Internet & Tech

In search of trust

Top Chinese internet firm trades profits for ethics

In search of trust

Now without dodgy clinics

In China, if people want to look something up on the internet they don’t “Google it”. They “Baidu it”.

The nine year-old company is wildly popular among the 360 million people now online in the country. It accounts for 64% of China’s internet searches, compared to 31% for Google, says research firm Analysys International.

Some say Baidu is dominant because it caters better to local tastes. If you go to Google and type in “power station”, for example, the result is lots of pages about power plants. In China, however, it makes more sense to hone the search, as Baidu does, to web pages about a popular music band Power Station.

Advertisers have long preferred Baidu too. Unlike most search engines, it didn’t distinguish in search results between sponsored links (advertisements) and genuine search results. So Baidu’s advertisers paid to appear at the top of the search result listings. Competitors like Google clearly separate paid search advertisments from organic search results.

The keyword bidding system was so successful that the fees generated from these auctions account for almost all of Baidu’s advertising revenues, says Shen Haoyu, Baidu’s vice-president of business operations. Today, Baidu controls 29.4% of all web advertising in China, more than twice Google’s share.

However, starting this month, Baidu is getting rid of the old keyword bidding system to migrate to a new advertising system named Phoenix Nest.

Why the change?

The need for the system upgrade was precipitated by a lot of accusations that paid ads were too easily confused with organic results. Baidu users complained that because they couldn’t tell advertising from normal search results many of them were tricked into clicking on ads for products and companies in which they had little interest.

State-run media CCTV quickly jumped on the story. Last December, it reported that Baidu was taking money from unlicensed medical suppliers to secure top listings on its search engine. Many people had lost thousands of yuan on ineffective treatments.

One Baidu user told reporters that he had spent over Rmb10,000 ($1,460) at a “top-ranking clinic” he found on the mainland search engine, only to have his symptoms persist. He later went to a local hospital and was treated for only Rmb100. CCTV claimed that the unlicensed clinic paid Baidu Rmb16.56 per click to get to the top of the search results. Baidu’s practice “hurt consumers and squeezed legitimate businesses,” said the state-run broadcaster.

To quell the bad press and regain lost trust, Baidu announced last year that it would overhaul the keyword bidding system to delineate more clearly between paid and unpaid links.

Under the new system – Phoenix Nest – the mainland firm draws a clear distinction between the two kinds of result, with the top three paid ads at the top, other advertisers on the right of the page, and the leading search results figuring predominantly in the centre.

This makes the listing look a lot closer to Google. Analysts predict that Baidu’s switch will give the US firm an opportunity to court local advertisers and gain market share from its domestic search rival, says Sina Technology.

Investors seem to think so too. After the announcement of the system switch, Baidu’s share price fell 11% on Nasdaq, as it warned investors of lower revenue in the upcoming quarters due to the transition.

Perhaps it is short term pain for long term gain? “Twelve months from now, when we look back we will be happy with the switch,” says Li Yanghong, chief executive of Baidu (see Who’s Hu, WiC28).

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