BEIJING—In the village of Laishui, about 100 miles southwest of China's capital city, Li De Yin runs a small workshop that seems frozen in pre-industrial time. Bare-chested workers heat copper bowls over an open-coal fire then hammer the yellow metal into hot pots, the Chinese version of fondue pots.
But walk into Li's tidy bedroom, and an ice-blue glow lights the room. It comes from a state-of-the-art personal computer whirring beside a twin-size bed, an audio and video hookup at the ready, in case Li needs to speak to a customer.
Before he advertised online, Li limited his business to the restaurants he could serve from his truck route through southern China. Now the Baidu connection has landed clients in Taiwan, Korea and Hong Kong.
"These are customers we never had before," he said. "I'm making more money. I like that. It's a good thing."
For Google, though, this is not so good. The Mountain View, Calif.-based behemoth has set its sites on capturing the vast and lucrative China Internet market, the world's second largest. But Baidu beat them to it, and the canny, swift-footed competitor is proving exceptionally tough on its home field.
Baidu has virtually copied Google's clean-screen look, but the rest of the Baidu game plan is original. It plays to nationalist advantage by attacking Google as a foreign invader. It promotes itself in such splashy ways as a huge neon sign on the banks of the Pearl River in Shanghai. And it has flourished by aggressively marketing itself in ways verboten at Google: Baidu lets advertisers pay for placement in its search results.
The formula is working. Despite a big marketing push from Google over the last year, Baidu is the first choice of 62 percent of Chinese users, up 15 points over 2005, according to a study released in September by the China Internet Network Information Center. Google's share dropped eight points, to 25 percent--a rare setback.
If Baidu keeps winning, local players elsewhere might copy Baidu's tactics, disrupting Google's plan to expand globally.
The battle for China shows how tough it's getting for Google as it seeks to extend its record as the biggest phenomenon of the Internet economy. Google has changed the way people find old friends, do book reports and search for arcane information. The technologies it hasn't invented, it has simply bought: from a gee-whiz mapping service to the popular video site YouTube.
Click by click, Google has helped transform the Internet from an entertainment medium into an engine for the new economy. With a stock price that briefly topped $500 late last month, up from its $85 initial public offering two years ago, Google also has become one of the hottest investments of modern times.
But the Google legend and its lofty stock price are built on expectations of almost unfettered growth. Foreign markets are a big part of that. Google's track record in China will say a lot about whether success can be sustained in the Internet economy, where a winner can become an also-ran at the click of a mouse.
China is Google's biggest and highest-profile foreign market. It's also the most competitive and perilous. The politics and pressure are so intense that they tripped up Google in a swap that tarnished Google's "Don't Be Evil" image: giving in to Chinese censors in exchange for market access.
Google argues that it's too early to draw any conclusions about its competition with Baidu. "We're in sort of inning one of a nine-inning game," said Sukhinder Singh Cassidy, Google's vice president for Asia-Pacific and Latin America Operations. "It is very early to call a winner in the China search market."
Indeed, Google is recharging its approach to China like a baseball manager shaking up a slumping batting order. It's taking a page from Baidu's playbook and putting a Chinese face on its business here.
In addition to recruiting a Chinese sales force, Google is hiring top-notch graduates from China's best technology universities. Heading the recruitment drive: a charismatic Chinese scientist, Kai-Fu Lee, who draws college campus crowds when he promotes his best-selling book--and Google's brand.
Google also is seeking partnerships with popular Chinese Internet companies. Its biggest win is a deal to serve as the search engine for Tencent, China's dominant instant messaging service. It is targeting narrow but influential markets too. One such effort, a program to copy Chinese books onto the Internet, is designed to appeal to China's intellectual elite.
A look inside the fight between Google and Baidu, through a series of visits to the search rivals, shows just how sharp-elbowed and complex the bout can get.
Google is taking the optimistic view of a company accustomed to trouncing, or buying, its rivals. As Cassidy put it: "We are still looking at a battle for every Internet user in China."