The Rise of Baidu (That’s Chinese for Google) (NYTimes, 9/17/06)

September 17, 2006
The Rise of Baidu (That’s Chinese for Google)
By DAVID BARBOZA
BEIJING
IN the summer of 1998 at a picnic in Silicon Valley, Eric Xu, a 34-year-old biochemist, introduced his shy, reserved friend Robin Li to John Wu, then the head of Yahoo’s search engine team.
Mr. Li, 30 at the time, was a frustrated staff engineer at Infoseek, an Internet search engine partly owned by Disney, a company whose fading commitment to Infoseek did not mesh with Mr. Li’s ongoing passion for search. Like Disney, Mr. Wu and Yahoo were also losing interest in the business prospects of search, and Yahoo — in a colossal corporate blunder — eventually outsourced all of its search functions to a little startup named Google.
Mr. Xu, who had called together some friends for a documentary he was making on Silicon Valley, thought the two search guys would hit it off. Mr. Wu says he exchanged greetings with Robin Li, but what most impressed him was that despite all of the pessimism surrounding search, Mr. Li remained undaunted.
“The people at Yahoo didn’t think search was all that important, and so neither did I,” says Mr. Wu, who is now the chief technology officer at the Chinese Internet company Alibaba.com. “But Robin, he seemed very determined to stick with it. And you have to admire what he accomplished.”
Indeed. A year after the picnic, in 1999, Mr. Li founded his own search company in China, naming it Baidu (pronounced “by-DOO”). Today, Baidu has a market value of $3 billion and operates the fourth-most trafficked Web site in the world. And Baidu is doing what no other Internet company has been able to do: clobbering Google and Yahoo in its home market.
While Baidu continues to gain market share in China — and does so with a Web site that the Chinese government heavily censors and that gives priority to advertising rather than relevant search results — some analysts question whether Baidu can withstand competition from Google and Yahoo, which possess superior technology and global work forces.
But Baidu’s evolution, and Mr. Li’s journey as an entrepreneur, offer textbook examples of the payoffs and perils of doing business in China and suggest that Baidu may prove to be far more resilient than some analysts believe. China has a population of 1.3 billion, about 130 million of whom are Internet users, an online market second in size only to the American market. Because China is the world’s fastest-growing major economy, analysts consider it the next great Internet battleground, with Baidu uniquely positioned to prosper from that competition.
In exchange for letting censors oversee its Web site, Baidu has sealed its dominance with support from the Chinese government, which regularly blocks Google here and imposes strict rules and censorship on other foreign Internet companies.
In addition, analysts say, entrepreneurs in China have a knack for pummeling American Internet giants. “The globally dominant U.S. Internet companies have failed to take the No. 1 market share position in any category,” says Jason D. Brueschke, a Citigroup analyst, of the Chinese market. “And they came with more money and major brand names. And so there’s something fundamentally different about this market.”
So fundamentally different, Mr. Brueschke believes, that Baidu will retain its hammerlock on the Chinese search industry. “The real battle in the competitive landscape is not about who’s No. 1, it’s about who’s going to be No. 2,” he says.
Google, of course, will have none of this, stressing the independence of its search results and the international reach it offers users. “People want information and they want global information,” says Kaifu Lee, the president of Google in China. “We can’t be bought.”
But Mr. Li says Baidu’s model is working supremely well and that the company has built a loyal base of users who value its search capabilities. “At the end of the day, if a user finds relevant information, they’ll come back,” he says.
ON its corporate Web site, Baidu says that it takes its name from a Song Dynasty poem written several centuries ago that “compares the search for a retreating beauty amid chaotic glamour with the search for one’s dream while confronted by life’s many obstacles.”
Mr. Li, born Li Yanhong in 1968 in what was then an impoverished city 200 miles southwest of Beijing, is familiar with life’s obstacles. The fourth of five children, he grew up during China’s brutal Cultural Revolution. Despite the oppression that surrounded him, he said he was always able to focus on stamp collecting, performing traditional opera and other interests — including, eventually, computers. He was bright enough to get into the country’s most prestigious school, Beijing University, where he majored in library science and dabbled in computer science.
The government infamously cracked down on pro-democracy demonstrations in Tiananmen Square in 1989 when Mr. Li was a sophomore, causing his college campus to be shut down. Mr. Li is mum on the events that followed, saying only that he was apolitical. But he does say that a year later he started thinking of studying abroad and that by the time he graduated in 1991 he was ready to leave his homeland.
“China was a depressing place,” he says. “I thought there was no hope.”
