Linda Sun - Senior Manager, Investor Relations Robin Li - Chairman of the Board, Chief Executive Officer Jennifer Li - Chief Financial Officer Haoyu Shen - Vice President of Business Operations Peng Ye - Chief Operating Officer

Gene Munster - Piper Jaffray Jason Brueschke - Citigroup Dick Wei - J.P. Morgan Analyst for Jason Helfstein - Oppenheimer Richard Ji - Morgan Stanley C. Ming Zhao - SIG Eddie Leung - Merrill Lynch James Lee - Sterne Agee Stephen Ju - RBC Capital Markets Troy Mastin - William Blair & Company Colin Gillis - Canaccord Adams Car Kwan - Needham & Company Leah Hao - Goldman Sachs Eric Wen - Main First Elinor Leung - CLSA

Good evening and thank you for standing by for Baidu's third quarter 2008 conference call. (Operator Instructions) I would now like to turn the meeting over to your host for today’s conference, Linda Sun of Baidu's investor relations department. Please proceed.

Hello, everyone and welcome to Baidu's third quarter 2008 earnings conference call. We distributed Baidu's third quarter 2008 earnings earlier today. You may find a copy of the press release on the company’s website, as well as on newswire services. Today you will hear from Robin Li, Baidu's Chief Executive Officer, and Jennifer Li, Baidu's Chief Financial Officer. After their prepared remarks, Robin and Jennifer will be joined by Peng Ye, Baidu's Chief Operating Officer, and Haoyu Shen, Baidu's Vice President of Business Operations, to answer your questions. Before we continue, please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Baidu does not undertake any obligation to update any forward-looking statements except as required under applicable law. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on Baidu's corporate website at ir.baidu.com. I will now turn the call over to Baidu's CEO, Robin Li.

Hello, everyone. I know there might be clouds somewhere in the U.S. or elsewhere but it is a beautiful, beautiful morning here in Beijing, so again welcome to our third quarter conference call. As you may have seen from our press release issued earlier today, we had a solid quarter. In the midst of a global market turmoil, we generated healthy revenue growth and more notably improved profitability. Once again, our operating profit rose faster than revenue over the corresponding period from the previous year, showing the scalability of our business. Even though global markets are going through a hard time, I would like to point out China is still a growth market and we believe the Internet industry still has tremendous long-term growth potential. Baidu has developed a diverse customer base. Companies large and small increasingly appreciate the benefits of our [inaudible]. Working closely with customers from so many different industries and from so many regions of China, we meet the varied and complex needs of almost every sector. We leverage this knowledge to deepen our penetration in the market and our diverse customer base provides a strong foundation for future growth. We maintain our focus on providing the best possible products to our growing user base. [At the core of search], we emphasized a long-term focus and we continue to invest and improve our algorithms and tools for customers. We believe our platform is more targeted, more measurable, more effective, and more cost efficient than many other means of advertising. Baidu is well-positioned in China’s Internet landscape and we remain confident in our future growth prospects. This quarter, we made two important additions to our executive management team, bringing on board Yinan Li as Baidu's Chief Technology Officer and Toshikazu Inoue as President of Baidu Japan. Mr. Li took on the role of CTO just this month, bringing 16 years of technology management experience to Baidu. In the past, Mr. Li has led large technology teams and has been at the helm of many new products and technologies that saw successful reception in the marketplace. Mr. Inoue is a recognized pioneer in the Japanese search market. Before joining us in July, Mr. Inoue successfully served as Vice President of Yahoo! Japan, [inaudible], and CTO of Excite Japan. We are confident that Baidu Japan will benefit greatly from his leadership. We make it a priority to assembly the best possible leadership team and I am excited to welcome both aboard and look forward to working with them. In the third quarter, Beijing hosted the Olympic Games. An event of this scale and popularity was a powerful driver for products, services, and infrastructure of the Internet in China. As China’s largest search engine, we created improved functions for Olympic specific keyword search. When users searched for an Olympic athlete or an event on Baidu, the first hit was a link to bundled information on competition times, results, medal count, and other Olympic updates. Our improvements were well-received by our users. During the third quarter, we continued to make improvements in sales operations. Both our transition to direct sales and the consolidation of sales [vendors] have allowed for higher efficiency. We will continue our efforts on efficiency and productivity as there is still more room for improvement. Staying ahead of the development curve by listening to our users and developing products that address real needs is the core of Baidu's success. Last week, we launched the beta version of our C2C platform, which complements paid search and enables transaction fulfillment among our users. E-commerce is emerging in China and people are becoming more comfortable with shopping online. As China’s largest search engine, we have superior technological capabilities and a deep understanding of user needs. We see e-commerce as a great opportunity because of the synergies with search. Our enormous user base also gave us a strong and unique competitive edge in e-commerce. Another development this quarter was our partnership with UITV. The transaction transfers operations of Baidu's Internet TV channel to UITV. Baidu Internet TV is unrelated to our video search business, which is on our website, on our homepage. We see this cooperation as a win-win for both parties involved. Baidu is able to continue to focus on our core competencies in search and UITV, their specialty in content platform operation. Together we will utilize our respective strengths to deliver a better online experience for users. We expect the deal to close in the fourth quarter of this year. Both of these recent developments reflect Baidu's focus on our core competency in search to fuel user and customer needs in an ever-evolving Chinese Internet market. I will now turn the call over to Jennifer Li to take you through the financial highlights.

