Page 33 - How China Is Winning the Tech Race

In China, Baidu is gaining on Google and other rivals as the market con-
solidates. Baidu’s market share climbed to 58 percent in mid-2007, up from
47 percent a year earlier, reports the Beijing-based research outfit Analysys
International. Meanwhile, the second-ranked Google moved up from 15
percent in mid-2006 to 21 percent in the first half of 2007.
If someday Baidu towers over Google not just in China but worldwide, it
will be due partly to Li’s abilities and his ambitious plans to enter overseas
markets. He’s already gone into the huge Japanese market, and Europe is
rumored to be next. But it’s also a numbers game. China has a population of
1.3 billion, the world’s largest, and a rapidly growing number of Internet
users.
Within three years, China’s Internet population is projected to surpass
that of the United States. There are 185 million American Web users, cur-
rently the world’s largest market, compared with 162 million in China. By
2010, more than 227 million people in China will have Internet access, and
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the U.S. number will be 196 million. Today, only about 11 percent of China’s
people log on to the Web, mostly in big cities where Web-surfing youngsters
crowd smoky Internet cafés.
The engine that is driving Baidu’s growth is the booming market for
online advertising and paid searches in China. Ads on Chinese Web sites will
nearly double to $1.5 billion by 2010 from $740 million in 2007, projects the
research firm Analysys, and paid searches will double to $500 million in
2007, up from $206 million in 2006; these are still small numbers compared
with the United States. 3
Baidu now faces the biggest threat in its six-year history: a local Google
makeover. After fumbling with an initially inferior Chinese search engine
launched in 2000, Google has marshaled its considerable resources to take on
Baidu. Over the last two years, the American powerhouse has planted roots
in China, hired the experienced Kai-Fu Lee from Microsoft as its president,
introduced a faster and more reliable search engine run from servers in China,
and recruited more engineers to fine-tune Google to run in Mandarin. By
doing business on Chinese soil, however, Google has submitted to censorship
of its new Chinese search engine. The communist-controlled nation censors
all Web sites operating in China.

Baidu—China’ s Boldest Internet Start-Up 7