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Beijing search engine drubs Google in China

- The Washington Times - Tuesday, July 10, 2007

On the other side of the world, a company is beating Google Inc.

Baidu.com Inc. might be little-known in the U.S., but in China, it's the No. 1 Internet search engine by market share.

The company, founded in 1999, was able to match Google's 30 percent share of the Chinese market in just three years. By 2006, the Beijing start-up overtook both Google and its other major U.S. rival, Yahoo Inc., to become the country's most popular search portal — now with an estimated 65 percent market share.

"Our competitors are not short of financial resources," said Shawn Wang, Baidu's chief financial officer, speaking to a packed room of students and faculty at American University's Kogod School of Business last month.

Mr. Wang, a Kogod alumnus, was a partner at the new Hong Kong office of accounting firm PriceWaterhouseCooper's when he made the jump to Baidu in 2004. "Most people were surprised that I took this offer. But I'm a long-term guy," he said.

Baidu, which has been listed on the Nasdaq Stock Market since August 2005, has a market capitalization of $6 billion and a compound annual growth rate of 200 percent. Shares of the company's stock closed yesterday at $193.90 — up 122 percent from $87.18 a year ago but down $3.70 from Friday after a Citigroup analyst downgraded the company to "hold."

Mr. Wang credits Baidu's growth to the company's technology and its focus on users. For example, one of Baidu's most popular products is an innovation it calls "Post Bar," which links users with others who have searched the same keyword, creating an instant online community.

About 140 million out of 1.4 billion people in China use the Internet, Mr. Wang said.

But as the country adds more Web users, the next — and more lucrative — phase of Internet development will be online retail. Of about 20 million small- to medium-sized businesses, only 112,000 are advertising online right now, he said.

"Baidu's sales and customer service teams are hand-holding customers through the process and educating the Chinese market about search advertising," Gene Munster, a senior research analyst with Piper Jaffray & Co., said in a recent note to clients. Google China needs to build up its customer services to better compete, he said.

Low Internet and credit-card penetration are the biggest impediments to Web commerce in China, according to Mr. Wang.

And, because the average Internet users in China are younger than in the U.S., they typically have less spending power and are more likely to use the Internet for gaming and entertainment.

"That will change; it just takes time," he said. "But Baidu is not waiting for time to come."

Last week, the company announced a partnership with Rock Music Group, an independent Chinese record label, to stream music online. The company has international ambitions and plans to enter the Japanese language search market this year.

Both Google and Yahoo have faced criticism for doing business in communist China, which filters the Internet and has jailed numerous citizens for engaging in political activism online. A native of China, Mr. Wang said Western countries need to recognize that the country is making gradual progress.