Thank you, Robin and hello, everybody. As you have just heard, it’s been a solid quarter for Baidu. Now I would like to highlight a few areas of financials with more detailed explanation. This quarter, we generated total revenues of RMB919 million, amid the expected changes in user behavior and user spending during the Olympic Games. Our results were up 85% from the year-ago period. We increased our number of active online customers by approximately 36% year over year and increased revenue per active online marketing customer by 34% year over year. Overall, we have continued to see improved profitability this quarter. Specifically, adjusted EBITDA, a non-GAAP measure, was RMB457 million for the third quarter, 105% increase from the year-ago period, and operating profit was RMB368 million, a 119% increase over the corresponding period in ’07. Traffic acquisition costs, a component of cost of revenue in the third quarter were RMB109 million, or 12% of total revenue, a small decrease from Q208 primarily reflecting our review and update of business relationships with some [new members]. Cost of revenue excluding TAC were RMB201 million, representing 22% of total revenue, compared to 24% in the corresponding period of ’07. The decrease is mainly due to decreases in bandwidth and depreciation costs as a percent of revenue, reflecting improved usage of infrastructure. In addition, during the Olympic period, we delayed equipment purchases, resulting in lower depreciation for the quarter. Cost of revenue excluding TAC before share-based compensation were RMB200 million. Total operating expenses were RMB551 million, a 68% increase from the year-ago period. Specifically, SG&A increased 48% over the year-ago period due to expansion of our direct sales force and increases in our customer service staff to serve our growing customer pool. R&D increased 109% mainly due to an expansion in headcount. Excluding share-based compensation expenses, SG&A rose 42% year over year and R&D increased 113% year over year. Our Japan operation is making progress and we are excited to welcome Mr. Inoue aboard. Baidu Japan incurred operating costs and expenses in the third quarter close to RMB33 million and we expect the Q4 expense to approximately the Q3 level, likely slightly higher. The third quarter of -- in the third quarter of 2008, our income tax expense was approximately [RMB35]. The effective tax rate for the quarter was 9.1%. Year-to-date, we have had an effective tax rate of 8.9%. Net income for the quarter was RMB348 million, a 91% year over year increase. Net income excluding share-based compensation expenses, a non-GAAP measure, was RMB365 million, a 95% increase from a year ago. Basic and diluted EPS excluding share-based compensation expenses, both non-GAAP measures, were RMB10.65 and RMB10.49, translating roughly to $1.57 and $1.54 respectively. Now moving on to the balance sheet, we ended the third quarter of 2008 with cash, cash equivalents, and short-term investment of RMB2.3 billion, or $338 million. Operating cash flow for the third quarter was RMB482 million, representing a year-over-year increase of 89%. Capital expenditure on a cash basis for the third quarter was around RMB85 million. A portion of the capital expenditure was associated with the construction of Baidu's new campus facility. Compared to prior quarters, CapEx is lower. This is due to greater optimization of existing equipment, as well as slowed equipment purchases and campus construction during the Olympic period. We ended the third quarter with approximately 6,800 employees, largely flat versus last quarter. We continue to grow our R&D workforce while further consolidating sales, marketing, and customer service staff. The consolidation is going well and as Robin mentioned, we have started to see improved efficiency and we will continue to focus on improving productivity. Now let me provide you with our top line guidance for the fourth quarter of ’08 -- we currently expect total revenue to be between RMB1.025 billion to RMB1.055 billion, which would represent year-over-year growth of 80% to 85% and quarter over quarter growth of 12% to 15%. I do wish to emphasize that this forecast reflects Baidu's current and preliminary view, which is subject to change. I will now turn the call back to the Operator who will invite you to ask questions.

