Besides a cloud of smoke, sticky keyboards, and the incessant sound of noodle-slurping, nearly every Internet cafe in China has one thing in common: All home pages are set to Baidu.com, China's dominant search engine. It's not a coincidence, or even a matter of preference. Back in 2005, when Baidu was just a start-up, company representatives traveled through China persuading Internet cafe owners from Beijing to Kunming to install its toolbar and home page. In addition, it set up alliances with dozens of Internet directory sites, where most first-time Internet users in China start surfing. Now, the vast majority of the online population uses Internet cafes -- and the vast majority of searches go through Baidu. Simply put, Baidu knows China. And Google can't seem to catch up or catch on.
Baidu's overwhelming dominance comes down to Google's woeful ineptness at adjusting to Chinese market realities. Google entered the Chinese market and treated it like any other. But, from the beginning, Baidu operated as a Chinese company, using Chinese strategies and tailoring itself for Chinese needs. Thus, in terms of dealing with the government, popularizing the brand, making sales, and offering the masses what they want, Baidu bests Google.
The Beijing-based search engine (whose name means "hundreds of times," after a line in an 800-year-old poem) maintains an astounding 70 percent market share. California-based Google trails far behind, with only about 25 percent. As China now has the world's largest (and fastest-growing) Internet community, with 338 million users, market dominance means a whole lot of profit, both now and in the future.
The business world has cottoned on. Baidu's price-to-earnings ratio, a good way to gauge investors' expectations for growth, is double Google's. (Baidu has been listed on the NASDAQ stock exchange since August 2005.) This is in part because China's Internet saturation is only about 25 percent, compared with more than 75 percent on average in OECD countries, like the United States. Meanwhile, Baidu's net income is increasing wildly: 40 percent year-on-year, compared with 18 percent for Google. Every indication points to fast growth and lucrative profit.
The secret to Baidu's success -- and Google's failure -- is largely positioning. First, Baidu has managed to win Beijing's favor, a trump card in this command economy. The government controls the Internet and appreciates loyal partners. Baidu understands that it operates under the good graces of the Chinese Communist Party, and continues to show it. As Robin Li, the company's chief executive, said in an interview with the Guardian, "As a locally operated company we need to obey the Chinese law. If the law determines that certain information is illegal, we need to remove it from our index."
Google also allows its content to be censored. But it does so reluctantly and poorly, compared with Baidu and its army of Chinese programmers. From a Chinese Internet cafe, a search for "Tiananmen June 4" written in Chinese characters -- perhaps the most taboo combination one could create -- yields 915,000 results on Google China. It gets just 11,300 results, 99 percent less, on Baidu. Type in "harmonious society," a government catchphrase, and Google gets just over 10 million results. Baidu gets 18 million.
Deference has certainly helped Baidu. Earlier this year, Chinese authorities temporarily blocked Google because it allowed through some pornographic search results. But many of these same results were also available on Baidu -- and in fact an industry insider told me that the large majority of traffic to Baidu's new Japan site comes from mainland users searching for pornography. The implication is that the government has Baidu's back.
"You definitely get a feeling that the government would give Baidu a bit more time to fix a problem than they would give Google," explained Ian McGuinn, director at leading Chinese market research firm JLM Pacific Epoch. "It would be very interesting to see whether the government would try to keep Google from ever getting a majority of the market share. They've messed with Google before when they forbid it from having its servers in China. Searching on Google was incredibly slow, so nobody wanted to use it."
On one of the most contentious issues for search engines -- intellectual property rights and illegal downloading -- the government and Baidu are on the same page as well. Baidu connects users with sites through which they can illegally obtain music. It also allows users to search directly for and illicitly download MP3s.