Chinese Internet search firm Baidu looks forward to life after Google

In 2000, a 31-year-old software engineer named Li Yanhong, a.k.a. Robin Li, left his job in Silicon Valley and returned home to China to start an Internet search engine. He raised $26.2 million in venture capital, including a modest investment by Google.

Ten years later, Li’s company, Baidu, has become the dominant search engine in China, a goliath with 7,000 employees and a market value of $16.2 billion on the Nasdaq Stock Market. Google, which sold its stake in 2006 when it launched its own Chinese site, has lagged far behind, capturing less than half of the market share Baidu has here.

In a country obsessed with economic advancement, Li, a graduate of Beijing University and SUNY at Buffalo, has attained what Chinese newspapers have called pop-star status, with fans thronging Baidu conferences. And to many here, his company’s success has become a point of national pride, even though its initial investors were virtually all American.

Now investors are betting that Baidu will reap the benefits if Google ends up exiting China over its dispute with the government about alleged cyberattacks on Google e-mail and source code. Since Tuesday, when Google announced that it would stop censoring its search engine even if that meant losing its Chinese business license, Baidu’s stock on the Nasdaq has surged 21 percent to a new high, adding $2.8 billion to the company’s market value in just three days.

Although investors are happy, China watchers are worried about the political consequences of Chinese Internet users depending too heavily on Baidu for news and information.

The company has been accused of altering search results for advertisers, by either deleting content or pushing firms’ sites higher up on the search result lists in return for payments. The charge has prompted the company to launch an overhaul of its listings.

Moreover, as a Chinese company, Baidu has little choice but to comply with government demands for censorship. An industry source familiar with the firm said officials from the Ministry of Industries and Information Technology are stationed at its offices.

The company does not pretend to have a mission, as Google does: “Don’t be evil.”

“Baidu does face the same censorship issues, but without the corporate culture that resents censorship,” said Jeremy Goldkorn, founder of a blog called Danwei.org and an online media expert in Beijing.

In an item he posted last week on his blog, Baidu’s chief product designer, Sun Yunfeng, said that in China, “every enterprise or every individual must dance with shackles.”

“This is the reality,” Sun wrote. “Do as much as you can is the real attitude to have as a business or a person.” The posting was later taken down from his blog, but reprinted on other sites.

“Whether it’s Baidu or Chinese versions of YouTube or Sina or Sohu, Chinese Internet sites are getting daily directives from the government telling them what kinds of content they cannot allow on their site and what they need to delete,” said Rebecca MacKinnon, an Open Society fellow and co-founder of GlobalVoicesOnline.org, a network of bloggers and online activists.

MacKinnon said she has compared search results on Google’s China search engine and Baidu over the past four years and that “consistently, Baidu has censored politically sensitive search results much more thoroughly than Google.cn.” She added, “There are a number of very sensitive terms that get no results from Baidu. On google.cn, you get sanitized results but at least you get results.”
Meeting Chinese needs

Baidu owes much of its success to the vision and drive of its founder. Li, who declined to be interviewed for this article, tailored Baidu to what he believed were the needs and tastes of the Chinese. He made the search engine box longer and wider for Chinese characters. He introduced a feature that people with interests in, say, basketball could use to find other people with similar interests and exchange views.

More important, Baidu also linked to sites where people could download free music MP3s, largely pirated. That accounted for much of Baidu’s traffic in its early years and about 20 percent of it as late as 2005, according to an industry source familiar with the company. Today, Baidu has captured two-thirds of the Chinese market.

Although the company said it couldn’t possibly monitor the multitude of sites run by third parties, critics say it turned a blind eye to the legal issues. The People’s High Court of Beijing has twice ruled in Baidu’s favor in copyright infringement suits brought by record companies. Today, music downloads account for well under 10 percent of Baidu’s traffic, the industry source said.

More recently, Baidu has introduced a Wiki-style service called “Baidu Zhidao” or Baidu Knows, where people can plug in questions and get replies. It has also courted beginners on the Web, a large category given that the number of Chinese Internet users — 338 million at last count in the middle of last year — is growing about 30 to 40 percent a year.
Success despite setbacks

In a business dominated by U.S. giants such as Google, Yahoo and Microsoft, Baidu has played to national pride.

The name Baidu (by-DOO) means “100 degrees” but was inspired by a Song Dynasty love poem in which it means 100 times. A man is searching for his true love during the traditional Lantern Day Festival. “A hundred times I search for her in the crowd and turn around just to discover she is there where the lantern lights are dim,” the man writes.

The firm has “managed to convince a lot of people that, as a Chinese company, they have a grip on the subtleties of the Chinese language,” said Kaiser Kuo, an Internet consultant and musician. In one ad, Baidu featured a bumbling, inarticulate foreigner in Chinese garb meeting a clever Chinese character who talks circles around the befuddled foreigner.

Baidu has its critics. Many of them think that the company’s ardor for money prompted it to accept payments in return for deleting negative reports. When the Sanlu Group was found to have sold dairy products containing kidney-damaging melamine, critics alleged that Baidu had agreed to filter out relevant pages from its search results, citing a document purporting to describe an agreement between Sanlu and Baidu. Baidu denied the accusations, but the incident damaged the company’s reputation and for a time drove traffic to other sites, according to one competitor.

There have been other controversies as well. In November 2008, China Central Television said Baidu’s paid search service, which let Web sites pay to be listed higher among search results, highlighted links to unlicensed companies that offered medical products or services. CCTV said the sites sold treatments — many of them fake, useless or unlicensed — for cancer, sexually transmitted diseases and other ailments. CCTV also said that consumers were more likely to purchase such products because it wasn’t clear that the product placement had been purchased.

Despite such setbacks, Baidu continues to make gains. It earned $72.2 million in the third quarter last year. Big advertisers include Nike, Intel and other Fortune 500 companies.

It’s a reminder that Baidu’s mission isn’t political or philanthropic: It’s a business.

“For ordinary people, the critical information is not keyhole reports of Zhongnanhai,” said Baidu’s chief product designer Sun, in his blog post last week, referring to the compound where China’s top leaders live, “but the most routine information in economy, culture and technology fields.”

As with the rest of his posting, this observation was also deleted from his blog, but it was reprinted elsewhere.