(Operator Instructions) Your first question will come from Gene Munster with Piper Jaffray. Gene Munster - Piper Jaffray: Robin, if you could talk a little bit about the -- I know you addressed some of the bigger picture questions about some of the economics. Obviously for those who follow Google, they’ve been impacted by a slow-down in paid clicks and just total queries. Can you talk about just the paid click trends with Baidu? And also just how you feel that the broader economy is impacting Baidu's business. Thanks.

As I just mentioned before, China is still a growing market. So far we have not felt any material impact from the financial crisis that happened in the U.S. Granted there are some companies, small and medium businesses in the coastal cities who do export businesses. They have been hurt quite badly, starting from probably the beginning of the year. But as I mentioned before, we have a very large and diverse customer base and more and more companies realize the benefit of paid search, so they are shifting more -- in general, they are shifting more marketing dollars to the Baidu platform. We of course will keep a close eye on the macroeconomic condition changes but so far, we don’t see anything material. Maybe, Haoyu, you can talk about the paid click.

As far as click-through rates, we haven’t -- in the third quarter, we haven’t seen any major changes from previous quarters. Gene Munster - Piper Jaffray: Okay, and just one other follow-up question -- operating margin was well above our targets. Is this kind of a 40% the level we should be thinking about going forward or should we consider maybe bringing that back in going forward?

Thanks for the question. Operating margin did improve this quarter and as we mentioned, gross margin improved. The primary driver was TAC [and it might help you later on to get more color on that], and on the SG&A expenses, obviously we believe a lot of inherent scalability in our business model. As we mentioned, we continue to invest in the R&D capabilities and in the staff and manpower, but at the same time, we believe there’s more efficiency to be gained on the SG&A side. So overall, there is a lot of scalability in our business model. However, we don’t want to lose sight that Baidu is investing in this business over the long-term. China’s Internet market is still emerging. There will be a lot of opportunities that Baidu will have to participate in, so it’s -- we never really have a long-term margin target, per se. Gene Munster - Piper Jaffray: So should we just to play it conservative, model for margins to come down slightly or is this a good base level moving forward?

I think in the near term, we shouldn’t see a significant variation of margins but as I mentioned, to the extent we make an investment for the longer term future growth, there will be changes to the margin. Gene Munster - Piper Jaffray: Okay. Great and thanks.

Your next question will come from the line of Jason Brueschke with Citigroup. Jason Brueschke - Citigroup: Thank you. Good morning, everyone. I have a question about your C2C initiative. I was wondering if you could maybe just discuss in general what the ultimate goal of the move into C2C. You clearly say it’s a huge competitor in [Talbow] that has a tremendous amount of cash and I’m just wondering, should we be thinking about your effort as really an attempt to go after that market and own it and own the associated transaction fees that may some time develop in the future? Or is it really more conceptually a way to capture advertising dollars, such that the companies that will be selling goods on a C2C platform, you will sell them keywords directly and there will be associated page traffic to that C2C site that you can monetize with banner ads? If you can kind of put that into kind of a competitive landscape with respect to what your ultimate goal is there, that would be helpful. Thanks.

I think as I mentioned, the rush now for our entrance into the C2C market is because of user demand. We saw lots of Baidu users searching for product related information and we think the current web search does not meet all of their needs, so we started to develop a C2C platform roughly a year ago and we just had a beta launch last week during the weekend. We understand there are competition in the market but our focus is meeting the information needs of our existing users, which probably covers more than 90% of the Internet population here in China. In terms of future business models, it’s probably too early to tell but such a platform definitely has lots of synergies with our existing paid search platform. As e-commerce becomes more popular in China, it will certainly help to grow the paid search business and going forward, we might just consider the C2C platform as yet another advertising platform so that sellers can advertise on our C2C site. It’s also an educational platform that as more and more companies or merchants start to analyze the traffic of their online store or online transactions, they will be able to appreciate more of the paid search platform we are offering. So it’s because of the synergy and we are confident that we can deliver a very good user experience here on the C2C front. Jason Brueschke - Citigroup: Great, thank you. If I could just maybe ask a really quick question -- you guys have about $340 million in cash. Have you considered doing a share buy-back?

