Internet : Baidu "Baidu Will Survive Trust Crisis" companies, including, Internet, reported, discuss

yangh

Events:
China Central Television (CCTV) reported in its program “News in 30 Minutes” on November 15 and 16 that Baidu had been including in its paid search listings for some popular medical terms links to websites of medical companies that do not hold proper licenses, while excluding certain websites which did not buy keywords. Baidu held an analyst conference call to discuss the concerns aroused by this report and also its reaction plan. 
 
Key Takeaways:
We believe Baidu will not be destroyed by this affair; it will survive this crisis of trust and maintain its leading position in the Chinese paid search market, but there will be a painful period of transformation from a company totally driven by short-term revenue growth to a more respectable company with a better understanding of how to balance company interests and social responsibility.
1.       Baidu has not violated any laws, and the company therefore does not think it will have much legal liability in this matter.
2.       No intention to change existing business model. All major search engines adopt a “sponsored link” model.  Remove questionable customers from search results and review relevant licenses. Baidu removed the paid search listings of certain customers, particularly medical and pharmaceutical customers without licenses on file with Baidu. These customers account for approximately 10~15% of Baidu’s total revenues. Baidu asked these customers to provide relevant licenses and is now reviewing the licenses it has received. The company has also decided to review its 3rd party distributors and all medical and pharmaceutical-related customers.
3.       No impact on search traffic so far, but it is possible that search traffic will be negatively impacted upon more widespread circulation of this matter. Baidu will initiate a PR campaign to rebuild user trust.
4.       Too early to tell financial impact. The company still has no idea how long it will take to review all relevant licenses or how many customers will pass the review process and come back to the P4P advertising platform.
5.       The Company will strengthen internal control process to avoid malpractice from salespersons, including such tactics as fabricating documents to help questionable customers bypass the internal review.
6.       User experience. Baidu has vowed to continue to improve its technology and increase the relevance of search results. However, it has no clear plan to cut the number of sponsored links in its search results. Google usually adds at most three sponsored links to each search result; Baidu usually keeps this number at less than 10, but there are exceptional cases.
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