Chinese internet giant Baidu just learned a lesson, the hard way, about the danger of going too far in search of new revenue streams. Chinese internet users have accused Baidu of betraying their trust. State-run media gave it a dressing-down. This weekend, the national internet regulator promised to punish it.
How exactly did Baidu trip up? It sought to monetize social forums used by people looking for support and information about their medical problems. Many users are angry Baidu accepted sponsorship money from hospitals they consider shoddy; a discussion about the issue on Weibo, China's Twitter, has been read about 10 million times. Baidu has acknowledged its misstep and backtracked. Robin Li, the company's CEO, was quoted in reports as saying the company would "reflect deeply" on how to use the crisis to improve itself.
Healthcare advertising: a sensitive business in China
Baidu, which runs the country's most popular search engine and has other ventures ranging from entertainment streaming to restaurant meal delivery to driverless cars, is the biggest Chinese player by digital ad revenue, and No. 3 globally after Google and Facebook, according to eMarketer. (Google pulled its search engine out of China years ago after a dispute over online censorship there, which benefited Baidu.)
Baidu also has popular discussion forums on topics from entertainment to sports to medical conditions; the uproar started over a forum about hemophilia.
Allegations appeared online this month that the forum's moderators had been dismissed and replaced by someone using the forum to promote certain hospitals -- and to erase critical comments about them. Similar allegations about other health chat rooms popped up; as the official Xinhua news agency put it, "users revealed that the online communities have been flooded with quacks and advertisements for unlicensed hospitals."
Baidu responded by saying it would no longer accept commercial cooperation on health-related forums and would partner with authoritative non-profits instead.
It's also setting up an online task force of people active on the forums to report on information there that seems unhealthy or incorrect.
$46.8B Record U.S. agency revenue in 2015
The company cast the scandal as an anomaly, a mistake by one team, while Baidu has in general been tightening standards, including for health-related ads. Baidu even has a mechanism to pay compensation to people who "feel they've been defrauded or had their rights infringed by clicking on a sponsored link," a spokesman said. It has logged 2,555 valid complaints and paid out about $7 million.
In the issue over the healthcare forums, Xiaofeng Wang, senior analyst for Forrester Research, said Baidu had hurt its brand image by failing to verify the credibility of advertisers.
"The unfortunate incident shows the shortcomings of Baidu's current monetization strategy and its failure in delivering good customer service," she wrote in an email. "Baidu isn't evolving fast enough in its advertising strategy."
Ms. Wang contrasted Baidu's move to the strategy of popular mobile app WeChat, which allows only for sparing ads on users' social feeds. And she noted that when WeChat launched that service it built trust by allowing only ads from Fortune 500 companies.
Criticism of Baidu has come from many quarters. Thirty-six non-government healthcare groups filed a complaint against Baidu, accusing it of violating a newly updated advertising law that has stricter standards for medical ads, according to China Daily.
The State Internet Information Office summoned Baidu executives and "grilled" them, according to a report from the official Chinese news wire Xinhua. The report said Baidu will face punishment over forums containing ads for unlicensed hospitals, as well as pornography and libelous posts. The exact sanction has not been explained.