We obviously are very conscious to put our cash into good use. Our cash management, we have very prudent management towards the investment and cash. We constantly evaluate the best opportunity to use our cash. At this point, we don’t have any decisions that we wanted to share at this point but keep in mind that we do want to definitely put the cash into best use. Jason Brueschke - Citigroup: Great. Thank you and congratulations on the quarter.

Your next question will come from the line of Dick Wei with J.P. Morgan. Dick Wei - J.P. Morgan: Thanks for taking my questions and congrats on the good quarter. I guess a follow-up question on Jason’s C2C platform -- there are a lot of concerns about the spending or the operating losses from the C2C platform. I wonder if you can comment on the spending on the C2C platform so far, the size of the team, and would you be able to see even like pretty soon just with the increased [page view] from the C2C site? Thanks.

Regarding the spending on C2C, we mentioned earlier in the year that it is going to be less than what we spent on the Japan operation. We still maintain that statement for the next couple of quarters. That’s because of the synergy we have between paid search and the C2C. We do not need to spend lots of marketing dollars to drive traffic to our C2C platform, though we -- going forward, we don’t think we can spend even close to what our competition is planning to [spend now]. Regarding the team size --

We have a good, a very solid team of engineers that we have leveraged our existing R&D workforce to develop the technology of the C2C platform, so so far from a spend perspective, Dick, as you know we haven’t incurred material expense. Going forward, as Robin mentioned earlier, we see a lot of synergies between the C2C platform of paid search and these two products, platforms, are inter-linked, so one will help the other and essentially we are definitely providing better tools for merchants and buyers to transact and be able to help them. And frankly today, we have so many SME customers and that, you know, it’s -- the C2C platform itself really helped them to see the transaction through. So this is -- these two platforms are inter-related and we, as Robin mentioned also, the traffic itself is kind of all within the same framework. So we don’t think we will spend as much of marketing dollars as some people might expect. And as the business size goes up, we will invest in the platform accordingly.

Also, as you probably all know that there is basically no proven business model for C2C in China. Nobody can charge a commission or a listing fee from the sellers. So from our point of view, it is more like an integrated experience for our users, so that they can do a lot of -- all sorts of things on the Baidu platform. Dick Wei - J.P. Morgan: Great. Thanks a lot.

Your next question will come from the line of Jason Helfstein with Oppenheimer. Analyst for Jason Helfstein - Oppenheimer: This is [Eko] sitting in for Jason. My question is revenue per customer increased 34%. Could you break down that -- which part is from pricing and how much is from an increase of web traffic?

Haoyu.

As far as the ARPU growth, I think that comes from both traffic growth, core growth, and price. I don’t know the exact numbers but I would expect both are contributing to the growth of ARPU significantly. I do want to point out that we don’t control price. We do adjust minimum bids from time to time based on some sectors and different information we have about the bidders but at the end of the day, the price we charge is based on how much people bid. Analyst for Jason Helfstein - Oppenheimer: You increased your minimum price in August by at least 30%. Can I say that in that case, maybe the pricing increase is contributing more to your quarter over quarter growth on revenue per customer?

No, as I said, the impact of minimum bid on the average ACP is not direct, it’s not -- [Technical Difficulties] -- hurdle you have to clear to be able to show your ad on a search result page, eventually how much we will charge depending on how many [bidders are bidding] and how much they are bidding. So you cannot draw the conclusion from the fact that we are raising minimum bid by 30% and ACP is increasing by 30%. That is definitely not true.

Also I don’t know, where did you get the 30% number? We don’t have that number in our -- probably one thing that is worth mentioning is that we increased the minimum initial deposit for some of our sales regions like Beijing, so don’t be confused at the minimum pricing. It’s really an initial deposit. It has nothing to do with pricing. Analyst for Jason Helfstein - Oppenheimer: So basically you can’t tell whether it is the pricing or the web traffic increase? I’m just trying to think whether --

Okay, let me tell you this -- both traffic and pricing are going up. It’s a combination of both factors. Analyst for Jason Helfstein - Oppenheimer: Okay, so the Olympics really didn’t impact too much on --

During the game period, traffic did drop and the user behavior changed materially. They spent more time on gaming and entertainment-oriented content and searched less for business-oriented, but it has come back after that. Analyst for Jason Helfstein - Oppenheimer: Okay, I understand. And that TAC, what drove the TAC increase? I mean, what drove the TAC decrease, I mean?

