 2007.

Adjusted EBITDA (non-GAAP), which is defined in this announcement as earnings before interest, taxes, depreciation, amortization, other non-operating income and share-based compensation expenses, were RMB457.3 million (US$67.4 million) for the third quarter of 2008, representing a 104.7% increase from the corresponding period in 2007.

Income tax expense was RMB34.8 million (US$5.1 million), compared to an income tax expense of RMB2.6 million in the third quarter of 2007. The year- on-year increase in tax expenses was due to higher tax rates applicable to some of our PRC subsidiaries as their tax holidays either expired or partially elapsed.

Net income was RMB347.9 million (US$51.2 million), representing a 91.4% increase from the corresponding period in 2007. Basic and diluted EPS for the third quarter of 2008 amounted to RMB10.15 (US$1.50) and RMB10.00 (US$1.47), respectively.

Net income excluding share-based compensation expenses (non-GAAP) was RMB364.9 million (US$53.7 million), a 94.9% increase from the corresponding period in 2007. Basic and diluted EPS excluding share-based compensation expenses (non-GAAP) for the third quarter of 2008 were RMB10.65 (US$1.57) and RMB10.49 (US$1.54), respectively.

As of September 30, 2008, Baidu’s cash, cash equivalents and short-term investments amounted to RMB2.3 billion (US$338.0 million). Net operating cash inflow and capital expenditures on a cash basis for the third quarter of 2008 were RMB482.2 million (US$71.0 million) and RMB85.1 million (US$12.5 million), respectively. A portion of our capital expenditure for the quarter was related to the construction of Baidu’s new campus facility.

Outlook for Fourth Quarter 2008

Baidu currently expects to generate total revenues in an amount ranging from RMB1,025 million (US$151 million) to RMB1,055 million (US$155 million) for the fourth quarter of 2008, representing an 80% to 85% increase from the corresponding period in 2007 and a 12% to 15% increase from the third quarter of 2008. This fourth quarter forecast reflects Baidu’s current and preliminary view, which is subject to change.

(1) This announcement contains translations of certain RMB amounts into
U.S. dollars at specified rates solely for the convenience of the
reader. Unless otherwise noted, all translations from RMB to U.S.
dollars are made at a rate of RMB 6.7899 to USD 1.00, the effective
noon buying rate as of September 30, 2008 in The City of New York for
cable transfers of RMB as certified for customs purposes by the
Federal Reserve Bank of New York.

Conference Call Information

Baidu’s management will hold an earnings conference call on October 22, 2008 at 8:00 PM U.S. Eastern Time (8:00 AM, October 23, Beijing/Hong Kong time).

Dial-in details for the earnings conference call are as follows:
US: +1-617-786-2902
UK: +44-207-365-8426
Hong Kong: +852-3002-1672
Passcode for all regions: 55689997

A replay of the conference call may be accessed by phone at the following number until October 29, 2008:

International: +1-617-801-6888

Passcode: 69587650

Additionally, a live and archived webcast of this conference call will be available at http://ir.baidu.com .

About Baidu

Baidu.com, Inc. is the leading Chinese language Internet search provider. As a technology-based media company, Baidu aims to provide the best way for people to find information. In addition to serving Internet search users, Baidu provides an effective platform for businesses to reach potential customers. Baidu’s ADSs, each of which represents one Class A ordinary share, currently trade on the NASDAQ Global Select Market under the symbol “BIDU”.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar statements. Among other things, the outlook for the fourth quarter of 2008 and quotations from management in this announcement, as well as Baidu’s strategic and operational plans, contain forward-looking statements. Baidu may also make written forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about Baidu’s beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: our growth strategies; our future business development, results of operations and financial condition; our ability to attract and retain users and customers; competition in the Chinese language and Japanese language Internet search markets; competition for online marketing customers; changes in our revenues and certain cost or expense items as a percentage of our revenues; the outcome of ongoing, or any future, litigation or arbitration, including those relating to copyright and other intellectual property rights; the expected growth of the Chinese language and Japanese language Internet search markets and the number of Internet and broadband users in China; and Chinese governmental policies relating to the Internet and Internet content providers. Further information regarding these and other risks is included in our annual report on Form 20-F and other documents filed with the Securities and Exchange Commission. Baidu does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release and in the attachments is as of October 22, 2008, and Baidu undertakes no duty to update such information, except as required under applicable law.

