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From an article in today's Wall Street Journal (sub req):

Google has paid a price for coming late to China. While the company's leaders debated its strategy there, Baidu.com Inc., a local rival in which Google last year bought a small stake, surged; it now ranks as China's most popular search site. That has left Google facing a rare uphill battle in the Internet search business it helped define. At a board meeting in July, Chief Executive Eric Schmidt cited "serious local competition" as a reason China topped his list of concerns, according to a court document.

"Probably we should have come earlier, but certainly better late than never," says Kai-Fu Lee, a longtime Microsoft Corp. official whose high profile in China was one of the reasons Google hired him in July to help run its new Chinese operation.

Since Mr. Lee joined Google, the company has signed up a string of local partners to sell its online ads. Mr. Lee has been setting up a research and development center in Beijing and toured 25 Chinese universities to drum up interest in working there. Google is also preparing a marketing blitz.

Revenue flowing to search-engine companies in China is still relatively small but is growing rapidly. Research firm Shanghai iResearch Co. estimates Google had just $3.7 million in search-ad revenue in China last year, and says it ranked third in Chinese search traffic, after Baidu and the combined total for several sites run by Yahoo. Google doesn't disclose its Chinese traffic or revenue.

Source: Google Playing Catch-Up in China (GOOG, BIDU)