We review the performance of our unit partners from time to time, so based on their performance, because we do put into -- put performance contingencies in our agreements with them, so when we review their performance, we’ll adjust our TAC ratio accordingly. So these things happen all the time every quarter, but there are -- other than that, we have a lot of other factors contributing to fluctuation of TAC ratio from quarter to quarter, such as different product offerings and signing of new partners, things of this nature. And the timing is a big factor, so when you look at it quarter to quarter, you might see fluctuations. Having said that, we think the TAC ratio this quarter is probably on the low side. The other thing I want to point out is our unit business is continuing to grow at a very healthy rate and will continue to be a major contributor to our business. Analyst for Jason Helfstein - Oppenheimer: All right. Thank you so much. That’s very helpful.

Your next question will come from the line of Richard Ji with Morgan Stanley. Richard Ji - Morgan Stanley: Congrats on the good quarter and I am very curious about your view about the competition from Google China. In our observation, Google has been steadily gaining traffic and market share, and recently they also rolled out its online music downloading service, and I am very interested in your view about such competition, and I have a follow-up. Thank you.

I think we still have a very dominant position in the digital music market. We have recently launched two improvements to our music search. One is the online station collection or directory. There’s been [inaudible] on that. We have partnerships with lots of the radio stations across China. Secondly, that we launched a separate section for new songs. We help those record companies and publishers to promote the songs they want to promote. At this time, we do not see any meaningful competition on this front. In terms of the traffic share, we think our traffic share is at around 70% to 75% based on various third party reports. Of course, we don’t know the exact number from our competition so we have to rely on the third-party reports. Those reports may vary by one or two percentage but that’s like a statistical error, so we cannot say whether we are gaining or losing by 1% or 2%, but we are quite confident that we have a dominant position in music search, web search, and many other types of searches. Richard Ji - Morgan Stanley: Thank you. And my follow-up question is regarding your Japanese venture, and obviously in the most recent quarter, you have strengthened your leadership over there, which is clearly a plus. But going forward, what are the new initiatives that will be in place, and especially given that you are fighting a difficult battle, if not up-hill battle against the incremental leader, such as Google Japan and also Yahoo! Japan in the search business?

Right. We just have hired a president for Baidu Japan. We are quite confident we have assembled a good team to tackle this issue. I understand there is strong competition in the Japanese search market and we are a latecomer, but I also think that there is still a lot of room to improve for the Japanese search, because there is basically no local player and no local development team, R&D team to really work on the fundamentals of Japanese search. We believe that our technology [trends] and our reliance on local talent to set product directions will give us an edge going forward. Having said that, as you probably know, the Japanese market is a little bit different from the Chinese market in the sense that consumers usually are not that quick to embrace a new brand, so we need to have some patience for this venture. Richard Ji - Morgan Stanley: Thank you.

Your next question will come from the line of Ming Zhao with SIG. C. Ming Zhao - SIG: Thank you for taking my call. Good morning. I have a question about the business revenue from the big advertisers versus the SMEs. If I look at your accounts receivable, it grew faster than the revenue. Would you say this is because of more revenue coming from the big advertisers or the accounts receivable days becoming longer? And talking about TAC ratio, is that because there is more revenue coming from the big advertisers, so that your TAC ratio has come down?

Jennifer.

In terms of revenues earned from large clients, as you know we started last year to focus the efforts to grow our revenues from the large clients. As we worked from a smaller base, obviously we expect the faster growth in the large customer’s account. From our perspective, the average outstanding base for the receivables has not increased, so it is purely a reflection of really strong revenue growth that is coming from the large customers. Our TAC ratio, as Haoyu explained earlier, that is not -- I mean, that is not the reason for the TAC ratio to go down, despite the fact that we are growing our large customers, it is still not the majority. It is not still a very material part of our business. Our P4P platform supporting the SMEs are still going very strong and that’s a major contributing revenue factor for our revenue. C. Ming Zhao - SIG: Thank you.

Your next question will come from the line of Eddie Leung from Merrill Lynch. Eddie Leung - Merrill Lynch: Could you give us more color on the customer mix on your platforms from the perspective of industries? I know that you guys have a very diversified platform but has the customer mix been changed in the past year? And how would that affect your revenue growth, given the economic slow-down? Thanks.