About Non-GAAP Financial Measures

To supplement Baidu’s consolidated financial results presented in accordance with GAAP, Baidu uses the following measures which are non-GAAP financial measures: adjusted EBITDA, operating profit excluding share-based compensation expenses, net income excluding share-based compensation expenses, and basic and diluted EPS excluding share-based compensation expenses. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the tables captioned “Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures” and “Reconciliation from net cash provided by operating activities to adjusted EBITDA” set forth at the end of this release.

Baidu believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding certain expenses and expenditures that may not be indicative of its operating performance from a cash perspective. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to Baidu’s historical performance and liquidity. Baidu computes its non-GAAP financial measures using the same consistent method from quarter to quarter since April 1, 2006. We believe these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using non-GAAP operating profit excluding share-based compensation expenses, net income excluding share-based compensation expenses, and basic and diluted EPS excluding share-based compensation expenses is that these non-GAAP measures exclude share-based compensation charge that has been and will continue to be for the foreseeable future a significant recurring expense in our business. A limitation of using non-GAAP Adjusted EBITDA is that it does not include all items that impact our net income for the period. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables have more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.

Baidu.com, Inc.
Condensed Consolidated Balance Sheets

September 30 December 31,
(in RMB thousands) 2008 2007
Unaudited Audited

ASSETS
Current assets:
Cash and cash equivalents 2,088,554 1,350,600
Short-term investments 206,360 242,037
Accounts receivable, net 100,193 64,274
Prepaid expenses and other current
assets 109,597 65,996
Deferred tax assets, net 2,587 2,587
Total current assets 2,507,291 1,725,494

Non-current assets:
Fixed assets, net 748,582 678,886
Land use right, net 95,008 96,472
Intangible assets, net 33,814 40,460
Goodwill 51,081 51,093
Investments, net 20,197 15,439
Deferred tax assets, net 17,060 15,716
Other non-current assets 84,394 32,348
Total non-current assets 1,050,136 930,414

TOTAL ASSETS 3,557,427 2,655,908

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accrued expenses and other
liabilities 371,745 359,310
Customers’ deposits 357,884 257,577
Deferred revenue 9,149 11,832
Deferred income 633 2,485
Total current liabilities 739,411 631,204

Non-current liabilities:
Long-term payable — 3,000
Deferred income — 332
Total non-current liabilities — 3,332

Total liabilities 739,411 634,536

Shareholders’ equity
Class A Ordinary Shares, Par value
US$0.00005 per share, 825,000,000
shares authorized, and 25,136,147
shares and 25,413,789 shares issued
and outstanding as at December 31,
2007 and September 30, 2008 11 10
Class B Ordinary Shares, Par value
US$0.00005 per share, 35,400,000
shares authorized, and 8,996,842
shares and 8,873,986 shares issued
and outstanding as at December 31,
2007 and September 30, 2008 4 4
Additional paid-in capital 1,254,593 1,171,575
Accumulated other comprehensive loss (127,770) (81,953)
Retained earnings 1,691,178 931,736
Total shareholders’ equity 2,818,016 2,021,372

TOTAL LIABILITIES AND SHAREHOLDERS’
EQUITY 3,557,427 2,655,908

Baidu.com, Inc.
Condensed Consolidated Statements of Income

For the Three Months Ended
September September
30, 30, June 30,
(in RMB thousands except for share, 2008 2007 2008
per share information) Unaudited Unaudited Unaudited

Revenues:
Online marketing services 918,179 496,120 802,183
Other services 946 410 428
Total revenues 919,125 496,530 802,611

Operating costs and expenses:
Cost of revenues (note 1, 2) (309,342) (180,704) (280,980)
Selling, general and administrative
(note 2) (163,247) (110,312) (174,213)
Research and development (note 2) (78,231) (37,433) (71,078)
Total operating costs and expenses (550,820) (328,449) (526,271)

Operating profit 368,305 168,081 276,340

Other income:
Interest income 11,375 12,519 10,378
Exchange loss, net (5) (331) (204)
Other income, net 3,009 4,040 7,032
Total other income 14,379 16,228 17,206

Income before income taxes 382,684 184,309 293,546

Income taxes (34,825) (2,580) (28,561)

Net income 347,859 181,729 264,985

Earnings per share for Class A and
Class B ordinary shares:
Basic 10.15 5.35 7.74
Diluted 10.00 5.23 7.62

Weighted average aggregate number of
Class A and Class B ordinary shares
outstanding:
Basic 34,257,974 33,983,137 34,217,081
Diluted 34,786,353 34,763,639 34,786,342

