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Baidu President Takes on Google

When Google launched its Chinese language advertising service in February, the battle suddenly heated up as domestic search engine operators rushed to get a market share they deserve. Among domestic competitors, Robin Lee's Baidu seems to be one of the most promising, as the firm began generating profits last year and 80 percent of the revenue came from paid listings.


Robin Li has a position that many people envy as president of Baidu.com, the biggest independent Internet search engine operator in China. The buzz surrounding the company comes as it plans to make an initial public offering (IPO) on the NASDAQ stock market in New York, which some analysts say will result in Baidu being worth as much as US$1 billion.


Li graduated from New York State University with a master's degree in computer science and then joined the Wall Street Journal's website to develop a real time financial information search system. He worked at Infoseek, a big name in the global search engine industry.


When he returned to China in 1999, there were already many Internet portals in the country and building dotcoms had become an important trend.


"As a scientist by training, I am a little bit obstinate and I wanted to know how best I could use my talent," said Li.


The result of his stubbornness was Baidu.com, founded by Li and his friend Eric Xu.


Soon, Baidu obtained the first round of investment of US$1.2 million from venture capital (VC) firms. One year later, four VC companies, led by US-based Draper Fisher Jurvetson and International Data Group, invested US$10 million into the search engine operator.


Set up in 1999 in California's Silicon Valley, Beijing-based Baidu is China's most popular search engine, Li said, averaging 30 million text searches a day in Chinese alone -- a seventh of Google Inc's 200 million in myriad languages. Li declined to disclose revenue, but said the number was doubling or even tripling every year. About 80 percent of turnover last year came from sponsored links, where a client pays to have its name and Web link appear at the top of a results list when particular words are searched. Baidu's quick rise and relatively low rate of cash burn meant it has not needed more venture capital since 2000, when it raised around US$11.2 million in the United States.


However, after leading the search engine market in China for four years, Baidu began to face mounting challenges in 2003.


With the popularization of the Internet in China and the performance rebound from Chinese portals Sina Corp, Sohu.com and Netease.com on the NASDAQ, search engines began to be regarded as the next gold mine -- after online advertising and mobile messages -- and more and more companies entered the field.


Domestic firm HC International, which got listed on the Hong Kong Growth Enterprise Market in December, also focuses on search technology as one of its core businesses and formed a China Search Engine Alliance with Sina and more than 100 local websites, as well as over 20 sites from leading Chinese media.


US giant Yahoo acquired 3721 Network Software Co. Ltd, which owns domestic search service provider Beijing 3721, for US$120 million. The world's most popular search engine provider, Google, was also reported to be looking for domestic distributors.


In the face of these challenges, Li believed Baidu's focus on a Chinese language search engine service would be its biggest advantage.


"Google provides search engine services in more than 80 languages, but Baidu only focuses on the Chinese language, so its investment on the China market is much less than ours," he said.


As for domestic competitors, Baidu is also much more concentrated on the core business than others, Li believed.


Sina and Sohu operate on online advertising, mobile message services, enterprise Internet services, online games and e-commerce services.


Li believes his company is the most focused search engine operator and better prepared for both opportunities and challenges than other Chinese competitors.


"The most effective weapon for us is continuous upgrading of our technology and enrichment of our function. Then users will decide who is the winner," Li said.


He predicted in late December that China's search engine market would reach US$50 million in 2003 and US$96-120 million this year.


While many Chinese Internet companies are busy with trying to get listed on the Nasdaq or Hong Kong Growth Enterprise Market to catch the revival of Internet stocks, Baidu remains cool to the idea, although his company was said to be contacting Morgan Stanley for an IPO on the Nasdaq.


"We are still waiting for the right time," Li said.


The president added that a good time "benchmark" for Baidu's listing will be when Googgle launches its IPO. He will then be able to gauge how investors will react and use that as a reference for his company.


It has been reported that Google has selected Morgan Stanley and Goldman Sachs as its lead underwriters and plans to register its IPO to the US Securities Exchange Commission this month. Google's stocks are expected to float in April and raise US$4 billion.


"We are still a start-up company and we should not make a rash IPO until investors fully agree with us on the future path of our company," Li said.


He said Baidu broke even in the second quarter, but he declined to disclose the detailed figures.


Baidu gets about 80 per cent of its revenues from paid listings of more than 10,000 small and medium-sized Chinese enterprises, 10 percent from licensing search software to enterprises, and the rest from licensing technologies to Internet portals in China.


Li and Eric Xu are the biggest stakeholders in the company.


He was named China's joint 11th richest IT businessman in 2003 by Asia Money magazine, with wealth estimated at up to US$60 million.


But Baidu, whose name comes from a Song dynasty poem about a man searching for his Beloved dream girl, has had to grapple with problems endemic in a Web community where network security has lagged well behind the industry's explosive growth.


(Shenzhen Daily March 29, 2004)




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