16 February 2019
Has Baidu prioritized the generation of advertising  revenue over the provision of reliable information? Photo: Bloomberg
Has Baidu prioritized the generation of advertising revenue over the provision of reliable information? Photo: Bloomberg

How student’s death exposed Baidu’s weaknesses

In this internet era, many people outside mainland China use Google to search for information.

As there are other popular search engines available, the internet giant needs to strike a good balance between providing reliable information and generating advertising income.

In the mainland, however, Baidu has no foreign competitors, thanks to the “Great Firewall of China”.

As a result, the company has been increasingly building up its advertising revenue.

Nearly half of its advertising revenue is generated from medical advertisements.

The recent death of Wei Zexi, a college student in Sha’anxi province, has put the spotlight on such advertisements.

Wei did a Baidu web search for treatments for the rare form of cancer from which he suffered. 

At the top of the list of search results he found the Second Hospital of the Beijing Armed Police Corps. 

He died after being subjected to outdated treatment at that hospital.

As a result, Baidu has come under fire for allegedly selling listings at the top of its search results lists to bidders without adequately checking their claims.

Companies pay massive advertising fees to search engines like Google, Yahoo and Baidu for prominent placement on the results pages.

Most search engine firms in the West won’t place links to advertisers in their results lists merely for the fees they generate.

If they did, search engine users would be overwhelmed with ads instead of useful information.

Yahoo learned a bitter lesson when its management was desperately pursuing growth in advertising revenue, which led to excessive ads on its search results pages.

Many netizens opted to use Google instead.

Google has been very cautious in this regard, trying to achieve a balance between useful information and advertising.

It has applied artificial intelligence, big data and other technologies to this end.

However, because Baidu is so dominant in the mainland, a Baidu search usually results in several pages of paid-for links.

It’s very difficult for ordinary netizens to find useful, reliable information.

Online medical advertisements are rampant as a result of the mainland’s flawed healthcare system.

It’s not easy for mainlanders to seek advice from doctors on medical treatment.

They often resort to Baidu if they encounter a rare disease.

And healthcare firms use widespread online advertising to attract patients to use their lucrative services.

A group of private medical companies from Putian city in Fujian province has invested in hospitals across China.

The “Putian system” has taken control of about 80 percent of all private hospitals in China.

In 2013, the then Communist Party boss of Putian city, Liang Jianyong, bragged that the Putian system contributed nearly half of Baidu’s annual advertising revenue of several tens of billions of yuan.

The Putian system spends half its revenue each year on selling ads on Baidu, a senior official of the Putian Health Industry Association has said.

Many Chinese netizens have been misled by the sweeping claims of the advertisements that appear when they search online for medical information.

They might put their life at risk given that many private hospitals offer very poor service.

Baidu Inc.’s founder and chief executive, Robin Li Yanhong, has been summoned by the Cyberspace Administration of China for questioning.

The internet regulator has launched a joint investigation into Baidu with the country’s health authorities and business regulator.

Baidu is the top player among the country’s three largest internet giants.

Its net profit reached 33.3 billion yuan (US$5.1 billion) last year, beating the 28.8 billion yuan of Tencent Holdings Ltd. (00700.HK) and the 2.42 billion yuan of Alibaba Group Holding Ltd.

However, Baidu has the lowest market valuation: about US$60 billion, less than one third of that of Tencent or Alibaba.

The valuation gap reflects the market’s view that Tencent and Alibaba are competent to compete with global players like WhatsApp or Amazon.

By contrast, Baidu has reaped its huge profits mainly thanks to the protection from competition provided by the Great Firewall, and the sustainability of its earnings is under question.

The Great Firewall has seemingly bred several domestic internet giants, but it may result in heavy social costs in the long run.

This article appeared in the Hong Kong Economic Journal on May 4.

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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