Baidu Apologizes for Fraudulent Paid Search Practices

But Chinese Search Giant, Led by Chairman and CEO Robin Li, Denies Excluding Sites If Owners Didn't Pay for Keywords

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BEIJING ( -- Already tarnished by a deadly tainted milk scandal, unsafe and unhealthy manufacturing problems, and rampant piracy, China is facing another example of unscrupulous behavior hurting the brand image of a major local company.

The Chinese search giant was blasted by China's state-owned television network, China Central Television (CCTV), on Nov. 15 and 16 for fraudulent practices. On "News in 30 Minutes," one of CCTV's most popular news programs, the company was accused of listing paid search results for keywords such as "cancer" with links to unlicensed hospitals. According to CCTV, one person who visited one of these hospitals was not properly treated.

On Nov. 17, 2008, Baidu issued a public statement in China, acknowledging that there could be cases where certain companies take advantage of Baidu's paid search platform for questionable purposes.

"We put too much effort in competing technically with [the global leading search engine] Google, and in doing so overlooked our advertising system and its management," the company said in a public apology.
Baidu's chairman and CEO, Robin Li
Baidu's chairman and CEO, Robin Li
In response to the story, Baidu has yanked the paid search listings of certain customers, particularly medical and pharmaceutical customers without licenses on file with Baidu.

The company said it will allow these customers to resume access to Baidu's pay for performance (P4P) paid search platform once their relevant licenses are submitted and reviewed by Baidu.

These customers account for approximately 10-15% of Baidu's total revenues.

The CCTV report also said some web site owners believe their sites were blocked from Baidu natural search results after they refused to pay the leading Chinese-language internet search provider for advertising -- an allegation the company flatly denies.

Baidu "would like to affirm [it] has never excluded web sites of any customers because they did not pay for keywords, and Baidu does not tolerate such practices," the company said in a statement.

A NASDAQ-traded company founded eight years ago by Robin Li and Eric Xu, Baidu is "currently uncertain about the near term financial impact" of the news reports and the public outcry that has resulted, the statement said, but it "does not believe it would have significant impact on Baidu's results in the long term."

Despite the company's assurances, the allegations have resulted in "some negative revenue impact by removing some medical keywords," warned Dick Wei, an analyst in the technology research unit of JP Morgan Chase & Co. in Hong Kong. "In the future, Baidu will likely improve internal controls for the type of advertisers that the company allows."

Longer term, more market education is needed, he added. "The CCTV report seems to be surprised that Baidu can generate revenue by the user clicking on the links, has geo-targeting features with different prices in different locations, and [that] some clicks cost more than 10 RMB ($1.46)."

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