Baidu, China's undisputed search leader, has increased its dominance since Google more or less pulled out of China. Baidu wants to leverage that power by moving beyond search but faces stiff competition from fast-growing local players.

The Beijing-based company has established a range of vertical channels. They include an e-book seller (Fanshu.com), travel-booking service (Qunar.com), e-commerce site (Yougou.com, 360buy.com, tg.com.cn, yaodian100.com), an online community (jingtime.com) and a housing information portal (anjuke.com). It also struck a deal this year with Dell to develop tablets and smartphones running on the Baidu Yi mobile operating system.

These new services mean Baidu is butting heads with other major Chinese internet giants, such as Alibaba, Tencent and Sina.

Baidu is "powering things people are looking for, [so its] share of China's search market now tops 80%," said T.R. Harrington, CEO and founder of Darwin Marketing, this week on "Thoughtful China," an online marketing-affairs talk show produced in Shanghai. "Baidu's competition is really from domestic players."

Baidu will likely discover that homegrown rivals are more formidable than Google, whose standoff with the Chinese government over censorship issues led Google to relocate its search engine to Hong Kong last year. As a result, Google's market share in China has fallen from a high of 35% to just over 18%, according to iResearch, a Chinese internet research company. Last month, Tencent's Soso.com passed Google to become China's second-largest search engine.

The stakes are high. Internet adspend in China reached $2 billion in the third quarter of this year, up 22 .5% over the previous quarter, and 83.1% year-on-year, according to Xinhau News Agency. Baidu is the No. 1 player in China's online ad market, according to Analysys International, with a 28.7% share. Baidu is followed by Alibaba (15.9%), Sina (7.3%), Google China (7.2%), Sohu (4.6%) and Tencent (4.2%).

The number of internet users in China topped 500 million this year, and there's plenty of room for growth. Less than 40% of China's total population is online, and rural internet users total 130 million, just 27% of all current internet users in China.

While Baidu has certainly benefited from Google's feud with China's leadership, the company has become adept at understanding user behavior and preferences, said P.T. Black, Thoughtful China's senior creative director. "They know people here often surf without a destination, and are grateful for suggestions from trusted sites like Baidu. They [also] know people are less sensitive to conflicts of interest, which may be due to lower understanding, greater tolerance or general resignation."

"Audience behavior is evolving [and] the base is growing," said Clement Tsang, head of Publicis Groupe 's Performics in China. From a search text point of view, Baidu is the first stop, but as consumers "grow in maturity," they start to look for other channels and platforms for services such as social gaming and e-commerce.

Despite the growth in ad revenue going into digital, advertisers are still struggling to understand how to use digital media and how to evaluate its effectiveness, particularly in new areas such as mobile and search marketing.

"The vast majority of [ad] agencies out there don't know what they're doing on the mobile side in China, and the mobile platforms themselves are not being particularly helpful either," said William Bao Bean, managing director in China for Singtel Innov8, a venture capital fund set up by Singapore Telecommunications. "The issue is that they don't have a context to engage with mobile advertising, they don't have a platform to help manage it, and they don't have measurement."

Normandy Madden is senior VP-content development, Asia/Pacific at Thoughtful China, and Ad Age 's former Asia Editor. See earlier episodes of Thoughtful China at thoughtfulchina.com.