-- many times before, we have a very diverse portfolio of customers. We have a lot of B2B customers and we have a lot of B2C customers and typically you see in second-tier cities, there are more B2B customers; in first-tier cities, there are more B2C customers. I think both are growing still at very healthy rates. So in recent quarters, I don’t think we have seen a major shift in the mix. Eddie Leung - Merrill Lynch: Okay, thanks.

Your next question will come from the line of James Lee with Sterne Agee Capital Markets. James Lee - Sterne Agee: Good morning. I just want to follow-up on Eddie’s question -- is it fair to say that your B2B customer base might be more vulnerable, given the economic slowdown, versus the B2C space? And if that’s the case, how do you guys plan to defend, to deal with that potential weakness? And also I was looking at your customer growth for third quarter was slower than what you did versus last year, I believe. Is that a function of maybe you are finding a more larger customer [and the sales cycle a little bit slower]? Thanks.

We are not economists so it is very hard for us to predict how these difficult economic situations will impact B2B versus B2C. What we do know is as a lot of businesses facing tougher situations, they will probably come to appreciate marketing channels with a higher ROI and a higher effectiveness, so we are pretty confident that in the power of our model. As far as the customer addition, I don’t think we added fewer customers than before. Of course, we have a much bigger base now.

One of the things is on the customer growth side, last few quarters we have had between 40% to 45% year-over-year customer growth. This year, as we came into the quarter, we anticipated an altered consumer behavior and customer spending behavior, so the fundamental driver for revenue, as you know, is the number of customers in our pool, so it’s natural for us to see this level of customer growth rate.

Also don’t forget that during the Olympics, it’s very hard for our sales force to sign up new customers, so we probably lost roughly amount of time in many of the sales regions in China. James Lee - Sterne Agee: Okay. Is it fair to say, Robin, that your B2B base may be more defensive [inaudible] Alibaba -- maybe a lot of your B2B customers are domestic driven as opposed to export driven? Maybe that explains that you may have stronger customer growth on the B2B side in general that that of Alibaba.

Like I mentioned before, some of the export-oriented small and medium businesses in the coastal cities were hit very hard but other than that, we continue to see more and more companies come to our platform because we just have a better performance for their investment. James Lee - Sterne Agee: Thank you.

Your next question will come from the line of Stephen Ju with RBC Capital Markets. Stephen Ju - RBC Capital Markets: Good morning, everybody. Sorry to keep circling back on the TAC issue but I think you had talked about the business review with some union members in the prepared remarks and I think Haoyu, you talked about the performance criteria. Should we take this to mean that you are cutting off some of the affiliates with say lower quality traffic, or even decreasing the TAC pay-out contingent upon traffic quality? And also, when did [Talbow] remove paid listings from Baidu? And do you think their blocking up Baidu crawlers on the natural search results impacts your traffic to the extent that users are probably not finding as much product in the search results as usual?

I’ll take the TAC question -- so there are two things. So we review the performance of partners from time to time because a lot of these agreements we have with them have performance contingencies and as they -- if they meet certain performance metrics, TAC will be at this level; if not, at a different level. And we have scheduled reviews of their performance and if they are not meeting the criteria, we’ll adjust the TAC down and sometimes we need to do some catch-up for some previous quarters, so that’s what happened. The other thing is on traffic quality. That is definitely something that we have been focusing on. We definitely want to make sure that the traffic generated, a click generated on our platform are of the highest quality, are of the high ROI for our advertisers. So we do that on an ongoing basis [inaudible] -- [that’s not a big] factor this quarter.

So on the [Talbow] question, in the past we did not direct much traffic to that site, so after the block we also did not see any sensible impact to our users, plus although we just rolled out the beta version of our own C2C for less than a week, we already have more than 1 million items listed, so consumers will be able to find information on other e-commerce platforms from Baidu's site. Stephen Ju - RBC Capital Markets: Okay. Thank you.

Your next question will come from the line of Troy Mastin with William Blair & Company. Troy Mastin - William Blair & Company: Thank you. Good morning. I guess this relates to the TAC question a little bit more -- can you tell us what is growing faster, Baidu proprietary properties or Baidu union properties, to help us gauge the relative performance?

So the question is whether union revenues grow faster or organic revenues grow faster, right? Troy Mastin - William Blair & Company: Yes.

