Baidu criticized for fraudulent keyword advertising

China's state-run TV network reported Baidu's ad platform can be abused

China's Baidu is facing criticism after a state-run television network ran reports alleging that the company fails to stop scammers from abusing its keyword advertising platform to promote fraudulent websites.

The news reports, however, may just be the latest sign Chinese authorities want to better regulate the search company given its near monopoly over the country's market, according to analysts.

The reports, which ran on China Central Television (CCTV) on Monday, showed an undercover journalist applying for and succeeding to advertise two fake companies on Baidu's search results. At no point, did Baidu take measures to verify if the companies actually existed, according to the report. Cases were also shown of how Baidu's keyword advertising can allegedly allow scammers to drive users to their fake sites.

The problem is not unique to Baidu. Google, for example, whose AdWords product shows products related to the keyword a person has searched, has guidelines to ensure that advertisements are legal and lead to a quality website. Google reviews the ads and removes ones that do not meet its standards.

Baidu declined to comment on the CCTV reports. But this is not first time it has been targeted by the network. In 2008, CCTV reported on how Baidu's search results for certain medical terms produced results for medical companies that did not hold proper licenses.

The search giant responded by removing the paid search listings for those companies and later introduced a new ad system. Baidu has also launched "Operation Sunshine," an effort to remove fraudulent sites from the search engine.

But even with the changes, complaints among advertisers about Baidu's online advertising have been ongoing, according to analysts. While Baidu has improved its monitoring systems, fake companies are still finding ways to advertise on the search engine, said Autumn Zhu, an analyst with research firm RedTech Advisors.

"This issue could keep on going, which won't benefit Baidu. This CCTV program might have the impact of causing the government authorities to look at this issue," she said.

The problems with Baidu's ad platform, however, are only being amplified by the search engine's dominance in China, said Dong Xu, an analyst with Beijing-based research firm Analysys International. The search giant currently has a 75.9 percent share of the country's online search revenue, with Google a distant second.

"The number of advertisers they have is so many, it is unavoidable that they will face this problem with fraudulent sites," she said. "Baidu will need to invest more in how it monitors advertisers."

Mark Natkin, managing director for Beijing-based Marbridge Consulting, said because Baidu is now the dominant search engine China, costs to advertise on the site are increasing, which has caused concerns among its larger business customers. CCTV's report may have served as a way for state authorities to warn Baidu to refrain from taking advantage of its market position, he said.

"It's a reminder that Baidu needs to keep their house in order and make sure they are operating in a way to keep consumer interest, and consumer welfare in mind," Natkin said.

CCTV's report, however, may have other motives. An analyst, who wished to remained unnamed, noted that both CCTV and Baidu compete for advertising money. At the same time, the Chinese authorities helped with Baidu's rise in the country by blocking the sites from rival Google.

"The government may feel a great responsibility to make sure Baidu doesn't damage the public welfare," he said. "I think the authorities are very sensitive to public criticism and that might be feeding into this."

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