How Baidu Won China

Robin Li beat Google and made his search engine No. 1 in China. Now he wants to go global, but it will take some work to get the world to trust Baidu

Li gets prepped for his speech at the annual Baidu World conference in Beijing - Andrew Rowat

Many CEOs have admirers. Robin Li—the 41-year-old, American-educated chief executive officer of the Chinese search engine Baidu—has a fan club. And each year at the Baidu (BIDU) World conference in Beijing, the members of the Robin Li fan club come out to get close to the object of their worship.

On a late morning in September, about 30 college-age kids wait expectantly outside the China World Hotel in downtown Beijing. When Li emerges from a dark blue sedan, the fan club mobs him, waving signs and screaming his name while Li poses for pictures with a tight, uncomfortable smile before darting into the building to rehearse his keynote address. "Robin Li is my idol," says Yan Huifeng, a student from Sichuan University in Chengdu. Liu Zhiqiang, a student at Beijing's Renmin University of China, says: "He is handsome and very intelligent and outstanding."

Like much about the 10-year-old company, the Robin Li fan club isn't quite what it appears to be. The exuberance, club members say later, was coordinated by Baidu, which Yan says flew her into town and paid for her hotel. The students all say they admire Robin Li, but their loyalty to the company he founded has its limits. "If I want to know about what happens abroad, I will use Google," says one of the students. "Baidu's information is influenced by the government so much."

The world knows Baidu as the search engine that kicked Google's butt out of China, with an assist from the Communist Party. The company has a 73 percent share of the world's largest Internet market by users, and has the fifth-largest market capitalization ($38.3 billion) among the world's pure-play Internet companies, trailing Google (GOOG), Amazon.com (AMZN), Tencent (an instant messaging and gaming company based in Shenzhen), and only narrowly, eBay (EBAY). It's now 57 percent bigger than Yahoo! (YHOO)—and with significantly brighter prospects. Baidu "has the best business in the world," says Gene Munster, an analyst at Piper Jaffray (PJC). "It's hugely profitable, with massive growth ahead in the population of Chinese Internet users, and the government backing it up. Essentially it's a state-sponsored monopoly."

Baidu's stock price has more than doubled since January, when Google (GOOG) first disclosed that Chinese hackers had targeted its mail servers and announced "a new approach" to China, with the company saying it would no longer censor search results. The highly public stance ultimately led Google to begin redirecting all searches to a Google site in Hong Kong. This allows the company to avoid the strict censorship rules that Baidu and others in mainland China must follow, while also putting it at a major disadvantage in the huge Chinese market. "Every once in a while a gift is handed to you. We handed one to Robin," says Eric Schmidt, Google's chief executive officer. Schmidt argues that the playing field in China has always been unfairly tilted in Baidu's favor, though he goes out of his way to stay eligible for membership in the Robin Li fan club. "Robin is an example of a clever entrepreneur," Schmidt says. "He's navigated the conflicts within China—which are ferocious." - By Brad Stone and Bruce Einhor, Bloomberg Businessweek.

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