Out-googling Google

Baidu one of few companies to have competed toe-to-toe with Google and won

"I get it," the Western man says, speaking heavily accented Chinese. Surrounded by beautiful Chinese women in the video advertisement, he grins with self-satisfaction.

Nearby, a suave Chinese man dressed in scholar's robes laughs. "You don't necessarily get it," he says. As the ad unfolds, the Chinese scholar proceeds to humiliate the Westerner, mocking his poor Chinese-language skills. In the end, the women flock to the scholar's side, and the Westerner is left confused, alone and humiliated.

"Baidu understands Chinese better," the Baidu.com advertisement says, needling the company's former investor and current rival, Google. And statistics seem to bear that out: Baidu accounts for 62 percent of the country's search traffic, up from 52 percent in 2005, according to the China Internet Network Information Center in Beijing. For Western companies trying to establish a Web presence in China, understanding how Baidu plays the game could be key.

Founded in 2000 by Robin Li and Eric Xu, two Chinese technology executives who once worked in the U.S., Baidu has grown to become the most visited Chinese-language Web site in the world. In the process, it has also earned the rare distinction of being one of few companies to have competed toe-to-toe with Google and won, though some would say the playing field was tilted.

Baidu's detractors claim that the company abets music piracy and pads the top of its search results with paid listings. But the success and popularity of the company's search engine is undeniable.

A large part of Baidu's early success is attributable to its MP3 search engine, which came just as MP3 players were taking off in China. Lawsuits brought by music companies claiming that the search service infringes on their copyrights haven't slowed Baidu's progress.

The company's rise occurred as the Chinese government was growing increasingly concerned about Google's search engine. That situation came to a head in September 2002, when government censors shut off access to Google in China. A few days later, Chinese officials "hijacked" the Google.com domain name, redirecting Chinese Internet traffic to local search engines that censor results. Most of that traffic ended up at Baidu, giving it an instant boost in popularity and sparking rumors of cooperation with China's police administration, the Public Security Bureau. (Baidu executives declined to comment for this article.)

No reason was ever disclosed for the blocking and subsequent hijacking of Google's domain name, which lasted for a total of 10 days. The event was notable for two reasons, however: It was the first time Chinese censors blocked access to a search engine, and it marked the beginning of the end of Google's reign as China's most popular search engine.

Today, Google lags far behind Baidu in China, in terms of both its popularity with users and revenue derived from search-related advertising. Despite Google's best efforts and the millions of dollars it spent to open an office in China, the company shows no signs of closing the gap with Baidu.

Baidu executives clearly believe that the company's success is secure. "We don't think competition is a major threat at this point," founder Li, who currently serves as the company's chairman and CEO, told investors during a February conference call. (Xu left the company in 2004.)

Like Google, Baidu derives most of its revenue from Internet ads. It earned 829 million renminbi ($US106 million) from online advertising in 2006, a 170 percent increase over the previous year.

In recent months, Baidu has branched out into new areas, reaching beyond search. The company has added a news service, for which it recently received a license from the Chinese government, and a blogging service, called Baidu Spaces.

Buoyed by its success, the company launched a Japanese-language search engine, Baidu.jp, in March, as part of its plan to spend $US15 million this year to build up a Japanese business. It will be interesting to see if Baidu "gets" Japan.

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