He applied to the top three graduate programs in computer science in America, but did not get into any of them (perhaps, he says, because China was considered an also-ran in technology). “I blindly sent out 20 applications,” he says. “SUNY Buffalo was the only program willing to give me a fellowship.”
He enrolled at Buffalo planning to earn a Ph.D. in computer science but grew disillusioned with academia. He completed his master’s degree in 1994 and then joined a New Jersey division of Dow Jones & Company, where he helped develop a software program for The Wall Street Journal’s online edition. During that time, he also became enamored of the technology boom taking shape in Silicon Valley. He spent much of his time trying to solve one of the Internet industry’s earliest problems: sorting information.
A breakthrough came in 1996, he says, when he developed a search mechanism he called “link analysis,” which involved ranking the popularity of a Web site based on how many other Web sites had linked to it.
“The moment I created this thing I was very excited,” he says. “I told my boss and pushed him. But he wasn’t very excited.” Soon after, he attended a computer conference in Silicon Valley and set up his own booth to demonstrate his search findings.
William I. Chang, then the chief technology officer at Infoseek, met Mr. Li at the conference and recruited him to oversee search engine development.
“Robin is possibly the single most brilliant and focused person I know,” Mr. Chang says. “And his inventions, now widely adopted, are still the gold standards in Web search relevance.”
After Disney acquired the small fraction of Infoseek stock it did not already own in 1999, it shifted the company’s focus away from search and toward content, leading Mr. Li to form his own Internet company with Eric Xu, who had a Ph.D. in biochemistry and good contacts in Silicon Valley.
The partners raised $1.2 million from two Silicon Valley venture capital firms, Integrity Partners and Peninsula Capital, and with their seed money in hand flew to China and founded Baidu in a hotel room overlooking Beijing University’s campus. Nine months later, in September 2000, two other venture capital firms, Draper Fisher Jurvetson and IDG Technology Venture, pumped another $10 million into the startup.
So it was that on the eve of the Internet bubble bursting in the United States, Baidu took off in China.
“When I came back I was prepared for a rough life,” Mr. Li says. “It turns out it wasn’t so bad.”
Baidu started out offering search services to other Chinese portals before developing its own stand-alone search engine. Some members of Baidu’s board of directors opposed the shift, saying it would turn customers into competitors. But Mr. Li said he sensed a shift in the market after watching the success of Overture, a company in Pasadena, Calif., that sold advertising space correlated with search results (which meant, for example, that ads for dental clinics might pop up next to search results for cavities).
“We were skeptical about search,” says Scott Walchek, a partner at Integrity Partners and a member of Baidu’s board. “But we weren’t as smart as Robin. Robin said he had a unique opportunity to build a brand around search. And he was right.”
In September 2001, Baidu began its own site — Baidu.com — which looked almost exactly like Google’s no-frills home page. And even before Google did it, Baidu allowed advertisers to bid for ad space and then pay Baidu every time a customer clicked on an ad. Small and medium-size companies loved it, the site became deluged with traffic and Baidu turned a profit in 2004. By then, Mr. Li was pushing for an initial public offering in the United States, insisting it would be a huge branding event for a company that had come to be called “China’s Google.”
BAIDU went public on Aug. 5, 2005, at $27 a share. When trading ended that day, shares of Baidu closed at $122, up 354 percent, the biggest opening on Nasdaq since the dot-com peak in 2000. Suddenly, Baidu was a $4 billion company and Mr. Li held stock worth more than $900 million. But not everyone cheered. Many analysts said that by almost every measure Baidu’s stock was ridiculously over-valued. It eventually tumbled to as low as $44 before rebounding. On Friday, its shares closed up $3.03 in regular trading, to $87.75, giving the company a market capitalization of about $2.94 billion.
At the time of the I.P.O., some critics attacked Baidu’s zealousness for ad revenues. They noted, for example, that a Baidu search for the word “cancer” turned up ads for hospitals that paid for top spots in results rather than returning information on cancer itself. In comparison, Google and Yahoo more clearly separate ads from relevant search results by placing them on the right side of the page.
The company’s revenue jumped 190 percent in the first half of this year, to $40.9 million; profit soared 550 percent, to $11.7 million. Baidu’s Web site is drawing millions of young people eager to download music files, create blogs or search for pictures of China’s “10 Most Beautiful Women.” While Baidu is growing fast, its revenue is still anemic compared with Google’s, which is expected to top $7 billion this year.
Analysts say Baidu is playing to a different audience than Western Internet companies because the Chinese are far more interested in entertainment than news, books or car rental rates. “The fact is 70 percent of China’s Internet users are under the age of 30,” says Richard Ji, an analyst with Morgan Stanley. “Most of them are single, only children. They’re looking for entertainment.”
