Wednesday, September 14, 2005

It Takes Only One Year(9/10/05)

"Baidu media frenzy" is yet to cool down, Alibaba and Yahoo just got married. Shockwaves coming in strides in China's internet sector in the week. Currently, Alibaba, Baidu, Shanda, Netease, Tencent, Sina, Tom, and Sohu have formed the leading block. The rising of Baidu and Alibaba lately are seriously challenging the "old establishment", Who will become the dominant power in the future?

The heroes from two generations of digital era, Robin Li and Charles Zhang, were interviewed by National Business Daily(NBD)'s Jin Sun.

New celebrity

In the history of CNBC, it never happend that a CEO from a single company has come in front of the camera twice in a day. Robin Li broke the record. In the morning(US eastern time), the largest financial network in the world, CNBC delayed it's advertisement to interview Robin Li. After the market closed, Robin Li was dragged over again for another interview.

In the afternoon of Aug. 13, in a teahouse in Beijing, NBD had an interview with this casually dressed new Nasdaq star.

NBD: How do you see Baidu's IPO?

Li: Going public helps Baidu's public awareness greatly. But IPO is not our goal, but a tool. I came from purely technical background with an engineer's dream from the Silicon Valley. I hope to improve people's lives with technology. It's also Baidu' goal.

NBD: Is Baidu riding on Google's back, and imitating Google?

Li: We did not intentionally chose the timing to go public, nor because of luck. There were investment banks came to us to offer help for an IPO in 2003. But Baidu was not ready.

The internet market in China is huge. We don't have to imitate other people in China's search market but listening to our users. Of course when you offer an IPO, investors always look for a similar company to compare for valuation. What investors are going after is the hyper-growth of Baidu. In fact, last two years, Google's Chinese service were imitating ours. Once we pushed out something new, Google followed with a similar one.

NBD: How Baidu is going to spend the $100 million?

Li: Hiring engineers. The more the better as long as they are qualified. We will also invest in developing new products. Increase the spending on cultivating the market. Since there is only 0.5% of China's small and medium enterprises understand the bidded ranking system. There is a huge market for us to penetrate. Baidu may try to buy or merge some other companies which are complementary to us. Though the $100 million is not that much, the success of a search engine is not dependent on money. It depends on focus.

NBD: Who is Baidu's major competitor? Yahoo-Alibaba or Google?

Li: The major threat to Baidu is not our competitors, but the market. If the percentage of businesses that willing to use bidded rankings, the whole market will quadruple. more competitors coming in do not necessary mean that our business will go down. More competitors could help speed up the maturation of the market which in turn could make our business easier.

NBD: What is the major pressure felt by Baidu now?

Li: The major pressure for Baidu is that the industry is in it's infant stage regardless whether we have the IPO or not. High stock price is not a pressure. I do not watch our price everyday. As long as we do our best, the stock will take care of itself. A true value will be reflected in long term. Empolyees are not pressure. Lawsuits are not. What worries me the most is actually is if there is another company that focus on search engine as much as we do. Nothing else bothers me.

NBD: What is the future direction of Baidu?

Li: I am relatively stubborn person who can resist other enticements. When I see a good direction, I'll be persistent to the end. SMS, games, advertisements, portals, etc. Baidu will not be involved in those. We'll only focus on search engine. I don't care that much if other people think otherwise.

Charles Zhang: Sougou will surpass Baidu in a year
On Aug. 12, at Sohu(Nasdaq:SOHU)'s headquarter, NBD also interviewd Chairman and CEO of, Charles Zhang.

NBD: What's your view on the search market in China?

Zhang: Since I believe in Sougou(Sohu's search engine subsidiary), I just increased my holding of Sohu by 280,000 shares today, costing $4 million. Now I own 26.7% of the shares outstanding and I am the absolute largest shareholder of Sohu.

One year after we pushed out Sougou, the traffic is climbing rapidly. Comparing with three month ago, the traffic has increased by 3.5 fold and we are becoming the second largest Chinese search engine. Even if we only follow through at this speed, we will surpass Baidu in a year and becoming the largest Chinese search engine. At the same time, I don't expect much for Google in China.

NBD: What is the impact to the internet market in China from Baidu's IPO?

Zhang: In fact, the experts who understand the Chinese internet market are in China. The American investors are very naive. They only look for a quick short term rise from the Chinese concept shares.

The current valuation for shares with a Chinese concept are seriously flawed. I am against the ranking by market value since these valuations are decided by investors who do not understand China's internet market. It should be ranked by usage. It should depends on traffic, user populations, and influences. The user populations and influences are still controlled by the three largest portals as well as Tencent. "The elite armies" have not formally invade on Baidu turf yet.

NBD: Is China's internet market bracing for another round of "bubble era"?

Zhang: The new round of Silicon Valley bubble is finally reached China. However, it is not a bubble for the internet itself. It's only an investment bubble. In 1999, venture capital funds are counted at level of millions of dollars . Now, you can easily get funds around hundreds of millions.

Overall, it's a good thing for China's internet market. It may also brings in some problems. Many western investors will certainly going to lose their money. Some new startups will steal talents with high salaries. This will result in many problems in areas such as talents, trade secrets and intelectual properties. Kai-Fu Lee's case is the alarm for all of us.


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