The Man Who's Beating Google

It's no longer quite that simple. According to a couple of studies with no connection to either company, Google is now demonstrably better at Chinese language search. Asked to rate each service, Li Yinan, Baidu's chief technology officer, squirms. "I'm not in a position to compare the two results side by side. The evaluation of quality of search results is based on personal opinions," he says.

"We have, hands down, the best Chinese language search product," boasts Lee Kaifu, who was president of Google's China operations until he resigned in September to start an angel investment firm. But, he concedes, "we're learning that [market share] is about more than the product."

For outsiders China is a tantalizing but very challenging market. Three-quarters of the country is still innocent of the Internet, but the connected fourth is bigger than the U.S. population. The politburo sets rules about privacy and censorship that tie Western companies up in knots--Google, along with Yahoo ( YHOO - news - people ) and Microsoft ( MSFT - news - people ), were accused of kowtowing to the party by limiting access to information about dissident activities in 2006--while tilting the field to help Chinese enterprises. Today Baidu has 63% of the search business, Google 33%, according to Iresearch in Shanghai.

Robin Li, however, is more than a Communist Party puppet. Born in 1968 to two factory workers in Yang Quan, a small town southwest of Beijing, Li won admission to Beijing University and later graduate school at the State University of New York at Buffalo.

He landed a job at a Dow Jones subsidiary, IDD, then had a fateful insight: Information's importance could be automatically ranked by its citations or, in the case of the Web, through how many sites linked to it. In 1996 he created a site-scoring algorithm for Dow Jones called RankDex. Around that time two Stanford students named Larry Page and Sergey Brin were experimenting with a similar algorithm they called BackRub and, later, Google.

After moving to the early search firm Infoseek and publishing widely read papers, Li was invited by the Chinese government to return to Beijing in 1999 for the communist regime's 50th anniversary. He saw the budding possibilities as China wired itself into the Internet, and decided to gamble on starting a company. Li and a biochemist friend, Eric Xu, launched Baidu--whose name refers to a "search for one's dream" in a line from a Song Dynasty poem--with $1.2 million from U.S. venture firms Integrity Partners and Peninsula Capital. Draper Fisher Jurvetson and IDG Technology Ventures invested another $10 million a year later.

Li and Xu first sold Baidu's service as a paid application to China's booming Web portals. Despite grabbing the country's biggest customers, the company wasn't profitable, and Li felt stymied. "I wanted to continue to improve the search experience, but the portals didn't want to pay for it," he says. "That's when I knew we needed our own branded service." In 2001 Li dropped Baidu's portal clients--erasing its revenues--and rebooted Baidu as an independent site.

Later that year he set aside his chief executive role temporarily to take control of the site's search development, a project called Shan Dian, or "thunder and lightning," a sort of great-leap-forward period for Baidu's engineering group. Li doubled their weekly meetings, often sleeping in the office. By the end of 2002 Baidu's Chinese index of searchable sites was 50% larger than any competitor's; the next year it was the leading search engine in China. When Baidu went public in 2005 with $13.4 million in annual revenue, it achieved the biggest first-day jump of the decade on Nasdaq, ending at more than four times its offering price of $27 a share. Today it trades at $370, 65 times trailing earnings.

Yet Baidu's success has been inflated by questionable practices. At the time of its public offering, for instance, about a quarter of Baidu's traffic came from its MP3 search, a legally contentious function that let users find pirated music. Executives are quick to point out that less than 5% of the site's traffic today comes from MP3 search and that more than twice that amount comes from sources like Postbar, a vibrant bulletin board community. They also tout innovations like Aladdin, a "deep Web" project designed to give users access to hidden data like planes' flight times and sports scores.