Baidu.com Went From Unknown to No. 1 Search Engine in China

Now, the 28-year-old auto worker spends several hours a day in front of his broadband-connected home computer, often using Baidu to search for news, music and movies. Baidu also helps him find file-sharing sites and software to download.

"It's very convenient to find what you want," he said.

People like Shi help explain how Baidu.com Inc. emerged as the dominant search engine in China in a relatively short period -- and why investors gobbled up the Beijing-based company's Nasdaq stock offering earlier this month.

But since soaring 354% on the first full day of trading, Baidu shares have steadily fallen, from a high of $153.98 to $72.69 on Monday. The drop indicates that investors may be realizing that Baidu's stock price was overpriced given its risks and limited financial track record.

Baidu became the No. 1 Chinese search engine partly because of its technical capabilities but also because few other companies in the country were interested in developing that line of business, investing instead in online gaming or messaging systems. But with its booming economy, growing incomes and fledgling e-commerce sector, China is becoming a major battleground for information technology companies worldwide.

Unlike Google Inc., Baidu allows users to search for MP3 music files -- many of which are pirated -- and filters websites and stories that would upset Communist Party leaders.

Within days of Baidu's initial public offering, Yahoo Inc. announced that it was investing $1 billion for a 40% stake in Alibaba.com, China's largest e-commerce website, whose chief executive pledged to develop the world's most powerful search service. That same week, a top executive at Sohu.com Inc., one of China's leading portals, was in Shanghai to promote its new search engine. And Mountain View, Calif.-based Google, the world's largest search site, announced it was boosting its China operations.

Jerry Yang, Yahoo's chairman and co-founder, said his company "clearly [thinks China's] going to be a competitive market for some time to come." In a brief interview shortly after the Alibaba.com deal was announced, Yang said he didn't think the Chinese government would oppose Yahoo's move in China, which restricts foreign ownership of media companies.