INTERNET: Baidu Blasted, Probed for Search Manipulation

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Bottom line: A new scandal surrounding deceptive results on Baidu’s search service could force the company to be more transparent, but is unlikely to have a long-term impact on the company’s stock.

Baidu at center of new scandal
Baidu at center of new scandal

I have to admit I’ve been quite surprised by a new storm involving the manipulative ways of search leader Baidu (Nasdaq: BIDU), which began building over the May Day holiday and became so big it splashed into global headlines after the company’s stock tanked on Monday. My surprise is mostly that this scandal became so big, since Baidu’s manipulative pay-to-play tactics for search results are quite well known, and should be obvious to anyone who uses the search engine regularly.

The scandal that’s riveting China saw a 21-year-old student search on Baidu for a hospital to treat his rare form of cancer, and select what he thought was the best option partly based on a high search ranking. The young man later died, but not before blasting the hospital and Baidu for their misleading ways, resulting in a firestorm of criticism on the web. The growing noise caused Baidu’s stock to tank on Wall Street, shedding nearly 8 percent in Monday trade.

We’ll recap more details of the cancer story shortly, but first I need to say why the strong reaction this time surprised me and also add my own expectation that this storm will quickly blow over. That said, perhaps this time Baidu will finally get the message that it needs to be more transparent in its search results, and state clearly which of those are organic and which are sponsored.

Baidu has landed at the center of a number of similar scandals in the last couple of years, and seems particularly vulnerable to this kind of negative reaction. That’s because it’s constantly looking for ways to make money from its main search, news and social networking businesses, and seems quite happy to let its customers sponsor various items on those services without clearly stating that fact.

Taking Responsibility

At the same time, I need to add my own view that web surfers also need to take some responsibility here. While I certainly feel sympathy for the cancer victim and his family, I also feel strongly that such people have their own responsibility to do a bit more research for such major decisions. A high search ranking for a particular hospital could certainly be one consideration in this particular case, but should be quite low on the bigger list of more important factors.

The case at the center of this particular firestorm involves Wei Xizi, and 21-year-old who turned to Baidu in his search for treatment for his rare form a cancer. (English article; Chinese article) He ultimately decided on an experimental treatment from a police-affiliated hospital in Beijing, figuring such a name would be reliable. When the treatment failed, he accused both Baidu and the hospital of engaging in misleading practices.

The story later went viral on the Internet, prompting the nation’s regulator to say it would launch an investigation of Baidu. The regulator took the unusual step of publicly announcing the investigation and specifically cited the widespread attention. Baidu issued its own statement expressing condolences to Wei’s family and saying it tries to provide a “safe and trustworthy” search experience.

Baidu’s search experience is certainly consistent, but I don’t know if I would describe it as trustworthy. That’s because every time I use it I know I will have to personally scrutinize the results to figure out which are organic and relevant to my needs, which are advertisements, and which are self promotions for Baidu’s own services.

Anyone who uses Baidu regularly knows this, though that certainly doesn’t justify this kind of behavior. At the end of the day, I do expect that Baidu’s stock will quickly bounce back from this particular sell-off, though I’m also slightly hopeful that perhaps this incident will finally force the company to be more transparent about its search results.

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