Okay. So as we said in previous few quarters, our union business has been growing a little bit faster than our organic business and I think that continues to be the case. But it is not as -- the differential is not that big. Troy Mastin - William Blair & Company: Okay, great. And then I wanted to follow-up on the SG&A to understand if there may have been an Olympic impact there, because you did have sequential decline in total SG&A spend. And if there are any other notable Olympic influences on the P&L, if indeed there was one on SG&A?

On the SG&A side, there’s no particular Olympic related impact. This quarter actually, as you noticed, the primary driver that drives SG&A is our headcount, and our headcount stayed relatively the same. During the quarter, we did have a lot of new staff join us, primarily the R&D workforce. At the same time, we further consolidated our sales force, so some reduction on the sales side. So overall, these two factors were not Olympic related, so SG&A has demonstrated the scalability of the business model and we continue to focus on improving the productivity of this workforce. Troy Mastin - William Blair & Company: It’s fair then to assume that there were no SG&A -- there was no SG&A spending that would have been pushed out into the fourth quarter? That this is just natural leverage in the model?

Yes. Troy Mastin - William Blair & Company: Okay. Thank you.

Your next question will come from the line of Colin Gillis with Canaccord. Colin Gillis - Canaccord Adams: Are advertisers in Japan going to be able to buy across both the .cn and .jp domains?

At this time, we are not monetizing the .jp site yet but companies in Japan, they can buy advertising through our Japanese office. Colin Gillis - Canaccord Adams: Okay, and then can you give us any color about the average bid amounts on the pay-per-click terms? I mean, there’s a school of thought out there that there is a tremendous expansion possible as clicks become more competitive over time. Is there any trend or growth you could give us about the average bid prices?

As we said before, it’s been going up and that’s probably driven by many things, you know, more bidders or more advertisers are spending with Baidu and more and more are realizing the higher ROI compared with some other marketing channels they have. But the past two quarters, we do see pretty good growth of ACP and we are happy about it. Colin Gillis - Canaccord Adams: Do you think the best is still to come?

I think so. Colin Gillis - Canaccord Adams: Great. Thank you.

Your next question will come from the line of Car Kwan with Needham & Company. Car Kwan - Needham & Company: I was just wondering, CapEx dropped by quite a good amount this quarter. How much of it was due to a push-out to fourth quarter and how much was pushed out? And how much was due to scalability in the model? Thanks.

The CapEx was lower this quarter. We said it’s two factors -- on one hand, we continued to improve the -- or optimize the infrastructure usage and equipment usage. Part of the spending related to Baidu campus normally happens on a regular basis; however, this quarter on both fronts, both the equipment and CapEx for construction related expenses were slower than before. Going into next quarter on the construction for the Baidu campus site, you know, we expect that to come back to normal. On the equipment side, frankly, we continue to refine and improve our technology and the uses of the infrastructure and frankly I think we have room for improvement in the CapEx related to equipment. Car Kwan - Needham & Company: Thank you.

Your next question will come from the line of Leah Hao with Goldman Sachs. Leah Hao - Goldman Sachs: Good morning. This question may or may not be necessarily a Baidu question, I know you have [any concentration] among industries, but I was just wondering if you see anything, any trends on the margin about keyword trends and new customer additions by specific industry -- you know, machinery or medical devices, that kind of thing? And separately, I have a very quick follow-up -- can you update us on the number and efficiency on your sales team, please?

Haoyu, the first question and Peng, the second question.

As Robin mentioned, we do see some B2B customers, most manufacturing companies in the coastal areas are impacted more, starting from this year. So other than that, I think all the other industries are growing healthily and we don’t see any sort of pattern or trend in the ACP of bidders from different sectors.

Regarding the efficiency of the sales force, we have already started our efforts in terms of how to improve [inaudible] and you can see the marked improvements last quarter. On the other hand, there is still a lot of room for us to make improvements. We believe that we can do [a lot of things so far]. Leah Hao - Goldman Sachs: Okay. Thank you.

Your next question will come from the line of Eric Wen with Main First. Eric Wen - Main First: Good morning. Thanks for taking my question. I have two questions -- one is I want to take your view on how you look at the customer service aspect of C2C and -- I mean, your revenue, your employee mix in [inaudible] the C2C sector, do you plan to have a large size of customer service call center employees? Or do you have a different model? My second question is regarding balance sheet. I noticed that there is a healthy increase in customer deposits, as usual, but there is a decline in [inaudible] revenues in the third quarter, which doesn’t show up in last year’s result. Of course, that’s compared to overall revenue slightly small but I guess if Jennifer can just go over that, on what’s going on there with those three lines, that would be much appreciated. Thanks.

