Innovation and Entrepreneurship

Robin Li of Baidu on Navigating Innovation, Social Networking ... and Google in China

China's Internet industry can't seem to stay out of the limelight. That's not a surprise. In a country that is flocking online by the millions, the social, economic and even political force of the Internet is formidable. And it's likely to stay that way for some time, according to Robin Li, the multimillionaire founder and CEO of Baidu, the country's largest search engine. In a recent interview with China Knowledge@Wharton, the 42-year-old, Beijing-based executive predicted that the number of Internet users in China could double in the next 10 years to nearly one billion.

An edited transcript of the conversation appears below.

China Knowlege@Wharton: Baidu has been growing rapidly for the past five years and dominates the search market in China with more than 80% market share. Where do you see major opportunities for growth?

Robin Li: Right now, China is already the largest Internet nation in the world, with 450 million Internet users, but the penetration rate [Internet users vs. total population] is only something like 35%. For the next five to 10 years, we expect the penetration rate to continue to go higher. The number of Internet users could double in this country, which will be a gradual process. Because of that, the whole Chinese Internet sector will continue to grow at a very rapid rate. On top of that, search is the most fundamental need for Internet users.

In the past 10 to 15 years, most companies' Internet activities in China have been consumer-oriented or pretty much entertainment-centric. But the business model for search is to charge enterprises for advertising or promotional activities. This kind of market has not been very well discovered by Chinese enterprises. That's why although the Internet penetration rate of 35% is higher than the world average, the paid search market in China is a lot lower than the world average. It's about 3% of GDP, while the world average is about 6%.

We think that although Baidu experienced growth over the past years, the absolute market size, in dollar terms, is still relatively small, smaller than in countries like the U.K. We do expect the Chinese search market to grow much faster than the overall Chinese Internet market, which grew faster than the world average, too.

China Knowlege@Wharton: What potential threats could undermine these opportunities? What is Baidu doing to prepare itself for the threats?

Li: Since we already have a very dominant market share, the biggest threat will be execution -- how do we keep execution very efficient so that Chinese enterprises are well educated and can move online faster. The second threat is that the Chinese Internet landscape is changing very quickly. There are all kinds of new products, new consumer behavior and new trends. We need to be able to adapt to all kinds of change. For example, social networking has become quite popular in China and elsewhere, so we need to consider whether it will cannibalize our search activities.

China Knowlege@Wharton: What impact did Google's retreat from China have on Baidu's business? Is it true that Baidu is following Google's lead?

Li: Let me first give you a little bit of background on Google's China operation. Google set up its China operation back in July 2005, one month before Baidu's IPO on Nasdaq. At that time, it had more than 30% of the traffic share of Chinese search. By the end of 2009, right before it announced the retreat, its traffic share had fallen to below 20%. After about five years in China, it had lost a lot of money and also traffic share and users. It was natural that Google felt unhappy and decided to do something dramatic.

After it announced the retreat, it still kept a tight operation in China, with hundreds of people, and has a sales force here. Although the website was redirected to google.com.hk, it's still accessible. In fact, Google is still the number-two search engine in China, well ahead of other Chinese competitors.

As for the question about who is following whom, fundamentally we are all trying to satisfy our users' needs, especially their information needs. We were doing that for Chinese consumers before Google started its Chinese version, and we have come up with a lot of innovative products and features to satisfy our users' needs. That's why we keep gaining more traffic and market share from the competition.

As mentioned, about 25% of our traffic is social search. That includes products like Baidu Knows, which is a question-and-answer service, and Baidu Post Bar, which is a query-based message board -- when a user posts a query, we not only provide a massive [response rate], but also direct the user to a dedicated area where people can share opinions and have all kinds of discussion. Baidu Cyclopedia is also very popular and provides a lot of authoritative information. We have a lot of user-generated content based on our services, and this is very different from what Google did in the past.

China Knowlege@Wharton: What has Baidu done differently than Google that allowed it to gain such a huge following in China?

Li: We are very much user-centric or product-centric, instead of technology-centric. We don't try to kill Microsoft. Our dream is really to satisfy our users' needs. In addition to the innovative products we created for Chinese users, we have added a lot of innovative features to the web search. In terms of products, we have a much better Chinese name recognition system, and we have a lot of data and applications embedded into our web search platform.

China Knowlege@Wharton: What is the future of the search market in China? What will be the dominant trend?

Li: Box computing is the future of Internet search, especially in China. In the past, people only came to a search engine for information. But in the future, search will be able to do a lot more than just find information. You can find data, applications and services, and you can also publish something.

Recently, we launched a service that helps users publish their micro-blogs, or Tweets, from the Baidu search box. When you type in a sentence in the search box, our search engine will automatically recognize that it is something you want to publish instead of search. Users will be able to do almost anything they can think of from a single simple search box. That is our mission for the future of search.

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