It has to be a good sign for Baidu.com (NASDAQ:BIDU) bulls when recycled headlines are what's in the "news."
BusinessWeek is the latest to kick China's leading search engine when it's down. The magazine claims that Baidu is dropping from its search listings websites that don't pay up for sponsored search spots on Baidu.com.
The story leans on two Internet entrepreneurs who claim that their traffic fell dramatically -- in one case by a whopping 90% -- when their sites were booted from Baidu's organic search results, shortly after refusing to pay for ads.
The allegations aren't new. They rained down on Baidu back in November, around the same time that Baidu's stock was being slammed over a scathing China Central TV expose. The report claimed that Baidu accepts paid search ads from unlicensed hospitals and pharmaceutical companies.
Baidu admitted to the practice of not having licenses on file for all of its medical sponsors. It is correcting the problem. The same TV network went on to accuse Google (NASDAQ:GOOG), Yahoo! (NASDAQ:YHOO), and Sohu.com's (NASDAQ:SOHU) Sogou of similar practices.
However, Baidu has steadfastly denied that it plays favorites with its advertisers. There may be some confusion over the differences between paid and organic search results, but Baidu still has some integrity to defend.
"I don't have the evidence to convict or defend Baidu," I wrote back in November. "My only point is this: If you're clean, stay clean. If you're dirty, clean up. Either way, the sooner you are armed with the ammo to silence the critics, the fewer defectors you'll have to win back."
Baidu needs to clean up its act, quickly. It still commands nearly two-thirds of the country's search queries. The time to ape Google by clearly separating paid search from actual ranked results is now, and not when it begins to yield market share.
Ex-sponsors who claim that they lost 90% of their traffic when they ran afoul of Baidu's paid search offerings may send a message that benefits Baidu, for now. Would you stop advertising through Baidu if it meant a steep decline in business? However, just as Baidu is making inroads into more tech-savvy markets like Japan, it is necessary to take a more "white hat" approach in the future.
With 1.3 billion people, China is too big a market not to take seriously. Headlines may repeat themselves, but mistakes should not.
Further Foolishness:
- Baidu has been in a bit of hot water lately.
- Revenue and earnings were on a growth tear in its latest quarter.
- How to Find the Stocks That Will Make You Rich