On the customer service for C2C, we will initially use our in-house team to do the customer service. Depending on how successful our C2C platform is, we will make a decision of how many people to hire. We do have experience of running customer service in-house. Our paid search platform hires lots of customer service people, so that’s not something unfamiliar to us. But in the long run, we cannot rule out any other possibility, like [inaudible].

And Eric, on your question on the balance sheet items, yes, customer deposit is growing and that is really a reflection of what is in the pipeline from a revenue generating perspective. Deferred revenue, the nature of deferred revenue is basically services provided but it has to meet the test threshold for revenue recognition. As an example, maybe service is provided, the agreement is all reached but we haven’t had the paper document back in the company for us to kind of meet all the tests for revenue recognition. It did come down this quarter and at the end of September, you see $9 million of deferred revenue. That’s less than the prior quarter. What this really reflects is a process issue. It’s just better process and people follow-up on completing the sales transaction and in itself, these deferred revenue is primarily related to large clients. Eric Wen - Main First: Okay, thanks.

Your next question will come from the line of Elinor Leung with CLSA. Elinor Leung - CLSA: Thank you. Good morning. I have one question -- I see that there is increasing pressure from the music industry on your music search platform and there is also LG reportedly pulled out their advertisement on your platform. Can you comment on that and can you comment on what is the impact on your platform?

What you just said is not true -- LG did not pull out their advertising from our platform and we are not facing increasing pressure from the music industry. On the contrary, we signed many cooperation deals with the record companies and we share revenue with them. As a matter of fact, one of the channels on our MP3 search, there’s a music streaming service related to those signed record companies. That part of the revenue has more than doubled compared to the same quarter of last year, so we are very optimistic about the advertising supported music streaming service in China. Elinor Leung - CLSA: Thanks.

Your next question will come from the line of James Lee with Sterne Agee Capital Markets. James Lee - Sterne Agee: Robin, I was hoping that you could maybe comment about the outlook from 2009 -- can you sort of characterize, given all the potential economic slow-down, global financial crisis, can you sort of characterize your view heading into next year? Given the fact that your industry is still relatively under-penetrated, will you see most of the growth coming from new vertical customers or do you see as you get more of the larger customers, the potential growth is really coming from ASP? And maybe you can comment about visibility of your revenue heading into 2009 as well. Thank you.

I think it is a little bit early to tell too much about the outlook for 2009 as we usually only give guidance for one quarter. Having said that, I would say that the paid search market is still in its early stage and we see -- we continue to see many, many companies start to spend their marketing dollars on our platform and those more mature companies -- mature meaning they have a better understanding of the Internet, generally spend more on our platform. Internally we see lots of things to be done from the sales force efficiency to the [inaudible] to web search quality and to the new products and services we are offering and we plan to offer -- we just see lots and lots of things that we need to work on. So the performance for our 2009 would pretty much depend on how good we can execute and how fast we can ramp. Of course, we are not exempt from the macroeconomic conditions. If China’s economy crashes, we will be affected but if it is just a couple of percentage of fluctuation, I think we should be fine going forward. Regarding the customer mix, I think Haoyu already talked about it. Companies large and small are all becoming more receptive or start to appreciate more of our platform, especially for the larger companies. In the early days of the year, larger companies rely on a big sales team -- not big, but a high-paid sales force to build relationships with them and we thought that was not what we -- not a priority in the early days but these days, I think as those companies start to get ready for paid search, the growth on that front should be better than the average customer.

Regarding your question, I think according to government statistics in China, we have more than 40 million enterprises. Among them, we have more than 4 million B2B enterprises. So compare these figures with our [competitors’ customer bases], we see a lot of room [for us to pick up]. So apart from growth, I cannot see any other [inaudible]. James Lee - Sterne Agee: Thank you.

Ladies and gentlemen, we are now approaching the end of the conference call. I would now like to turn the call over to Baidu's Chief Executive Officer, Robin Li, for his closing remarks.

Thank you for joining us today. We are excited about what lays ahead and I look forward to updating you in the coming quarters. Please do not hesitate to contact us if you have any further questions.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.