INTERNET: Baidu Gets Proactive with Bitcoin Ban

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Bottom line: Baidu’s bitcoin advertising ban represents a more proactive stance that major Chinese firms are starting to take towards controversial business, as they seek to boost their images and avoid scandals.

Baidu bans bitcoin ads

Online search giant Baidu (Nasdaq: BIDU) rippled through the headlines last week with the relatively small news that it would no longer take advertising business from services that hosted trading in bitcoin and other virtual currencies. While seemingly minor on the surface, the move had larger significance due to the controversial nature of virtual currencies and Baidu’s decision to take action without government prodding or the threat of a scandal.

Such proactive moves are the norm among major western corporations, which realize that allowing controversial actions to take place in their businesses could harm consumers and ultimately their reputation. Such actions are hardly a product of selflessness, but rather comes from a desire to earn public trust, which ultimately helps business.

By comparison, major Chinese companies often seem more interested in making as much money as possible, and seldom try to avoid practices that could harm their reputations and ultimately their business. Instead, Chinese companies mostly take action only when confronted with a crisis, a practice that may be slowly changing as they start to mature and realize the importance of being responsible corporate citizens.

Baidu’s ban on advertising by virtual currency traders on its sites reflects this emerging trend, sending a message that it believes such services are dangerous for consumers and it won’t help to promote them. Such services are controversial due to the highly speculative trading they promote, which can result in huge losses to unsophisticated users. Such sites can also be hotbeds of fraud, reflected by past cases of companies that went bankrupt or abruptly closed, piling big losses on their users.

Baidu didn’t make any formal announcement last week, but instead its removal of bitcoin advertisements was revealed by 2 trading services that were told their business would no longer be accepted by the search giant as of last Thursday. (English article; Chinese article)

Avoiding Controversy

Observers pointed out that China accounts for more than 90 percent of global bitcoin trade, and that the nation’s central bank has said in the past that bitcoin is not a “real” currency. Those facts may be prompting Baidu to steer clear of the matter, since controversy involving the currency could affect millions or even billions of dollars in transactions and bring Baidu into conflict with regulators.

In the past, Baidu has been prime example of more reactionary types behavior that are far more typical of major Chinese corporations.

Most recently it landed at the center of a scandal that damaged its reputation and caused a clash with regulators, after media disclosed the company was hosting advertisements linked to illegal online gambling sites. (previous post) Baidu has also come under repeated fire over the years from its popular peer-to-peer (P2P) music swapping service that was rife with trading in pirated songs. That service, and Baidu’s refusal to remove it, led to a number of high-profile legal clashes with copyright holders.

But the most damaging blow came earlier this year, when Baidu became engulfed in a major scandal involving a young cancer patient who drew attention to the search engine’s misleading advertising practices. The patient, Wang Zexi, later died of his disease, but not before criticizing Baidu for giving top rankings in its search results to clients who paid the most for such placement, even though that practice was never clearly disclosed.

Baidu later was forced to reform its practices to be more transparent, a shift that ultimately cost it 15-20 percent of its revenue and sent it stock skidding. (previous post)

Baidu was hardly alone in such reactive behavior. Another major scandal erupted last year around e-commerce giant Alibaba (NYSE: BABA), after a government report found a huge volume of trafficking in pirated goods on its popular Taobao marketplace, a problem that Alibaba almost certainly knew of beforehand. That scandal also badly damaged Alibaba’s stock and reputation, though the company has taken aggressive steps since then to try and repair its image.

Some might argue that Baidu’s latest ban of bitcoin advertising is the result of lessons learned from the recent scandals, and that therefore it’s purely a move in its own self-interest. But regardless of motivations, the company should be commended for taking a step that will protect both consumers and its own reputation, and others should be encouraged to take a similar more proactive stance towards practices with strong potential to generate controversy.

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