That may explain why China’s dominant Internet companies are all entertainment focused, like Tencent (which hosts online communities and instant messaging) and Netease and Shanda (which are online gaming sites).
Yet no Internet company in China is growing as fast as Baidu, which had more than 50 percent of the pay-per-click market in the first half of year, up from a 37 percent share in the same period a year ago, according to Analysys, a research firm in Beijing. Google and Yahoo both lost ground, with each company holding 16 percent pay-per-click shares for the first six months of 2006.
Still, Baidu faces significant challenges. The company’s stock is in the stratosphere, putting pressure on management to deliver knockout growth every quarter. Google’s shares closed up $5.90 Friday in regular trading, to $409.88, meaning investors pay a hefty $60 for every $1 of profit in the stock, far more than other Internet companies. But Baidu investors pay a whopping $190 for every $1 of profit.
Baidu also faces legal challenges, including lawsuits claiming it violates copyright laws on music files. Baidu has been sued over the issue, but continues to provide links to sites that offer music files. The company says it does not believe it should be held responsible for simply offering linking to other sites. In a country rampant with claims of click fraud, a Beijing hospital recently claimed that Baidu orchestrated a scheme in which a Baidu affiliate kept clicking on the hospital’s ads to fatten the fees it had to pay Baidu. A Baidu spokeswoman says the company has not reviewed the case, but actively polices click fraud.
LOOMING on the horizon are Google and Yahoo. Google says it plans to spend hundreds of millions of dollars to compete in China, and Yahoo has merged its operations here with Chinese Internet behemoth Alibaba.com.
“Google is fierce,” Morgan Stanley’s Mr. Ji says. “And Alibaba has the best sales force. Baidu could get hurt on the technical side.”
But the Chinese market is littered with the wreckage of American Internet companies that have failed to dominate here. In 2003, eBay bought the largest Chinese auction company — and then lost market share. In 2004, Amazon bought the largest Chinese online merchandiser — and then lost market share.
Now, the real fight begins. Google, which invested $5 million in Baidu just before its public offering last year, sold that stake for a hefty $60 million in June. And now, Google is building up a huge research team in Beijing, not far from Baidu’s headquarters. But analysts say it won’t be easy for Google.
“The American Internet giants are dominant in the U.S. and dominant in Europe,” Mr. Brueschke at Citigroup says. “And then they come to China and fail. And so what I want to know is: What is Google going to do differently?”
For his part, Robin Li seems undaunted.
“Our traffic keeps increasing,” he says confidently. “We’re now the No. 1 Web site in China.”

China: The Next Software Center?(Business Week Online, 09/01/06)

China: The Next Software Center?
Business Week OnlineFriday, September 01, 2006
Leonard Liu has spent most of his career working for some of the premier tech companies in the U.S. and Taiwan. He's been a top executive at IBM (IBM) and Acer and has also been in charge of Advanced Semiconductor Engineering, the world's leading semiconductor packaging company. After accumulating so much experience in the hardware business, now Liu has his sights on the software industry.
And he's focusing on building a business in an unlikely place: China. Liu is the CEO of Augmentum, a three-year-old Silicon Valley company with 1,000 employees -- almost all of them based in Shanghai and Beijing -- working on outsourcing projects for U.S. multinationals.
China may be world's manufacturing power, but it's hardly renowned as a software center -- which Liu is determined to change. "The world is going to need [software center] alternatives to India" he says. For one thing, wages are rising in India. And it just isn't smart for companies to rely too heavily on one country. "Only China has enough human resources, enough human capital, to be able to make a difference," Liu argues. "China is the only place."
BLUE BACKGROUND.
Like many IT execs from Taiwan, Liu has roots in the U.S. and China. He was born in 1941 in the southern province of Hunan and spent his early childhood in Changsha, the provincial capital where Mao Zedong got his start before leading the Communist army. In 1949 Liu and his family fled to Taiwan with the Nationalist government of Chiang Kai-shek.
After graduating from National Taiwan University in Taipei, Liu got his doctorate in electrical engineering and computer science from Princeton and joined IBM [(IBM)] in 1969. He worked for Big Blue for 20 years before returning to Taiwan in 1989 to become president of Acer, the island's leading PC maker. Liu also was president of Advanced Semiconductor Engineering, the Taiwanese company that is the world's leading chip packager, for four years before launching Augmentum in 2003.
When he started the new company, Liu decided there was a software opportunity in China that had yet to be tapped. "India had proven it could do a very good job" in software, he says. Liu saw China as "the next region doing that." Today, Augmentum counts among its customers Motorola (MOT), Microsoft (MSFT), and Intel (INTC). Liu's Chinese engineers have worked on developing software for Intel chips, for instance, and have also done systems integration work for Microsoft's Hong Kong office.
