Baidu.com, China’s largest internet search engine, on Tuesday admitted that some companies had used its website to market fraudulent information, as it faced mounting criticism for auctioning top search result rankings to the highest bidders.
In a statement, Baidu said it had started an internal investigation of the problem, pledged to cooperate with regulators and expressed a ”sincere apology for hurting the feelings of users and other customers”.
Baidu’s Nasdaq-listed shares suffered a hefty 25 per cent fall on Monday following a barrage of criticism on state-run television channels over the weekend, a sign that its business model could potentially be open to challenges from the government.
Unlike most search engines, Baidu mixes sponsored links with “genuine” search results without marking the sponsored links clearly. Baidu’s customers can bid for search keywords and the link to the highest bidder’s website will appear at the top of the search results.
The fees generated from these auctions account for almost all of Baidu’s revenues as opposed to the traditional advertising revenue its competitors rely upon.
Edward Yu, chief executive of Analysys, a Beijing-based technology research house, said a series of recent incidents that triggered discontent among users and paying customers was beginning to eat into Baidu’s market share, benefiting Google, which is the second most-used search engine in China.
“Google’s traffic and revenues are growing quite aggressively,” Mr Yu said. “Recent research of preferences especially among high-end users indicate that people are developing an antipathy against Baidu.”
Baidu had a 63.4 per cent share of the Chinese search market in the third quarter, according to Analysys, while Google held 27.8 per cent, up from 23.7 per cent a year ago.
Baidu’s woes started when bloggers accused the company in September of taking money from producers of contaminated milk in exchange for suppressing information about the scandal on its search engine – an allegation Baidu denies.
Late last month, former business partners filed a complaint with the State Administration for Industry and Trade and demanded the government open an anti-monopoly investigation against Baidu.
Analysts said CCTV’s reports at the weekend were a sign that the government felt the need to demonstrate that it would protect consumers’ interests. The reports said searches on cancer and sexually-transmitted diseases produced fraudulent, unlicensed pharmaceuticals websites as top results. They also criticised Baidu’s overall practice of making companies pay to get top rankings.
Laweach, a legal advice web portal that coordinates the anti-monopoly complaint against Baidu, said the group was now in talks with other industry players including Google, Sohu and Netease to reach an agreement on best practices in the Chinese online search market.
