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Chinese search engine takes off in Nasdaq debut

With hopes of becoming China's Google, Baidu.com more than quadruples in value upon its initial offering on the U.S. stock market.

BEIJING - Baidu.com takes its name from a 900-year-old poem, but its ambitions are ultramodern - to become the Chinese-language equivalent of Internet search giant Google Inc.

Little known abroad, 5-year-old Baidu.com says it is the world's sixth most-visited Internet site, thanks to a strong following from China's 100-million-plus Web surfers.

And on Friday, the startup founded by two Chinese veterans of American tech firms followed Google's example with an initial public offering on the Nasdaq Stock Market that saw its share price soar from $27 to $122.54. That put Baidu's market value at $4-billion. Google's market value now hovers around $85-billion.

Baidu.com is in the front ranks of an emerging group of Chinese companies that are trying to create Internet services uniquely suited to their country's ideogram-based language and the political restrictions of its communist government.

"Here's a homegrown company that has created what really is a very strong search product," said David Wolf, managing director of Wolf Group Asia, a Beijing consulting firm.

Baidu.com was founded in 2000 by Robin Li, who earned a master's degree in computer science from the State University of New York at Buffalo and worked for U.S. search engine firm Infoseek, and Eric Xu, a Ph.D. from Texas A&M and a veteran of American biotech firms. Xu later left the company.

The name - pronounced "by doo" - means "one hundred times." It comes from a Song dynasty poem and refers to a man ardently searching for his lover in a festival crowd.

Google bought 2.6 percent of Baidu.com last year, now worth $92-million, in a move that outsiders thought might lead to the American giant taking over the tiny Chinese startup. But Baidu.com has stayed independent. Google's influence shows, though, in Baidu.com's spare white site that is nearly identical to the American firm's.

By contrast, competitor 3721.com, bought in 2003 by U.S.-based Yahoo, is a busier, colorful site with animated graphics.

Other early backers were U.S.-based venture capital firms including Draper Fisher Jurvetson and the investment arm of International Data Group. Draper Fisher is Baidu.com's biggest single shareholder, with a 28 percent stake worth $1-billion.

Baidu makes money, earning $1.8-million on revenue of $13.6-million during the first half of this year.

China's communist government promotes Internet use for business and education. But it also has launched the world's most sweeping effort to police what its people can see online, blocking access to material deemed subversive or pornographic.

The extent of the censorship controls has been highlighted by the changes that foreign companies have made when they launch Chinese versions of commonly used services.

Free-speech activists criticized Microsoft Corp. when the blogging section of its recently launched China-based Web portal rejected such words as democracy, freedom and human rights, labeling them "forbidden language."

Google has also taken heat for blocking access to material that Chinese leaders dislike. A search on Google's China-based service for such topics as Taiwan, the Dalai Lama or the banned spiritual group Falun Gong returns a message that says "site cannot be found."

And communist leaders, early believers in the Internet's economic promise, seem intent on keeping foreign involvement to a minimum in order to keep the profits for China's firms.

Baidu.com's decision to stay independent could help it with intensely nationalistic Chinese regulators, eliminating any doubts about divided loyalties, Wolf said.

"It's a company that has grown up in the Chinese system. It's going to be a favorite of a lot of partners here and an implicit favorite of the government for that reason," he said.

Internet firms with foreign partners have been challenged by regulators who demand assurances that Chinese managers will stay in place and not surrender control to outsiders.

Baidu.com, 3721.com and other Chinese search engines also face daunting linguistic challenges that designers working in English and most other languages don't.

Chinese uses thousands of ideograms. On a computer, they usually are written by typing words phonetically in Roman letters, then using special software to convert them to characters. Making things even more complex, the mainland's communist leaders simplified many characters after the 1949 revolution, while Taiwan, Hong Kong, Singapore and other societies use the old system. So a search engine must sift through twice as many characters. And Chinese is written without spaces between words, making it hard for a machine to figure out where one ends and the next begins.

Then there are the quirks of a writing system with a vast literary history, 1-billion modern users and pressure to keep up with technology and international commerce. Baidu.com's advertising notes that Chinese has 38 ways to say "I."

Financial analysts forecast fast growth but brutal competition in the industry over the next few years, leaving only a handful of competitors. Baidu.com has been through a court battle with 3721.com after accusing its rival of adding elements to its software that blocked users from reaching the Baidu.com site. A Beijing court ruled against 3721.com in April, ordering it stop such "unfair competition."

The lawsuit "did much to reinforce Baidu's underdog image," Wolf said. "That turned out to be very positive for them in China. It made people check them out."

[Last modified August 6, 2005, 01:35:13]