A bad start to the year

Shareholders of Chinese internet giant Baidu might have thought they had put a bad year behind them after a slew of dazzling deals last November. The search engine giant teamed up with state behemoth Citic Group and Germany’s Allianz respectively to expand into banking and insurance. Then it played kingmaker in the merger between Ctrip and Qunar, China’s biggest travel sites, in return for 25% of the combined entity.

The fourth-quarter dealmaking was meant to make up some lost ground on Baidu’s bigger internet rivals Alibaba and Tencent (see WiC305). But rather than kicking off 2016 with a bang, the New York-listed firm has found itself facing fresh setbacks.

For a start, Baidu is once again caught up in a row about the way it has been trying to monetise healthcare content on its various sites. In a statement issued on Tuesday it said it will stop selling to medical firms the administration rights for its popular discussion forums.

Baidu Tieba allows internet users to create a tieba, or a discussion thread, under a specific topic. This has become a popular sphere for netizens to exchange news and ideas, including for patients and their families to share information on medical issues.

But things began to turn sour last week when one user complained that his role as the administrator of the haemophilia forum had been usurped by a “medical expert”. On Monday, another user claimed that 40% of the 3,259 tieba on various diseases have been sold to hospitals, doctors and pharmaceutical firms. These medical institutions are using Baidu’s platform to promote their activities (some of them have been exposed as unlicenced businesses too).

Baidu hasn’t revealed how many illness-related tieba its sites support. But the Beijing-based firm hosts 19 million online communities discussing various subjects across more than 1 billion registered users.

According to Beijing Youth Daily, selling each forum’s administration rights can fetch Baidu at least Rmb200,000 ($30,000). One of the forums on high blood pressure, for instance, has more than 50,000 followers and is being administered by a Guangzhou-based health supplement seller called Gemei.

Screenshots have shown that Gemei used the tieba to tell patients that its supplements were an effective treatment and advised them there was no need to seek further medical advice.

Last year Baidu was also accused of being too aggressive in milking revenues from the medical sector. Putian Health Industry Chamber of Commerce went public with the charge that Baidu was over-charging for medical advertising and called on its 8,600 member hospitals to boycott the search giant (see WiC276).

That high-stakes clash saw Baidu lose $4 billion in market value in two weeks. This time round, Baidu has been quicker to go into damage control mode. “Many patients gather at disease-titled forums to discuss their disease and share information. And thus such forums greatly concern users’ health. But some administrators violate rules and take advantage of their posts to publicise commercial information and seek personal interests,” the company said in its statement. It added that only “authoritative institutes” would be eligible to administrate a medical tieba in future. As such, the non-profit Hemophilia Home of China will become the new administrator of the haemophilia forum.

The policy U-turn didn’t prevent more bad press for Baidu. “Baidu sells its tieba for money but it could have also taken someone’s life along the way,” the state broadcaster CCTV lambasted. The People’s Daily even paraphrased Google’s famed motto to chide Baidu: “For an internet discussion forum provider the moral baseline is ‘not to be evil’,” the state mouthpiece noted, adding the reprimand: “Baidu is killing the chicken for its eggs.”

Baidu Tieba isn’t the only business segment where Robin Li’s firm has been feeling the heat. A group of state-run airlines has also been leading a campaign to severe ties with Qunar, the online travel agency swallowed up in Baidu’s dealmaking late last year.

The spat looks to have arisen from customer complaints over ticketing and refund issues, with the nation’s big four carriers shutting down their sales channels on Qunar in early January. Smaller airlines have joined the boycott. “Passengers complained that Qunar arbitrarily raises the price of air tickets, alters the terms and conditions of ticket use, adds fees for ticket changes and refunds, but fails to notify them about flight changes,” leading carrier Air China alleged in a statement.

Qunar counters that the real reason for the dispute is a disagreement over how it ranks ticket prices on its website – highlighting the airlines with the cheapest fares first.

“China Southern and Hainan Airlines insisted that we change the order of ticket display on our website from the order by price to a chronological order. However, we think that displaying tickets by prices is more suited to the booking search habits of users,” Qunar claimed.

Another factor might be a government diktat that state-owned airlines should be making more sales directly from their own websites (increasing the percentage from the current 20% of ticketing revenue to half). “The sanction [against Qunar] is a warning to the agents that the carriers have largely begun to sell tickets on their own,” Shanghai Daily suggests.

Qunar’s New York-listed shares plunged more than 16% after news of the airline withdrawals reached investors. Adding to the decline that day was the announcement of a management shake-up, which saw Qunar’s co-founder, Zhuang Chenchao stepping down as chief executive.

In fact, Zhuang’s resignation was part of a corporate restructuring agreed after the Ctrip-Qunar merger. Baidu traded away its controlling stake in Qunar, calculating that it was better to have 25% of a combined company with a dominant share in the market for booking flights online (see WiC302).

This week Qunar’s shares got a boost when Ctrip announced it would be buying more of its stock from minority shareholders just three months after the initial deal. Ctrip currently owns 55% of Qunar and while the size of the additional stake hasn’t been disclosed, HSBC believes it will effectively own more than 90% of Qunar after the purchases.

In the meantime, Ctrip has been getting some negative publicity of its own. In a widely-forwarded weibo posting this week, a software engineer surnamed Fu complained of his three-hour ordeal after buying a ticket on Ctrip from Tokyo to Beijing. When he arrived at Tokyo airport he was stopped from boarding because his ticket was improperly redeemed with another traveller’s frequent flyer points. Fu contacted Ctrip, which directed him to an approved agent and got him a new ticket. Unfortunately he was denied a boarding pass again – for the same reason.

Shanghai Daily has reported something similar for another passenger who booked two return tickets between Beijing and Sapporo on Ctrip last month, only to be told by airport staff that they were invalid. The couple had to buy new tickets to continue their journey. But their complaint was read over 100,000 times on Tencent’s WeChat social media service this week.

Is it a coincidence that the mistakes have become such a hot topic among netizens? Some analysts wonder whether the airlines are stirring up trouble because they don’t want the online travel agencies (which account for at least 60% of air tickets sold online) to become too dominant. But the rapid succession of articles on Tencent News and Sina News last week – which subsequently went viral on WeChat and Sina Weibo (in which Alibaba owns an 18% stake) and which attacked Ctrip for “selling fake tickets” – has others speculating that the row is just the latest instalment in the bitter rivalry between the “BAT” trio, with Alibaba and Tencent again ganging up against Baidu, their smaller rival.

 

 

 

 

Keeping track: On April 21, Ctrip bought a major stake in one of the country’s big four carriers, reports Caixin Weekly. Ctrip disclosed it will invest Rmb3 billion in China Eastern to become the airline’s biggest non-state shareholder, owning 10% of its equity within a year. At the signing ceremony the firms said they will collaborate on a range of initiatives. The move also tallies with Beijing’s plan for ‘mixed ownership’ i.e. state-owned enterprises receiving infusions of cash and expertise from China’s newer private sector firms, especially those with innovative internet-based business models.

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