Abstract: In order to study the characteristics of the Internet industry innovation system and its operating mechanism in China, this paper utilizes the relative theories of industry innovation system, builds a five factor model of the Internet industry innovation system and analyzes the differences between it and the traditional innovation system from the perspectives of innovation subject, innovation content, innovation process and innovation diffusion. The model includes innovation impetus, innovation entity, innovation content, innovation mechanism and environment. Based on the above study, this paper builds an operating mechanism model of Internet industry innovation system and studies the operating mode from the allocation of innovation resources, innovation activities, innovation diffusion and actor coordination. Finally, this paper analyzes the characteristics and operating mechanism of Baidu. The results reveal that: the allocation mechanism of innovation resources is the driving power of the internet industry innovation system; the organizational mechanism of innovation activities is an important guarantee for the Internet industry innovation system; the actor coordination mechanism and innovation diffusion mechanism provide important support for the effective operation of the Internet industry innovation system.