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NEWSMAKER-Baidu founder rules China's Web with pragmatism

SHANGHAI, Jan 20 (Reuters) - In the autumn of 1998, computer science engineer Li Yanhong developed Rankdex, an experimental search engine that ranked websites according to their relevance to each other.

At around the same time, Google Inc's GOOG.O Larry Page and Sergey Brin were tinkering with an algorithm that would make their search engine the largest in the world.

Li, known by his English name Robin, grew Rankdex into what would become the world's third-largest search engine and China's 'Google-killer' -- Baidu Inc BIDU.O.

In an archetypal rags-to-riches tech story, 41-year-old Li started Baidu in a 3-star hotel room in Beijing. His search giant now dominates the world’s biggest Internet market, with more than 60 percent share by revenue and about 75 percent by traffic.

Baidu raked in $468 million in revenue in 2008 and Li, described by his peers as geeky and low-key, is worth $2.1 billion, according to Forbes’ 2009 rich-list.

Baidu vaulted into greater prominence after Google’s shock announcement last week that it may leave China amid censorship and hacking concerns. [ID:nSGE60C01H] [ID:nTOE6010AR]

Analysts said Baidu stands to be a big winner whether or not Google quits China -- as it would be in a stronger position to negotiate prices with advertisers, who may be leery of working with Google if it stays. [ID:TOE60D016]

Since Google’s announcement, Baidu’s Nasdaq-listed shares have gained around a fifth in value and touched a record $470.25 last Friday.

However, Baidu warned in October that its shift to a new advertising system, Phoenix Nest, would lead to softer revenues in the first quarter of this year. [ID:nSP458785]

Analysts also noted that other players such as Tencent Holdings 0700.HK, China's largest Internet firm by market value, but which currently has only a tiny search presence, would also be battling for business if there was a Google vacuum.


Li grew up during China’s tumultuous Cultural Revolution, when many intellectuals were branded dissidents and university students were forced to work in the countryside.

He started his search firm believing in the transformative power of the Internet, and said in a 2005 interview with Britain’s Guardian newspaper that China would have the world’s biggest Internet market and other search firms should watch out for Baidu.

Referring to a 2005 comment by billionaire Microsoft MSFT.O founder Bill Gates that Google was becoming influential, Li said "If he is worried about Google he will probably be more worried about Baidu somewhere down the road."

With his technical background and local understanding, Li looks set to rule the Chinese market for now, but Baidu isn’t without its own problems.

This month, both its technology chief and chief operating officer resigned, citing personal reasons. [ID:nWNAB5089]

Li’s views on censorship are largely unknown but Baidu, named from an ancient Song Dynasty poem, cooperates with Beijing censors to leave out politically sensitive search results.

“He’s pretty even keeled about it,” said a source close to Li.

Li, whose parents were factory workers in China’s coal-mining Shanxi province, studied information management at the prestigious Beijing University and later studied in the United States, receiving his Masters degree from the State University of New York.

Baidu’s advantage may be that it doesn’t have Google’s idealism, and early on, was clearly keyed into knowing what Chinese users wanted -- music.

“At that time, MP3 search was getting critical mass and it was a major boost in the early days for Baidu,” said Mark Natkin, managing director of Marbridge Consulting.

“Even after Google launched its catalogue of music downloads, it was limited compared to Baidu’s MP3 search.” (Editing by Valerie Lee and Ian Geoghegan)