Page 39 - How China Is Winning the Tech Race

through search, and we looked at the fundamentals of why,” he recalls. “We
knew that if Baidu shifted the business plan, it would have a dramatic effect
on cash flow.” Would cash pour in or stop?
Ultimately, Zhang tells me, the board opted to try Li’s fourth scheme, in
effect becoming the Google of China. Going up against a terrific competitor
such as Google was daring enough, but going head to head with prior cus-
tomers—portals with their own in-house search capabilities—could have
been fatal.
The young, inexperienced Baidu team unabashedly borrowed the design
of the new Web site from the clean-looking Google home page, using a plain
search box with a sparse white background. It designed its colorful red and
blue logo with a paw print that some say looks suspiciously like a dog’s print.
The Chinese word for dog sounds like a common mispronunciation of the
word Google in Chinese. Xu denies any connection. He explains that the
cofounders paid a graduate student $400 to design the logo with the imprint
of a bear paw. Only a bear’s speed, sure-footedness, and endless foraging for
food could possibly symbolize Baidu.
There was nitty-gritty work to do too, such as convincing advertisers in
China that online marketing could work. Baidu set up a national network of
advertising resellers in some 200 major Chinese cities to educate newly capi-
talistic businesses about the power of online advertising, a basic step Google
had bypassed in the far more developed U.S. ad market. It worked. In 2004,
two years after the last overhaul, Baidu began making money.
Not taking chances, the cofounders returned to the money well the same
year. This time they raised $15 million from DFJ ePlanet and a surprise
investor, Google, which put up $5 million and took a 2.6 percent stake.
Google was getting trounced by Baidu and was looking to partner with or
acquire its Chinese rival. By July 2005, it appeared that a deal-making match
was in the works when Google’s chairman and CEO, Eric Schmidt, visited
Baidu. But that talk was squelched a month later, in August 2005, when Baidu
went public on Nasdaq.
DFJ ePlanet, Baidu’s largest backer, made a 33 percent return on its 28
percent investment stake, according to chairman and CEO, Asad Jamal, a
former board director. Jamal points out Baidu is his firm’s “best deal and best
exit” of 27 deals, 13 of them in Asia. “Baidu had a fundamental innovation

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