KNOWLEDGE TAKES TIME.
Although many boosters of China's software industry have been talking for years about the country as the next India, so far there's no Chinese company that can come close to rivaling Indian powerhouses such as Wipro (WIT), Infosys (INFY), and Tata Consultancy Services. Liu says that people who predicted a quick rise for China's software industry didn't understand the business.
While it's easy to build up a manufacturing base, creating a knowledge industry takes a lot more time, he says. "Software experience is nothing that you can get very quickly," Liu points out. "You can rebuild a TV factory that you had in Japan, because most of the work is automated, and workers can be trained very quickly. However, software is a knowledge effort and it takes time for team members to form."
How long will it take for China to get the experience necessary to be a player in the software industry? Liu doesn't think the Indians have reason to fret in the short term. "Within five years, it's unlikely," he says.
Liu predicts China will need between 10 and 20 years, although he thinks that his own company will be able to move faster than the rest of the industry. "As long as I can find young Chinese who are willing to work hard, we will be able to catch up and compress the time," he says. "In 10 years time, I will build a world-class team."
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Where’s Mao? Chinese Revise History Books (NYTimes, 9/1/06)

September 1, 2006
Where’s Mao? Chinese Revise History Books
By JOSEPH KAHN
BEIJING, Aug. 31 — When high school students in Shanghai crack their history textbooks this fall they may be in for a surprise. The new standard world history text drops wars, dynasties and Communist revolutions in favor of colorful tutorials on economics, technology, social customs and globalization.
Socialism has been reduced to a single, short chapter in the senior high school history course. Chinese Communism before the economic reform that began in 1979 is covered in a sentence. The text mentions Mao only once — in a chapter on etiquette.
Nearly overnight the country’s most prosperous schools have shelved the Marxist template that had dominated standard history texts since the 1950’s. The changes passed high-level scrutiny, the authors say, and are part of a broader effort to promote a more stable, less violent view of Chinese history that serves today’s economic and political goals.
Supporters say the overhaul enlivens mandatory history courses for junior and senior high school students and better prepares them for life in the real world. The old textbooks, not unlike the ruling Communist Party, changed relatively little in the last quarter-century of market-oriented economic reforms. They were glaringly out of sync with realities students face outside the classroom. But critics say the textbooks trade one political agenda for another.
They do not so much rewrite history as diminish it. The one-party state, having largely abandoned its official ideology, prefers people to think more about the future than the past.
The new text focuses on ideas and buzzwords that dominate the state-run media and official discourse: economic growth, innovation, foreign trade, political stability, respect for diverse cultures and social harmony.
J. P. Morgan, Bill Gates, the New York Stock Exchange, the space shuttle and Japan’s bullet train are all highlighted. There is a lesson on how neckties became fashionable.
The French and Bolshevik Revolutions, once seen as turning points in world history, now get far less attention. Mao, the Long March, colonial oppression of China and the Rape of Nanjing are taught only in a compressed history curriculum in junior high.
“Our traditional version of history was focused on ideology and national identity,” said Zhu Xueqin, a historian at Shanghai University. “The new history is less ideological, and that suits the political goals of today.”
The changes are at least initially limited to Shanghai. That elite urban region has leeway to alter its curriculum and textbooks, and in the past it has introduced advances that the central government has instructed the rest of the country to follow.
But the textbooks have provoked a lively debate among historians ahead of their full-scale introduction in Shanghai in the fall term. Several Shanghai schools began using the texts experimentally in the last school year.
Many scholars said they did not regret leaving behind the Marxist perspective in history courses. It is still taught in required classes on politics. But some criticized what they saw as an effort to minimize history altogether. Chinese and world history in junior high have been compressed into two years from three, while the single year in senior high devoted to history now focuses on cultures, ideas and civilizations.
“The junior high textbook castrates history, while the senior high school textbook eliminates it entirely,” one Shanghai history teacher wrote in an online discussion. The teacher asked to remain anonymous because he was criticizing the education authorities.
Zhou Chunsheng, a professor at Shanghai Normal University and one of the lead authors of the new textbook series, said his purpose was to rescue history from its traditional emphasis on leaders and wars and to make people and societies the central theme.
“History does not belong to emperors or generals,” Mr. Zhou said in an interview. “It belongs to the people. It may take some time for others to accept this, naturally, but a similar process has long been under way in Europe and the United States.”
Mr. Zhou said the new textbooks followed the ideas of the French historian Fernand Braudel. Mr. Braudel advocated including culture, religion, social customs, economics and ideology into a new “total history.” That approach has been popular in many Western countries for more than half a century.
