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<\/a>By PAUL MOZURSEPT. 13, 2015<\/p>\nJoshua Motta, left, Carmen Chang and Matthew Prince in the San Francisco offices of the security start-up CloudFlare. Credit Jason Henry for The New York Times<\/p>\n
HONG KONG \u2014 It is one of the best-guarded borders in the world, and one of the most time-consuming to cross. Yet in the past few months, a new agreement has let people speed over it billions of times.<\/p>\n
The border is the digital one that divides China from the rest of the world. It is laden with inefficiencies and a series of filters known as the Great Firewall, which slows Internet traffic to a crawl as it travels into and out of China.<\/p>\n
Now, a partnership between an American start-up and a Chinese Internet behemoth has created a sort of fast lane to speed traffic across the border. In the process, the two companies are establishing a novel business model with implications for other American technology firms looking to do business in China\u2019s politically sensitive tech industry.<\/p>\n
The partnership, signed in July 2014, is between CloudFlare, a security company based in San Francisco, and Baidu, China\u2019s equivalent of Google. Using a mixture of CloudFlare\u2019s web traffic technology and Baidu\u2019s network of data centers in China, the two created a service that enables websites to load more quickly across China\u2019s border. The service, called Yunjiasu, began operating in December. It has a unified network that makes foreign sites more easily accessible in China, and allows Chinese sites to run in destinations outside the country.<\/p>\n
At the heart of the arrangement is an unusual structure known as a virtual joint venture. Under that arrangement, CloudFlare does not actually operate in China. Instead, CloudFlare cooperates primarily from afar as Baidu runs the business in China.<\/p>\n
Baidu and CloudFlare\u2019s virtual joint venture relies on a principle generally considered anathema to foreign companies looking to do business with China: trust. CloudFlare transferred its intellectual property that is used to manage and speed up Internet traffic to Baidu and works closely with its engineers to run that technology on Baidu\u2019s network in China. The two share revenue from the service.<\/p>\n
The virtual joint venture could prove to be a new model for American tech firms that are considering doing business in the delicate areas of China\u2019s tech industry. Companies including Uber, LinkedIn and Airbnb have recently sought to expand in China by using the political connections and sway of Chinese investors to clear a path to opening and running their own businesses there. Yet because of the Chinese government\u2019s preoccupation with how the Internet is run and controlled within its borders, that was not an option for CloudFlare and Baidu.<\/p>\n
\u201cWith the right Chinese companies, there\u2019s going to be more of these types of deals,\u201d like virtual joint ventures, said Carmen Chang, a partner at New Enterprise Associates, a venture capital firm that has invested in CloudFlare. As China\u2019s largest Internet companies have grown, so have their international ambitions and exposure to international laws, ultimately relieving some tech companies in the United States of the paranoia many have when they contemplate going to China, she said.<\/p>\n
For CloudFlare, a five-year-old company that manages Internet traffic for millions of websites and makes browsing quicker and more secure, the central question was whether to transfer its intellectual property and give up local control or to forgo the vast business opportunities in China.<\/p>\n
Outside of the high-profile sites that Beijing sees as a threat and blocks \u2014 like Facebook and Twitter \u2014 are a huge number of businesses that suffer under China\u2019s network inefficiencies. Those are the customers the service is targeting. And since the fast-lane service began operating, CloudFlare and Baidu said they have registered 450,000 businesses that account for 57 billion page views per month.<\/p>\n
Customers can try the service free, though CloudFlare and Baidu added supplemental security features and greater control over web traffic last month, both of which must be paid for.<\/p>\n
Matthew Prince, CloudFlare\u2019s chief executive, said transferring the company\u2019s intellectual property to Baidu enabled a deeper trust and a partnership. He added that the intellectual property is not the most critical part of the company.<\/p>\n
\u201cWe had much less apprehension about sharing our code, because we don\u2019t think there\u2019s any line of code we write that\u2019s so clever that gives us a sustained advantage,\u201d Mr. Prince said. \u201cThat comes from the network itself.\u201d<\/p>\n
Still, to be safe, Baidu and CloudFlare worked out a contract that gives each company control over crucial elements and would inflict penalties if either partner withdrew. For example, Baidu controls customer information within China, but CloudFlare owns the web address through which the entire operation works.<\/p>\n
\u201cAt some level, we designed the contract so we both have leverage,\u201d said Joshua Motta, CloudFlare\u2019s head of special projects. \u201cWe\u2019re both pointing guns at one another, to some extent.\u201d<\/p>\n
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