Baidu under pressure in China

19 August 2011

BEIJING: Baidu, China's online search giant, is coming under increasing pressure from state media, with potential consequences for the future of the country's search engine sector.

China Central Television (CCTV), the state television broadcaster developing its own search engine, has aired a highly critical report on Baidu which could signal government support for Baidu to face greater regulatory and competitive challenges.

According to the Wall Street Journal, the CCTV report alleged that Baidu conducted inadequate investigations into its advertising clients and, as a result, fraudulent drug companies regularly featured on its pages.

The 30-minute piece showed a reporter seemingly receiving advice from Baidu's staff about how to avoid regulations on pharma ads.

The item also attacked flaws in the firm's keyword advertising system, and CCTV has made additional references to "slanderous" messages left on Baidu's Tieda site.

These messages included criticisms of Cai Jiming, a professor from Tsinghua University campaigning to reduce the length of some national holidays.

In another development, CCTV has established a section of its website to "build trust on the internet" by exposing instances of poor practices by online operators. Currently, this section is almost entirely focused on Baidu.

Baidu is the country's overwhelmingly dominant search provider. Analysys International, the research firm, estimated Baidu took 75.9% of online search revenues in the second quarter of this year, considerably ahead of closest rival Google, on 18.9%.

In a statement read out on CCTV, Baidu suggested it welcomed "the supervision from society, including the public security authority, industry and commerce authority and media."

Wallace Cheung, an analyst for Credit Suisse, however, said: "As Baidu becomes an essential part of people's internet life, we believe the news report could trigger potential government investigations on the paid search business model and prospective regulations to protect customer rights."

Observers asserted that increased competition for advertising revenues between digital groups and traditional media, such as CCTV, alongside the latter's moves to roll out its own search engine, have contributed to the more charged business environment.  

Xie Wen, previously president of Yahoo China, said: "Could it really just be a coincidence that CCTV launches its own search engine and attacks Baidu at the same time?"

Jin Yoon, a Nomura analyst, added: "We believe with a customer base of approximately 300,000 (advertisers), there are certain fraudulent links and sites that fall through the cracks; however, we do not see this as a rampant activity.

"We find the financial impact to be immaterial and believe this issue is rather noise in the marketplace."

Data sourced from Reuters, Financial Times, Wall Street Journal, Street Insider; additional content by Warc staff