Renren Information Services is suing Baidu for the equivalent of $161,000 in damages in Beijing. That may not seem like a whole lot of money to a cash-rich company like Baidu, but there's clearly more at stake than simply a judicial verdict.
"Renren told the court the number of visits to its website dropped sharply after it reduced its spending with Baidu," reads the report out of Reuters.
Before Baidu bulls point out that this validates the usefulness of advertising on Baidu, let's get to the real ammo in Renren's quiver. According to the disgruntled advertiser, a search for the company's sponsored subsidiary yields just four pages on Baidu. A similar query on Google
This doesn't reflect well on Baidu, under any circumstances. If Baidu's site was populated with more organic references to Renren pages before the reduced marketing spend, it's a convincing argument that payola is alive and well at Baidu. Even if it's not, it exposes Baidu as an inferior search engine if it doesn't scour the Web as effectively as its distant rival Google.
In the end, this is just another accusation of black-hat practices at a company that should know better if it wants to protect its $7 billion market valuation.
- In November, Baidu's rep took a hit when a television show exposed how the search engine was accepting ads from unlicensed medical companies. Baidu has since cleaned up its act.
- Baidu, along with smaller engines like Sohu.com's
(NASDAQ:SOHU)Sogou, were sued last year for linking to pirated music tracks. The Chinese engines have held up well in the past, but Yahoo! (NASDAQ:YHOO)did lose its case.
Like a cat, Baidu has landed on its feet in the past. It scored a pair of analyst upgrades last month, as users apparently began to flock back to the site following a few rocky months since the November expose.
Renren's case isn't the first time that "pay for organic performance" accusations have crept up on Baidu, but the company has to make sure that it's one of the last. Would it really be all that humbling to do things the Google way?
So far, it seems, Google is taking an unbiased view towards cataloging the Web in China. Instead of deep-linking to pirated MP3s, it teamed up with a site to offer ad-based music downloads. Baidu commands roughly double Google's audience in China, so it certainly would seem to have access to the techies, hungry record labels, and other resources to skirt around any ethical gray areas.
If Baidu keeps allowing its credibility to get smacked around, it may not have the same kind of flexibility to get things right the next time. Market-share pole position doesn't necessarily last forever, but doing the right thing sooner will help it keep its enviable distance from the huffing and puffing rivals donning white hats.
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Longtime Fool contributor Rick Munarriz has been a fan of China's growth stocks for several years now, even though he does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.