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.
Online business accounts for half of Li's sales these days. And the bulk of it is generated by a search engine unknown to most Americans but a household name in China: Baidu.com.
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."
Baidu became a point of pride for the Chinese after its stock price jumped five-fold to $154 on the day of its 2005 first offering. The stock quickly fell back, but its early rise prompted a hysteria that made Baidu founder Robin Li a national hero.
With Li at the helm and the stock now trading around $110, Baidu has built a dominant position. It has astutely designed features that appeal to Chinese users, beat its competitors to market and cast its most lethal opponent, Google, as a foreigner with suspicious ambitions.
Baidu's none-too-subtle use of nationalism was on display in a recent online advertising campaign. It didn't slam Google by name, but featured a group of villagers accosting a foreign couple. "You don't understand us, you don't understand us," one village elder scolded the outsiders. In a country with an ingrained distrust of outsiders, the message resonated.
Li, who was educated in the U.S. and helped design the pioneering search engine InfoSeek, has no qualms about playing the nationalism card. "We think search is not just about technology," Li said. "It's also about language. It's also about culture."
Baidu has decoded China's cultural cryptography in ways that have eluded Google. A key example: Baidu's embrace of paid search results. For many popular search terms, Baidu will rank results by how much an advertiser is willing to pay for prominent placement.
Google and the other U.S.-based players don't embrace pay-for-placement. For U.S. users, it would undermine a search engine's credibility.
In China, though, surveys have shown that users trust paid results. Many believe that an advertiser's willingness to pay for placement reflects a confidence that they've got just the right answer to the user's query. If a Chinese user queries "mah-jongg" and an advertiser is selling hand-carved sets, well, that's a match.
"If an advertiser wants to pay a lot of money, that probably says something," Li says. "The best measure for this is our growth pattern. If users keep coming back to our service, we're doing the right thing."
The campaign to deepen the connection with users goes beyond paid search results. Baidu also serves up Post Bar, a sort of online bulletin board and gathering place. Post Bar enables users to answer search queries, comment on one another's answers and form the sort of social networking community that U.S. search engines have ceded to sites such as MySpace.
Baidu's Post Bar is wildly popular. It helped create a phenomenon around China's version of American Idol. A contestant nicknamed Chun Chun drew nearly 18 million posts at the height of her popularity.
Against Baidu's marketing, Google is acting as native as possible, but it has had some stumbles. Google's tortured effort to finesse Chinese censorship is among them.
Great firewall of China
Since it first became available in China in 2000, Google.com has been plagued by sluggish performance and frequent breakdowns. Google says Baidu gains an advantage because Chinese service providers deliberately slow Google's service. And any search terms deemed politically sensitive--"Tiananmen Square" or "Dalai Lama"--slow the service even more. Repeated efforts will sever the Internet connection.
Chinese citizens need no explanations, of course. They know the tell-tale signs of censorship. Since Google has no servers for its site inside China, it is believed that sensitive Google.com queries get caught by censors as they exit China en route to Google's servers outside the country--"the Great Firewall of China," some have dubbed it.
Google tried to fix the problem early this year by introducing Google.cn, a search service with the Chinese government's seal of approval. Google cut a deal with censors, agreeing to block results for a secret list of forbidden terms. Google won a right to notify users when results are blocked, but the effect is the same: Results don't get delivered.
Why choose Google.cn? Because the service is faster than Google.com, and it's rarely interrupted.
Soon after the deal was announced, Google.cn got what must have been some unwelcome help from the government-controlled China Telecom, which provides the communication backbone of China's Internet. In an apparent effort to drive traffic to the officially sanctioned Google.cn, China Telecom blocked user access to Google.com.
Google's capitulation ignited a political firestorm in the U.S., where Congress held a hearing on the controversy. The move remains a political blemish no matter how much Google has argued that a diluted Google in China is better than none.
Even Google cofounder Sergey Brin, noting that the vast majority of Google searches from China use the Google.com service, told reporters this summer that the compromise with censors may have been a mistake. "Perhaps now the principled approach makes more sense,'' he said.
