Baidu probe

Baidu chief says Chinese online search giant must change culture or risk bankruptcy

In wake of student’s death, Robin Li announces creation of 1 billion yuan fund to compensate users misled by paid ads

PUBLISHED : Tuesday, 10 May, 2016, 9:17pm
UPDATED : Tuesday, 10 May, 2016, 9:17pm

With the threat of bankruptcy and ruin looming for his company, Baidu founder and chief executive Robin Li Yanhong yesterday rallied employees to help change the culture inside the online search giant as it takes responsibility for a university student’s death last month.

Government regulators have ordered Nasdaq-listed Baidu, which controls more than 80 per cent share of China’s online search market, to implement stringent new measures that include limiting the amount of advertisements per page to less than 30 per cent and cleaning up the company’s medical-related paid-search business.

A task force set up by the Cyberspace Administration of China, the State Administration for Industry and Commerce and the National Health and Family Planning Commission announced on Monday the results of its week-long investigation of Baidu, following public outrage over the death of 21-year-old computer science student Wei Zexi, which was linked to a cancer treatment he found in an online search.

If we lose the support of users, we lose hold of our values, and Baidu will truly go bankrupt in just 30 days
Robin Li Yanhong, Baidu

It concluded that the objectivity of Baidu’s search results was compromised by the paid-search listings. It found that Baidu put a premium on high bidding prices from online advertisers and did not indicate sponsored links, both of which had affected the objectivity of its search results.

“The management and employees’ obsession of KPI (key performance indicators) has twisted our values ... and distanced ourselves from users,” Li said in an internal memo sent to Baidu staff on Tuesday. “If we lose the support of users, we lose hold of our values, and Baidu will truly go bankrupt in just 30 days.”

Baidu has taken down the majority of paid-search links for major medical-related keywords and announced that it would stop working with all military-related medical institutions.

“There are countless numbers of people making decisions based on Baidu’s search results,” said Li, who announced the creation of a 1 billion yuan (HK$1.19 billion) fund to compensate users misled by paid ads. “It requires us to make better products and stick to stricter principles.

Baidu ordered to change how it operates by China’s internet watchdog after death of student

“These measures may be negative to company revenue, but we are determined to face sacrifices because we believe this is the right thing to do.”

Apart from its tarnished reputation, analysts expect Baidu’s core search engine business to take a near-term hit as medical-related advertising was estimated to be as high as 30 per cent of its total advertising revenue.

“We would not rule out the possibility of Baidu revising down its recent second-quarter revenue guidance in the coming weeks,” Daiwa Capital Markets analyst John Choi said in a report.

Baidu last month estimated its second-quarter revenue at between 20.11 billion yuan and 20.58 billion yuan.

Baidu leaps in where Google opts not to tread

Nomura analyst Shi Jialong said in a report that the impact of the regulators’ measures was worse than expected.

“We thought ... that this incident might only affect Baidu’s healthcare-related ads, but it turns out the regulators want Baidu to overhaul its entire ad system,” Shi said. “We heard ... that the highest ad load rate [per page] used to be 60 per cent [in Baidu search].”

Competitors have responded quickly to the Baidu scandal. Software company Qihoo 360 Technology stopped all medical-services-related advertising on its search engine last week.