Page 38 - How China Is Winning the Tech Race

which routed Web traffic through nearby servers to speed up downloads.
Needing cash to keep going, the cofounders hit the fund-raising trail for both
the Inktomi and Akamai plans. In September 2000, right before the tech
economy meltdown, they landed $10 million. 4
But by 2001 dot-coms and portals were going bust, and Baidu couldn’t
collect its payments. With a count of two strikes, Li and Xu tried a third time.
They followed yet another Valley company, Verity Inc., which sold search
and data management services to large enterprises, but that deal also flopped.
“We found that enterprises in China wouldn’t pay for specialized search
engines,” Xu notes. “They wanted the cheapest products, or they went for
rip-offs.”
Finally, in 2002, with their hopes high and their cash dwindling, Li and
Xu took a hint from Google and plunged into the consumer market with a
moneymaking model Google had used the year before: paid search from
online advertisers. 5
Paid search, or pay-per-click, works this way: Say a consumer is searching
for sneakers and a Nike-sponsored listing pops up on the right-hand side of
the Google results. Each time the shopper clicks on a sponsored ad, the search
engine company collects a fee from the marketer. The decision to rely on paid
search for revenues, as Google was doing, was very risky.
“While Google is now making lots of money from paid search, it wasn’t
all that clear that the paid search business model would work,” Xu recalls.
“Robin has a very good strategic vision; he sees things others don’t.” Today
pay-per-click ads account for as much as one-third of all online ad revenues
and are the primary revenue stream for consumer search engines.
Li’s paid search plan stirred up heated debate at boardroom meetings at
Baidu. The Chinese venture capitalist Fan Zhang, then a board member at
Baidu and now a managing partner at Sequoia Capital China, recalls the con-
troversy over whether the latest strategy would work. Zhang has invited me
to tag along with him on a visit on a fall Saturday afternoon in Beijing at a
cool company he’s funded, Zhanzuo.com, an alumni networking site that
works like Facebook. A Chinese TV film crew is in tow, documenting Zhang’s
work as though he were a celebrity. Lounging on a red couch cushion in the
start-up’s hip offices during a film break, Zhang recalls how Li argued his
case. “We looked at Google, which was beginning to monetize its business

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