china.jpgOne possible chain of events for the Google-Baidu tussle for China:

1. Chinese search engine Baidu gets sued by music industry en masse, which has just happened.

2. Baidu is forced to curtail some of these music offerings, and thereby loses one of its only real competitive advantages, which is to let users find music by linking them to places where they can download it for free

3. Baidu’s overpriced stock continues to fall, as investors realize it is way overpriced. The stock has already fallen, even before the latest suit was filed.

4. Google, realizing that the time is right to buy, makes a really good offer, significantly over that reduced stock price. It recognizes the significance of the Chinese market, and wants to get in bigger than it already is. Stats on users aren’t reliable, but let’s assume that Baidu has 35 to 40 percent of the market, compared to Google’s 25 or so. Besides, Google has the capital to spend, having just raised $4.2 billion extra in cash.

5. A deal is struck. That’s because Baidu’s CEO Robin Li, who until now has proudly — and probably correctly — gone it alone to see what sort of run Baidu could get with its stock price, changes his mind. Being part of Google, in exchange for a net worth of a billion dollars or so (we don’t know Li’s ownership stake), isn’t a bad proposition. (Update: Also, the venture capitalist investors in Baidu, who are increasingly nervous, pressure Li into agreeing that a bird in the hand is better than two in the bush.)

Update. Comment below has pointed out one major problem: Chinese government. Agreed.

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