Page 43 - How China Is Winning the Tech Race

Borderline illegal

One Baidu feature that Google.cn will never have is links to sites where
youngsters can type in the names of Chinese pop tunes and then download
MP3 digital music files for free, many of them presumably pirated songs. “It’s
borderline illegal,” Lee says with disgust in his voice. “All those downloaded
MP3 files are pirated copies.” Google instead offers links to music stores.
The highly popular but controversial MP3 searches account for as much as
20 percent of the searches on Baidu, admits cofounder Xu. “This kind of search
can’t be monetized like paid search can,” he says, meaning that there is no
advertising support. Facing lawsuits claiming that it violates copyright laws by
offering access to online music files, in early 2007 Baidu began to collaborate
with several music labels and cable networks on authorized downloads.
Meanwhile, Li remains focused on running a fast-growing public
business. Late in 2006, he recruited his former mentor from Infoseek, William
Chang, as Baidu’s chief scientist. In 2008, he’s also launching a consumer e-
commerce service, an area outside Baidu’s core focus.
Taking Baidu beyond its comfort zone, in late 2006 Li unveiled plans to
enter the large Japanese search market, making good on a vow he made to me
a few months earlier about launching outside China. The Japanese paid
search market is at least $700 million, roughly three times larger than the
Chinese market, according to Richard Ji, an Internet research analyst at
Morgan Stanley in Hong Kong. He says that a Japanese search engine may
help Baidu link small Chinese companies to Japanese consumers and busi-
nesses, which may have strong interests in the inexpensive goods made
in China.
The Japanese entry pits Baidu against entrenched Internet leaders Yahoo!
and Google in that huge and far-costlier market. Nevertheless, Li, who con-
ducted six months of prelaunch research into Japanese-language search tech-
nology, is spending $15 million, or 14 percent of Baidu’s budget in 2007, on
the expansion. “We believe that our proven strength in non-English-language
search, the high Internet penetration in Japan, as well as similarities between
the Chinese and Japanese languages make this market an ideal next step for
Baidu,’’ Li says.

Baidu—China’ s Boldest Internet Start-Up 17