Heavyweights expect to take the occasional punch. But Baidu, China’s leading search engine, has been through a triple whammy of controversy in recent weeks.
In early March: a report from the Office of the US Trade Representative singling it out (along with Taobao, China’s e-commerce behemoth) as “notorious markets” for the sale of pirated goods.
Then mid-month a fusillade closer to home, as a group of Chinese authors blasted it for allowing unauthorised distribution of their work via Baidu Wenku, a document sharing service. (“We don’t blame our friends who are uploading these things”, the authors thundered. “We blame Baidu’s vicious platform”.)
And an ongoing legal action too: from Hudong, a provider of a Wikipedia-like product, which is claiming that search results for content generated by its online encyclopedia are deliberately low-balled in favour of Baidu’s rival service.
Baidu even got a mention at the Chinese People’s Political Consultative Congress (CPPCC), with a proposal that its search engine business should be separated from its other products in order to ensure fair competition. Is China falling out of love with its homegrown Google?
Baidu has faced allegations about piracy before, most prominently in a long running spat with Shanda Interactive, which has complained that a “lenient” attitude towards copyright on Baidu Wenku has led to billions of yuan in lost revenue. But Baidu refutes the allegations, insising that it takes copyright infringement seriously and that pirated material is taken down within 48 hours.
Hudong is following a different tack, taking its own case to the State Administration for Industry and Commerce under relatively new anti-monopoly legislation.
First it will have to show that Baidu benefits from market dominance. That might look straightforward (close to a three-quarter share of the online search market seems well above the 50% margin specified in the anti-monopoly legislation) but a similar case filed two years ago by Tangshan Renren, a medical information website, failed to convince a Beijing court.
Instead it threw out evidence (mainly newspaper articles) that Baidu was above the threshold, saying it needed more detail to determine a dominant position. Nor did it accept the Tangshan firm’s claim of discrimination, noting that Baidu’s regulations allowed for a blocking of search results (including some from Renren) containing junk advertising.
Hudong should be better prepared but it might be difficult to prove that the ranking system has been deliberately tampered with. In the meantime Hudong executives are presenting their case in the media, says 21CN Business Herald, comparing sample searches from rival search engines (where Hudong’s content is high on the first page of results) to those on Baidu (where it doesn’t appear until page 12).
The case is an unusual one, says the Economic Observer, because few online firms have “dared to cross” Baidu. Too many of their customers arrive via the search engine’s services. Nor is Baidu the only online Goliath, says Beijing Business Today, citing data from a China Internet Lab report. Alibaba (with a 54% share of the B2B e-commerce market), Alipay (71% of third party online payment), Tencent (77% of instant messaging) and Taobao (a massive 95% of C2C e-commerce) all enjoy similarly privileged positions.
That leads to talk of a changing web landscape, from a period of “free competition” (foreign internet bosses will be spluttering into their skinny lattes) to an era in which monopolies prosper, the newspaper says.
Really? WiC has written previously (in WiC47) about the political compromise that helps China’s top web firms keep their lofty position. That has led to a sector lacking the state-owned heavyweights that feature in so many other areas of the economy, but still hardly the competitive landscape in which nimble web upstarts are able to disrupt incumbents. We have suggested too (see WiC59) that the competitive dynamic is actually more evident in the battle that’s now breaking out between the online giants as they enter each others businesses. Baidu likely sees Alibaba and Tencent as its real threats – Hudong and its other attackers, more likely fall into the category of ‘distractions’.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.