Mr. Braudel elevated history above the ideology of any nation. China has steadily moved away from its ruling ideology of Communism, but the Shanghai textbooks are the first to try examining it as a phenomenon rather than preaching it as the truth.
Socialism is still referred to as having a “glorious future.” But the concept is reduced to one of 52 chapters in the senior high school text. Revolutionary socialism gets less emphasis than the Industrial Revolution and the information revolution.
Students now study Mao — still officially revered as the founding father of modern China but no longer regularly promoted as an influence on policy — only in junior high. In the senior high school text, he is mentioned fleetingly as part of a lesson on the custom of lowering flags to half-staff at state funerals, like Mao’s in 1976.
Deng Xiaoping, who began China’s market-oriented reforms, appears in the junior and senior high school versions, with emphasis on his economic vision.
Gerald A. Postiglione, an associate professor of education at the University of Hong Kong, said mainland Chinese education authorities had searched for ways to make the school curriculum more relevant.
“The emphasis is on producing innovative thinking and preparing students for a global discourse,” he said. “It is natural that they would ask whether a history textbook that talks so much about Chinese suffering during the colonial era is really creating the kind of sophisticated talent they want for today’s Shanghai.”
That does not mean history and politics have been disentangled. Early this year a prominent Chinese historian, Yuan Weishi, wrote an essay that criticized Chinese textbooks for whitewashing the savagery of the Boxer Rebellion, the violent movement against foreigners in China at the beginning of the 20th century. He called for a more balanced analysis of what provoked foreign interventions at the time.
In response, the popular newspaper supplement Freezing Point, which carried his essay, was temporarily shut down and its editors were fired. When it reopened, Freezing Point ran an essay that rebuked Mr. Yuan, a warning that many historical topics remained too delicate to discuss in the popular media.
The Shanghai textbook revisions do not address many domestic and foreign concerns about the biased way Chinese schools teach recent history. Like the old textbooks, for example, the new ones play down historic errors or atrocities like the Great Leap Forward, the Cultural Revolution and the army crackdown on peaceful pro-democracy demonstrators in 1989.
The junior high school textbook still uses boilerplate idioms to condemn Japan’s invasion of China in the 1930’s and includes little about Tokyo’s peaceful, democratic postwar development. It will do little to assuage Japanese concerns that Chinese imbibe hatred of Japan from a young age.
Yet over all, the reduction in time spent studying history and the inclusion of new topics, like culture and technology, mean that the content of the core Chinese history course has contracted sharply.
The new textbook leaves out some milestones of ancient history. Shanghai students will no longer learn that Qin Shihuang, who unified the country and became China’s first emperor, ordered a campaign to burn books and kill scholars, to wipe out intellectual resistance to his rule. The text bypasses well-known rebellions and coups that shook or toppled the Zhou, Sui, Tang and Ming dynasties.
It does not mention the resistance by Han Chinese, the country’s dominant ethnic group, to Kublai Khan’s invasion and the founding of the Mongol-controlled Yuan dynasty. Wen Tianxiang, a Han Chinese prime minister who became the country’s most transcendent symbol of loyalty and patriotism when he refused to serve the Mongol invaders, is also left out.
Some of those historic facts and personalities have been replaced with references to old customs and fashions, prompting some critics to say that history teaching has lost focus.
“Would you rather students remember the design of ancient robes, or that the Qin dynasty unified China in 221 B.C.?” one high school teacher quipped in an online forum for history experts.
Others speculated that the Shanghai textbooks reflected the political viewpoints of China’s top leaders, including Jiang Zemin, the former president and Communist Party chief, and his successor, Hu Jintao.
Mr. Jiang’s “Three Represents” slogan aimed to broaden the Communist Party’s mandate and dilute its traditional emphasis on class struggle. Mr. Hu coined the phrase “harmonious society,” which analysts say aims to persuade people to build a stable, prosperous, unified China under one-party rule.
The new textbooks de-emphasize dynastic change, peasant struggle, ethnic rivalry and war, some critics say, because the leadership does not want people thinking that such things matter a great deal. Officials prefer to create the impression that Chinese through the ages cared more about innovation, technology and trade relationships with the outside world.
Mr. Zhou, the Shanghai scholar who helped write the textbooks, says the new history does present a more harmonious image of China’s past. But he says the alterations “do not come from someone’s political slogan,” but rather reflect a sea change in thinking about what students need to know.
“The government has a big role in approving textbooks,” he said. “But the goal of our work is not politics. It is to make the study of history more mainstream and prepare our students for a new era.”