The Economic Effects of Domestic Search Engines on the Development of the Online Content Market
Posted: 2 Apr 2015 Last revised: 3 Oct 2015
Date Written: March 31, 2015
Although a few global search engine platforms, notably Google and Yahoo!, have achieved worldwide dominance in the search engine market, some domestic search engine platforms — defined as a search engine using domestic search technology and a domestic language, such as Naver in South Korea and Baidu in China — have come to dominate their domestic markets in competition with global search engine platforms.
Domestic vs. Global search engines compete with one another in terms of search quality in order to attract more users: the higher the quality, the more users it will attract and thus the more valuable it will become to content providers and advertisers. Unlike a global search engine, a domestic search engine usually connects users with localized content written in a domestic language, resulting in higher search relevance. It also generates private databases with more localized content, such as knowledge-sharing services that are better suited to local consumers.
In this study, we quantified the economic contributions made by domestic search engines to the expansion of the online content market. We hypothesized that the domestic Internet user base could increase as a result of the improvements in search quality made possible by domestic search engine(s), which in turn may lead to an increase in the size of the domestic paid online content market. A domestic search engine that provides more localized content will attract more domestic users, and thus the size of the paid online content market can be expected to increase.
We constructed a country-level dynamic panel of 51 countries using data from 2009 to 2013 taken from industry and government sources. The data includes the economic and cultural status of each country along with trends in online content markets, broadband Internet penetration, and other indices indicating the development of information and communication technologies. We then investigated the change in the size of the online content market in countries possessing domestic search engines.
The dependent variable, the relative size of an online content market (online content revenue divided by Gross Domestic Product) is regressed on a set of control variables, including the existence of a domestic search engine and a lagged dependent variable. We estimated our results using linear generalized method of moments (GMM) estimators which allowed us to use internal instruments and to control for autocorrelation, unobserved heterogeneity, and the endogeneity of some control variables.
Our preliminary analysis indicates that the development of a domestic search engine leads to an increase in online content revenue: A country with its own domestic search engine platform(s) has an average of a 0.12% larger online content market (measured by a proportion of GDP) than one without such a platform. This finding confirms the hypothesis that a domestic search engine has a positive effect on the development of a country’s domestic online content market. The reasons behind this trend and its policy implications are also discussed.
Keywords: Domestic search engine, Search engine effect, Online content market, Two-sided market
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