(1) Cost of revenues are detailed as
follows:
Business tax and surcharges (57,288) (30,702) (49,511)
Traffic acquisition costs (108,797) (59,155) (101,693)
Bandwidth costs (48,029) (31,837) (43,012)
Depreciation costs (56,907) (40,654) (57,790)
Operational costs (37,379) (17,979) (27,795)
Share-based compensation expenses (942) (377) (1,179)
Total cost of revenues (309,342) (180,704) (280,980)

(2) Includes share-based compensation
expenses as follows:
Cost of revenues (942) (377) (1,179)
Selling, general and administrative (6,933) (68) (16,484)
Research and development (9,149) (5,027) (11,618)
Total share-based compensation
expenses (17,024) (5,472) (29,281)

Reconciliations of non-GAAP results of operations measures to the nearest
comparable GAAP measures (*) (in RMB thousands, unaudited)

Three months ended September 30, 2007
GAAP Result Adjustment Non-GAAP Results
Operating profit 168,081 5,472 173,553

Three months ended September 30, 2007
GAAP Result Adjustment Non-GAAP Results
Net income 181,729 5,472 187,201

Three months ended June 30, 2008
GAAP Result Adjustment Non-GAAP Results
Operating profit 276,340 29,281 305,621

Three months ended June 30, 2008
GAAP Result Adjustment Non-GAAP Results
Net income 264,985 29,281 294,266

Three months ended September 30, 2008
GAAP Result Adjustment Non-GAAP Results
Operating profit 368,305 17,024 385,329

Three months ended September 30, 2008
GAAP Result Adjustment Non-GAAP Results
Net income 347,859 17,024 364,883

(*) The adjustment is only for share-based compensation.

Reconciliation from net cash provided by operating activities to adjusted
EBITDA(*) (in RMB thousands, unaudited)

Three As a Three As a Three As a
months % of months % of months % of
ended total ended total ended total
September revenues June 30, revenues September revenues
30, 2007 2008 30, 2008
Net cash
provided by
operating
activities 254,870 51% 403,378 50% 482,172 52%

Changes in
assets and
liabilities,
net of
effects of
acquisitions (17,800) -4% (37,893) -5% (45,293) -5%
Income taxes
expenses 2,580 1% 28,561 4% 34,825 4%
Interest income
and other, net (16,228) -3% (17,206) -2% (14,379) -1%

Adjusted EBITDA 223,422 45% 376,840 47% 457,325 50%

(*) Definition of adjusted EBITDA: earnings before interest, taxes,
depreciation, amortization, other non-operating income, and share-
based compensation expenses.

For more information, please contact:

Investor inquiries:

China
Linda Sun
Baidu.com, Inc.
Tel: +86-10-8262-1188
Email: ir@baidu.com

Helen Plummer
Ogilvy Financial, Beijing
Tel: +86-10-8520-3090
Email: helen.plummer@ogilvy.com

U.S.
Thomas Smith
Ogilvy Financial, New York
Tel: +1-212-880-5269
Email: thomas.smith@ogilvypr.com

Media inquiries:

Ceren Wende
Ogilvy Financial, Beijing
Tel: +86-10-8520-6514
Email: ceren.wende@ogilvy.com

Click Forensics has released click fraud data for the third quarter of 2008. Overall, click fraud declined slightly. And by slightly, I mean barely noticeable.

• The overall industry average click fraud rate was 16.0% for Q3 2008, down from 16.2% reported for both Q2 2008 and Q3 2007.
• The average click fraud rate of PPC advertisements on search engine content networks was 27.1 percent, down from 27.6% in Q2 2008 and 28.1% in Q3 2007.
• Traffic from botnets was responsible for 27.6% of all click fraud traffic in Q3 2008, up from 25.2% for Q2 2008.
• In Q3 2008, the greatest percentage of click fraud originating from countries outside North America came from Russia (4.9%), France (4.8%) and the U.K. (3.5%).

Click Forensics president Tom Cuthbert had this to say about the data:

For the past two quarters the industry average click fraud rates seem to be hovering around the 16 percent level. Gains are being made by advertisers taking more action to proactively filter out fraud before it affects online campaigns. However, the growth in click fraud traffic from botnets continues to rise and it should be one of the top areas advertisers and the industry should monitor closely.

Related Reading:
Q1 2008 Click Fraud Down from Last Quarter, Up from Last Year
Lycos Partners with Click Forensics to Improve PPC Quality
Google, Yahoo Launch Click Fraud Resource Centers