This post is in partnership with Worldcrunch, a new global-news site that translates stories of note in foreign languages into English. The article below was originally published in Economic Observer.
(BEIJING) Recently there has been a rumor that Baidu, China's most popular search engine, was interested in acquiring Yahoo. Robin Li, Baidu founder and CEO denied the rumor, saying the company wasn't thinking about buying up "another large company." Indeed, Baidu is much larger than its American counterpart and worth much more: Baidu's market value is currently estimated around $39 billion, while the long-established Yahoo is at $18.7 billion.
Robin Li's focused and driven attitude are the major reasons why Baidu holds an 80% share of the Chinese search engine market. Its total revenue for 2011 was of $2.3 billion, an increase of 83.2% from the previous year.
Even in the current prosperous conditions, Li likes to remind his staff: "We are only 30 days away from bankruptcy right now." He notes that in a global economy and in the "most treacherous industry," where capital flows relentlessly and the consumers have many different choices, to survive and to be on top of technological changes, we have to act like we are "treading on a thin layer of ice at all times." Li is a man filled with a permanent sense of crisis.
"Less is more"
Baidu is exactly like its founder: it advocates minimalism. It believes in only going where there's a big market and doing what it knows how to do perfectly, rather than what it feels like doing. Baidu does not follow trends.
The philosophy of Baidu is "unless necessary, never increase an entity," says Vice-President Wang Zhan.
In applying the principle to his product design this means "putting the user experience first." It follows the rule that all its products have to stay simple and easy for the consumer to use.
"It doesn't cost anything for a person to switch from one search engine to another. If you do something wrong, the user can just leave in one instant," Wang explains. "This is not like changing your telecom service provider, where you have to change phone numbers."
The web giant's search technology department comprises thousands of China's best web engineers, and upgrades more than 30 online technologies daily. The quality and speed of its search engine grows daily by 0.02%, which translates into a 2% increase per quarter. "This doesn't seem like much, but historical data and experience show that when the search quality gap between engines reaches 2%, the market share of the slower engine plummets," Sun Yunfeng, the firm's chief product architect explains.
While some believe that "users never know what they want" or "market trends need to be guided", Wang Zhan's core belief is that "if the technology does not cater to the demand, it won't be worth much. One should never develop a product according to personal preferences or pride. Who decides whether or not a product has a chance is first and foremost its customer."
Taking huge risks
The end of 2009 was the most decisive moment in Baidu's strategic development. In October of that year, it announced it was switching its old advertising system, based on price bid ranking, to the new "Phoenix Nest" system akin to Google's Adwords a more efficient and optimal management platform.
The risk was huge since it involved several hundred thousand clients and several million keywords. Customers' habits are hard to change. A false move translates into customers leaving in droves and plunging revenue.
Robin Li set the switchover for December 1.
"It was like the Normandy landing I had the longest day of my life," Wang Zhan says half jokingly today. For days the top Baidu team met at 8 p.m. every night and reported on the monitoring data line-by-line. They analyzed all the unexpected conditions as well as problems and brainstormed together to solve the issues.
For the first three days, clicks on Baidu fell by over 20% daily. But by the second week the situation had started to turn around. Its clients gradually started to adopt the system. From that moment on, the number of clicks grew non-stop. By the first quarter of 2010, Baidu had generated a net profit increase to the previous year.
Says Wang Zhan, "we hope to reach a balance between the user's experience and commercial value." The Phoenix Nest business model takes into account the bidding price and the ad quality at the same time as the advertiser's ranking in a search result. The new model forces the advertiser to get rid of the idea of using money to keep its rank, encouraging small and medium-size companies to make efforts to improve their web content, thus increasing their marketing value and web search optimization. This in turn also improves the searcher's experience.
A healthy dose of Western Medicine
Currently, Baidu has more than 400,000 business customers among which 90% are small and medium size companies. Wang Zhab likes to tell the story of Lin Qiuming: this customer, who is less than four and half feet, hardly weighs more than 65 pounds and is handicapped, does rice sculptures. He has used Baidu to sell his work all over China. Lin opened his web page in 2009 and invested $570 to buy up all the keywords like "carving on rice", "rice sculpture", "rice sculpture deco" ... etc. Within three months his business was soaring. Nowadays, he spends $6300 annually on search engines, which he can easily afford with his $60,000 turnover.
Smaller businesses represent a very important percentage of Baidu's clients. Unfortunately for the search engine, they have a relatively short life cycle: about three years on average.
Another challenge the Chinese search giant faces is that a customer used to be considered as mature if he responded to 50 keywords. But since the transition to the Phoenix Nest system, today's customers are responding to tens of thousands, even hundreds of thousands of keywords; search engine marketing has now entered the massive data analysis age.
"Our role is to know how much traffic is generated through these keywords and how much of that traffic is transformed into sales, as well as what is the optimal traffic time, so as to provide customized marketing services to our clients", Wang Zhan points out. "Traditional marketing was a bit like Chinese medicine. But now we are entering the Western medicine age where everything is standardized."
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