To Li Jian, a dissident living under government surveillance in the northeastern coastal city of Dalian, Google's concession signals a major betrayal.
Interviewed over the Skype Internet-based telephone service because he believes China's security police tap his phones, Li said Google has blown a chance to persuade China's government to allow freer expression. "Google is an international company, a big company, doing business in the world," Li said. "Google is failing a basic test of morality."
"I wonder if the American government asked Google to censor itself in the U.S., would they give in?" Li asked. In fact, in the U.S., Google won praise for resisting a Justice Department subpoena.
Johnny Chou, Google's president of sales and business development in China, argues that Google.cn is hardly controversial in China, where constraints on free expression are common. "Most Internet users in China understand the society they're in," he said.
Google, though, at times seems to struggle to fit into that society. When Google launched an online promotion for Google .cn last spring, some users ridiculed its effort to act Chinese.
With moody Chinese pipa music playing in the background, images modeled on traditional Chinese watercolors appeared on the screen. A woman narrator informed viewers that Google was adopting the name "Guge," loosely translated as "grain song."
"Welcome to Guge. Let's search for you, let's harvest for you," the narrator said. "One piece of information is just like one blade of grass, alive and full of vitality. Together, they build up a big, expansive meadow."
This stately presentation clashed with the way many Chinese encounter the Web: amped-up Internet cafes, full of flashing lights and the sensory overload of a video arcade.
At an Internet cafe in one of Beijing's high-tech districts, an exercise equipment salesman named Zhang Xin Yu saw little need to try Google. Baidu satisfied him as he searched for music videos, movie reviews and even work-related information.
"Mostly, there's the same news on Baidu," said Zhang, 25. "And for my job, information I want to know, I use Baidu."
But Google holds an edge in one key corner of the market: intellectuals and professionals who believe Google gives the most comprehensive results.
"I prefer Google," said Xiang Zhen, 26, a chemistry graduate student. "If you compare the numbers of results between Baidu and Google, you get more information from Google."
Digital turf battle
User traffic does little for the search giants, though, unless they convert it into ad revenue. As Baidu and Google compete to sell those ads, their styles and standards contrast as sharply as the rest of their rivalry.
In the countryside, Baidu's sales force is free to sell ads for other online companies. An ad on Baidu might be offered alongside one on the shopping service Alibaba.
Google is focusing its energy on building a dedicated sales force that will offer only Google ad space.
SThis is slowing Google's growth in China, as Google faces difficulty persuading ad brokers to sell only for Google.
"We want to find the right partners, not just in number," said Chou, Google's country president.
And just as in the U.S., Google is operating virtually without advertising. No billboards. No TV campaign.
Baidu has its flashy online campaign, TV ads and that mammoth neon billboard on the banks of the Pearl River.
Baidu also is looking ahead to the next big arena; it's negotiating with phone firms to launch services via cell phones, which are much more common in China than personal computers.
"When Internet connections become cheaper and faster over cell phones, we have a good position," said Baidu founder Li.
Google can claim success in one major area that Baidu seems unlikely to match: It has recruited Chinese scientist-celebrity Kai-Fu Lee to head Google's research center and promote the Google brand.
Lee is a book author whose message about self-empowerment draws big numbers to his blog and crowds of students when he tours college campuses. Since Lee jumped ship from Microsoft in 2005, his 100-person research lab has operated with almost no interference from Google's headquarters. "There are maybe one or two people who know how much money we might spend," he said.
Today, Lee is hard at work on his main assignment for Google: hiring more than 1,000 star graduates from China's top research universities to compete with Microsoft, which employs 250 researchers, and Baidu, which claims 600.
One recent afternoon, Lee paused to say hello to 50 interns, who crowded in to be photographed with him. "Google has a certain mystique in China,'' he said. "We basically have had no one who turned us down."
If only Google could say the same of Chinese Internet users.