The Man Who's Beating Google search Engine

On a smoggy August morning outside Beijing's China World Hotel, Li Yanhong's fan club is assembling. "We'll use his English name, okay?" a wrangler shouts over the chattering young crowd. A black Mercedes-Benz approaches, its door opens and the masses do as they're told. A boyishly handsome 41-year-old executive steps out. "Ro-bin! Ro-bin!" scream his followers, hoisting led-encrusted placards for a few obliging paparazzi.
In his keynote at the Baidu World conference a few hours later, Robin Li describes to a crowd of thousands how the search service he created ten years ago is becoming China's gateway to the world of information. Then he parades across a stage, surrounded by smiling children as "Twinkle, Twinkle, Little Star" plays in Mandarin and soap bubbles fill the room.Li has earned his share of Olympic-style marketing. In a decade he has transformed Baidu from a handful of employees putting in sweat equity to an enterprise with 7,000 workers and a market value of $12.8 billion. Li's personal worth has swelled, too: Last year he was the seventh-richest person in China; today his Baidu stake is worth an estimated $2.1 billion. In 2008 the company netted $150 million on $460 million in revenue. In the process Li has become a national symbol of China's burgeoning identity as a global Internet player, with a digital population of 338 million online users. Baidu has captured a huge slice, each month racking up 8 billion searches and 145 million unique visitors, according to ComScore, making it the most popular non-U.S. site in the world.
"A lot of Chinese people have wondered if knowledge really means power in today's market economy," Li says during an interview with forbes in Baidu's no-frills Beijing conference room. (By year-end the company will move to a new headquarters designed to resemble an enormous, long rectangular search box.) "I think I've proven that it does."
Google has been steadily winning eyeballs there (see graph, right) and plans a near-doubling of its sales force, now in the hundreds, over the next 12 months in what is shaping up as an epic battle to dominate the world's search business. "China's going to be the largest Internet market in the world," says Gary Rieschel, a cofounder of Qiming Ventures in Shanghai. "If Google isn't the leader there, will it really be the leading search company in the world?"
On another front, China's e-commerce giant, Alibaba, has declared war with Baidu over online shopping. Baidu has also suffered some serious self-inflicted casualties, thanks to a profitable but shady practice of mixing advertising and search results and a willingness, in at least one highly publicized instance, to put revenues ahead of customers' safety.
Those challenges have spurred Li to put Baidu through what could be a wrenching transition, a switch to a new advertising program that clearly distinguishes paid-search ads from other results. The company faces a tough task: improving the search experience and reducing its controversial ad practices without choking revenue growth. "Even if this means we have to suffer for a few quarters, I'm willing to make that bet--or sacrifice--to make sure we're moving in this direction," Li says in stiff but fluent English. "It's not an easy decision. But if we imagine the company ten years down the road, it's an obvious one."
Particularly if Baidu is to survive the assault from the world's most popular search company. Once an investor with 2.6% of Baidu, Google sold its stake in 2006 and got a government license to operate as Google China. Since then it has made large but undisclosed investments in the country and now draws an estimated $250 million of annual revenue there. Before the split Baidu threw down a marker, releasing a provocative, if unsubtle, video ad featuring a Chinese kung fu warrior and a mustachioed Westerner with a clutch of pretty women in a showdown of tongue twisters. The white guy loses, then vomits and collapses; the women flock to the warrior. At the bottom of the screen flashes the message: "Baidu Understands Chinese Better."