INTERNET: Baidu Back Under Microscope Over Search Suspicions

Bottom line: A new scandal involving results that favor a major advertiser on Baidu’s mapping service could have a minor impact on the company’s stock during the next week, but is mostly an embarrassment.

Doctors criticize Baidu maps

A year after taking a beating over questions about the reliability of its search results, stumbling Internet titan Baidu (Nasdaq: BIDU) is back in the headlines over similar queries about results given by its popular mapping service. This time Baidu has quickly responded to the criticism from a group of doctors who are questioning the prominence of a powerful hospital group in search results on the mapping service, blaming the issue on a glitch and saying it is moving to correct the problem.

That’s far different from the last crisis, arguably the biggest in Baidu’s history, which began last spring when the story of a duped cancer patient made the rounds like wildfire on China’s Internet. In that instance, Baidu was slow to respond to the claims from a patient, who had already died at the time, that he was fooled by a cancer hospital whose name looked like a genuine search result but was really just an advertisement.

Baidu hasn’t ever really recovered since then, in a development that was probably deserved after the company generated huge profits for years in no small part due to its willingness to accept such advertising dollars. We’ll have to wait and see if the latest scandal has any impact on Baidu’s stock, since the news just broke over the weekend.

But the earlier scandal last year took a beating on both Baidu’s stock, which is still down from levels before the crisis, and its revenue, which declined for two quarters before recently returning to a growth track. Of course there were other issues surrounding the decline, most notably the cash-sucking tendencies of most of Baidu’s other non-search businesses that were growing fast but losing lots of money.

At the same time, Baidu is taking every opportunity imaginable to tell the world it’s no longer an Internet company, and is trying to transform into an artificial intelligence (AI) firm. I’m a bit skeptical about that initiative, as I am about many new things Baidu does, which often seem to end in failure after a few years. But more on that later.

For now let’s focus on the latest headline, which has Baidu moving quickly to try to shut down criticism from a group of doctors over prominent placement of Putian hospitals on queries to the company’s mapping service. Industry people will know that Putian is China’s largest hospital group, and one of Baidu’s biggest advertisers. Baidu also got in a major tussle with that group a couple of years ago, which also took a toll on the company’s business. (previous post)

Just a ‘Glitch’

Baidu blamed the issue on a technical “glitch” related to historical information, and said it is going to fix the problem immediately. (Chinese article) It’s hard to say with precision how sincere Baidu is about the history of the problem, specifically whether the preference to Putian was intended or really an accident.

The algorithm that gave preference to Putian was probably deliberate from the pre-crisis period, since it looks very similar to the kind of behavior that sparked the crisis. But it’s also quite possible that Baidu simply forgot about the algorithm when it rectified its search practices after the crisis last year.

Either way, this latest incident is certainly an embarrassment for Baidu, and spotlights once more how deceptive the company was in the past. The company continues to do well in search mostly because there aren’t really many alternatives in the space, and the ones that do exist are probably equally distrusted by Chinese consumers. I suspect Baidu’s stock will probably take a slight beating in trading during the week ahead, though this “glitch” is likely to be just a blip on the radar screen for the company’s stock.

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