Friday, August 04, 2006

Two more photos of today's Anti-Baidu demonstration

Look at the English version, cool
Advertisers Demonstration against Baidu for Click Frauds

On August 4, 2006, some advertisers gathered outside Chinese search engine Baidu's office building and demonstrate against its click faults. From the post boards presented by the demonstrators, it was said that 70% of clicks on Baidu's paid ads were invalid. The claimed data was notarized by Beijing Notarization Bureau. The advertisers came to the building during lunch time and were expelled by the security guards. Later they stood on the road in front of Lixiang International Building which hosts other famous technology companies like Sina and SUN in China. The advertisers requested the NASDAQ listed search engine to apologize in public and refund its advertising payment.

One week eariler, Baidu has released its second quarter's financial report and showed a strong revenue and profit growth. But unlike its international rivals Google and Yahoo in China, the Beijing-based search engine's financial performance was largely questionable. In order to increase the clicks of ads, Baidu was notorious for mixing ads with original results and misleading users to click them. To boost its revenue from SME advertisers, the company recently ceased the auction model for ads price - which was viewed as a more fair approach and widely used by Google and Yahoo and other search engines - and increased the price thresholds of ads. One of angry advertisers, a Beijing lawyer, sued the company for breach of contract. The case was later settled down privately after Baidu paid the lawyer a large amount of money. However, it was not the end of Baidu's troubles, but rather a beginning. The company has to cope with many other advertisers' complaints, lawsuits or even demonstrations.

Links to reports on Chinese sites:
  • Techweb
  • Sohu
  • Netease

    Some photos:

  • Friday, July 21, 2006

    Google's search result page. Ads are in top light blue area with a different format of abstract and url.

    Yahoo's search result page. Ads are in top light blue area with a different format of abstract and url.

    Baidu's search result page. Top two are ads. See the small difference between ads and original results on the page.

    Result page of query "cancer" on All ten results are ads. See small Chinese words meaning "Ads" behind url and date.

    Thursday, July 20, 2006

    Baidu, the leading search engine in China, was under storms of criticism from users and media in the second largest internet market in the world.

    On July 10, Baidu axed off its Enterprise Search Business three days before the company's first user mega meeting in Beijing. This is the second department-level lay-off Baidu did in the second quarter. In May, the company quietly cut a department called Product Marketing Development department with nine employees. It was told by insiders that all the actions were to boast a mirage of the Chinese search engine's hyper-growth and maintain its high P/E ratio. Like other listed foreign companies at NASDAQ, Baidu had to comply with SOX act from July 15. The new regulation required companies to deduct their employee's stock options cost from the profit. So it was not surprising that Baidu rushed to a bloody downsizing and robbed the stock options from the innocent employees. The profit contribution from stock options was estimated to around 20 million Chinese yuan (USD 2.5 million). This will certainly make its income statement more "sexy" on July 25, the date when Baidu need disclose its Q2 earnings.

    However, Baidu was not lucky this time. It avowedly ignored the labor law in China and asked the employees to get out in 4 hours without any notices in advance. According to Chinese labor law, employers need officially inform employees one month ahead when they decide to terminate a job contract. One victim in May's layoff has sued Baidu already. Other angry engineers hurt by the newly cutback were preparing to conduct a suit over Baidu and get back their wealth. "I was selected as one of the top guns and my salary was increased one month ago. But I was fired suddenly because of under performance without any notice in advance. This is ridiculous," one victim complained to journalists. Perhaps it is more ironical if you know that Baidu has just been selected as one of Most Admirable Employers by a HR magazine in June. The scandal quickly becomes headlines of all major newspaper and portals last week.

    However, all of Baidu's efforts paid off. Its shares shot up Monday morning as an analyst from Brean Murray Carret & Co. predicted the company would keep up its "rapid growth". In a survey of distributors, Michael Tieu, the analyst concluded that all of them favored "They didn't understand Google Inc.'s auction-style bidding process", he noted, and "their return on investment with the U.S. search engine wasn't as great". Obviously Tieu did not quite understand the search engine business model in China. Chinese search engines leverage distributors to sell sponsored links to small and medium size enterprises, in stead of the direct sales model. So what distributors really care are total numbers of clicks, not returns of paid search-ads. When Google and Yahoo was annoyed by click frauds, you cannot image that some distributors are one of three key sources of invalid clicks (the other two are competitors and paid search ad affiliate spammers). Moreover, to help its distributors and itself get more bucks, Baidu actively mixed ads with original results, misleading Chinese searchers to click more. Few searchers can tell the difference between original results and sponsored ads because the company deliberately makes them appear same. To maximize the revenue potential, Baidu often listed their advertisements among original ones as shown in the following picture.

    The search engine's business innovations never stop here. Besides mixing ads and original results, it has successfully monetized users' trust and displayed all ads on the first page. For example, if you search for "cancer" on Baidu, the top ten results on the first page are all paid ads. This controversial monetization idea was first introduced by Overture and now completely replaced by Google's AdWords. But it is now widely adopted by Baidu and even became one of three relevance guidelines of Robin Li, the CEO of Baidu. "Relevance is best decided by how much you pay for us" described on the company's web site.

    International entrants like Google and Yahoo all adopt a legitimate approach to paid search ads in China. The appearances of ads are different from original results on titles, abstracts and URLs. Ads also are highlighted with a light blue background for users to recognize them easily. Well, their returns for distributor may be lower than from Baidu, but they bring real value to SME clients. Those clicks are from users who want to find commercial information.

    Tieu might not understand the nuance among search engines' varied business models in China. This reminded us a famous advertising slogan Baidu once coined, "I know you didn't know what I knew". The slogan was originally used to brag about Baidu's advantage on international rivals in searching Chinese language web pages. But it can be perfectly applied to investors and other audience outside of China too.