INTERNET – Baidu Bust Spotlights Search Corruption
Bottom line: An anti-corruption crackdown at Baidu is in line with a national campaign, but is unlikely to allay suspicion that the company manipulates search results to benefit itself and advertisers.
A new report on an anti-corruption operation that snared 5 workers at Internet search leader Baidu (Nasdaq: BIDU) caught my attention for a number of reasons. At the broadest level, this campaign casts a spotlight on the kind of corruption that is rampant at many Chinese companies, where employees often use their position to earn extra cash by accepting bribes from people they do business with.
The bust is also the latest sign that private companies are joining the growing national anti-corruption campaign led by President Xi Jinping. Last but certainly not least, this move casts a spotlight on some of the less-than-transparent things that Baidu does to earn money from advertisers, who are often eager to pay extra to see their names appear high on search result lists.
Let’s begin with a brief recap of the actual news has seen Baidu accuse 5 employees of embezzlement and accepting bribes. (English article) The report in Caixin, a leading Chinese financial publication, focuses on the fact that Baidu chose to tell its employees about the bust in an email earlier this week. That’s a good move towards higher transparency, and is also almost certainly a warning to other employees who currently engage in similar practices.
Two of the employees are accused of taking money from websites that wanted to boost their search rankings by falsifying their traffic volume. In another case 2 employees were accused of taking bribes, while a fifth employee was accused of embezzlement. All cases have been reported to law enforcement authorities, and 3 of the 5 accused workers are currently in police custody.
This particular case looks somewhat similar to one 2 months ago at leading telecoms equipment maker Huawei, whose bigger campaign netted 116 employees for taking bribes from its product distributors. (previous post) I commented at the time that the campaign was a bad public relations move, since it portrayed Huawei as eager to join a 2-year-old Beijing-led anti-corruption drive that has been largely been confined to government agencies and big state-run firms so far.
From an image perspective, Huawei is trying to show that it’s a private company and not controlled by Beijing as some western governments believe. Thus joining this kind of government-led campaign, however good the intentions, would only seem to reinforce the Beijing connection in the eyes of wary western governments. In the case of Baidu, the government connection is less of a concern since most of the company’s business is inside China. The move also does look good for Baidu, because it may help to ease some of the frequent suspicions that its search results are manipulated to benefit advertisers.
Search manipulation and the related practice of self-censoring are 2 of the biggest issues that undermine Baidu, and limit its future growth potential, especially outside its home market. The company has been highly successful in China, in particular because global leaders like Google (Nasdaq: GOOG) and Yahoo (Nasdaq: YHOO) have avoided the market due to their unwillingness to self-censor in accordance with local law.
But such self censorship could work against Baidu outside China, since users in most other countries might suspect the company of similar manipulation of its search results. The bigger issue of results manipulation is a big problem for all search companies; but it’s especially big for Baidu because many believe the company often mixes paid advertisers with organic search results without disclosing the difference. This latest crackdown won’t ease much concern over that opaque practice, since many believe Baidu itself earns big money from advertisers who pay to get preferential placement in search results.
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