Baidu, China's Google, overhauls advertising following investigation

Baidu is in for an overhaul.

The world’s largest Chinese-language search engine, used both within China and by Chinese speakers abroad, faces a government crackdown for advertising practices that promote certain results and blur the line between paid ads and other content.

In China, Baidu relies on income from advertising related to the country’s little-regulated healthcare industry. Analysis shows that the search engine gets between 20 and 30 percent of its search revenue from these types of ads. Revenue from search accounted for 84 percent of the company’s total income in 2015.

That’s come under fire following Chinese media reports that a Chinese student died after receiving an expensive, but unproven, medical treatment at a hospital that advertised its therapies on the first page of Baidu’s search results. The South China Morning Post reports that, after an investigation, Chinese regulatory authorities found Baidu gives undue weight to the bidding price paid by online marketing customers, which in turn influences its search results. The investigative team also found that some marketing results are not clearly delineated as advertisements in Baidu’s search results.

Recommendations from the Chinese regulatory authorities stipulate that Baidu improve its user and search experience, including curbing the amount of advertising people see when they search on Baidu to less than 30 percent per web page. The regulators also want Baidu to improve its transparency on which medical organizations it allows to advertise in its searches, and limit advertisements from healthcare firms that have not been cleared by authorities.   

Baidu appears to have taken the investigation to heart. In an internal memo circulated to employees on Tuesday, Baidu CEO Robin Li said the choice is stark: Baidu can either change the business model or face bankruptcy in as little as 30 days, according to the memo.

The company has also set aside $153 million to redress people who have been affected by fraudulent advertising. Baidu told media outlets that it is complying fully with the government investigation and is also conducting one of its own.

"Over the years, we have proactively cleaned up the customer base," a Baidu spokeswoman said in an e-mail to Reuters, adding that the number of ads depends on the search subject and whether the view is on mobile or PC.

Li has said he isn’t worried about how the new regulations could impact the company.

“These measures may hurt our company’s revenue,” Li said in a statement. “But we have to take decisive action because, we believe, this is the right thing to do.”

Baidu has faced scrutiny for its advertising practices since 2008, when Chinese media alleged the company let unlicensed medical service providers buy rankings to appear farther up in search results on the site. In January of this year, Baidu found illegal postings in its site content.

Google has more restrictive policies on healthcare advertising and more clearly delineates that content as an advertisement.

Yet Baidu’s apparent failure to clearly showcase what is and isn’t an advertisement highlights the challenge that search engines and social media companies face in ethically curating results. On Monday, former Facebook staffers alleged that the trending topics feature that showcases breaking-news stories being discussed on the site was, in some instances, manipulated to suppress stories about conservative issues.