Lately, there has been much discussion about Baidu’s problems re the disclosure that they were accepting payments from makers of less than consumer-friendly products for higher rankings. David Wolf has an excellent posting about how Baidu has hurt itself in the public relations battle, with some significant assistance from CCTV and Google. According to David, Google China has positioned itself to benefit from some advertisers who eschew Baidu’s former position of accepting money for high positioning, without taking a second look at some of those companies which paid for those high rankings.
On one level, Baidu is a victim of its own success. Search engines are really mapmakers: they show what’s in the neighborhood. In its early days, before Baidu became pervasive, it may have been alright to take money for businesses to show up on the map without caring too much about the reputation of the business. After all, search was a comparatively new thing, and Baidu, not yet public, wanted to grow as fast as possible, both in terms of its indexes and database, and in financial terms. But now, everyone knows what a search engine does and expects it to basically tell the truth. And if it doesn’t, they are shocked and outraged. (Whether this is real or feigned shock and outrage is another story. We’ll get into that later.) Unfortunately, Baidu’s management failed to take into account their own success, and failed to make the transition to a more open, fair, ethical and transparent model before it became a full-blown shitstorm. Making the change would have hurt the company’s earnings, something Wall St. analysts would not have taken to kindly, so they were stuck. Instead of acting proactively, they took the other path, which was waiting for something to happen to them.
And it happened.
So does this mean the beginning of the end of Baidu’s erosion as search engine market leader in China? Actually, it’s not that simple.
Ultimately, it depends on Robin Li, Baidu’s CEO, and how he chooses to handle Baidu’s salesforce, who have aggressively brought in the bacon so that Baidu would look good for its investors and Wall St. The big question for Robin Li is: “How can he rein in his salesforce just when he needs them the most?” The Baidu salesforce is the main differentiator for Baidu; it has been able to sell keywords to China’s SMEs, getting it far greater penetration than Google in the Chinese tier 2 and 3 cities and in the countryside. Can you imagine Robin calling in his salesforce and telling them to do business and background checks on customers? That would be a very good way to get your salesforce to rebel in a split-second! Can he afford such a rebellion just when global economies and markets are tanking and Chinese are cutting back on spending, and when Baidu is expanding aggressively into e-commerce and other fields?
I don’t think so.
But then, it’s a stalemate for Baidu’s salesforce too. It’s not like they can up and leave and go to Google China, taking their clients with them. Sure, Google China likes the sales numbers they generate, but they cannot accept their sales practices.
That is why the only thing Baidu can do is stay quiet, and hope the crisis is soon forgotten by its SME customers, and the wider audience, and can get back to business as usual. Of course, Baidu’s challengers will do their best to keep the issue in the public spotlight as long as possible. That is what the public relations battle which is now shaping up will be all about.
Baidu’s strategy of hoping that the issue will be soon forgotten is not a good strategy, but it’s the only strategy left in the eyes of their current management. But a strategy based on hope is not really a strategy, especially when you are under attack.
It’s time for a change.
If Chinese companies were more like most publicly listed US companies, somebody would step forward and take the knife, setting the stage for widespread change in direction and a whole new team. (Except if you are one of the Big Three from Detroit or a Wall Street banker. But, for the most part, those industries are exceptions and their gravy days are over.)
And that is why Chinese companies cannot make dramatic change, just when they need it the most. And, in short, that is why Chinese companies will not become global leaders.