Baidu Responds to Stricter Rules Concerning Healthcare Advertising
Tencent Tech, 5/09/16
Xiang Hailong, head Baidu's (Nasdaq: BIDU) Search Services Group, said today that Baidu will implement six corrective measures in response to new requirements imposed by the Cyberspace Administration of China following the latter's investigation of the Chinese online search giant's business practices in the online healthcare advertising sector.
1. Baidu will not offer advertising services for medical institutions that have not been certified by relevant government agencies, and will take down unlawful medical advertising content. The company will also stop all advertising that uses names associated with the People's Armed Police and People's Liberation Army, such as advertisements for army hospitals.
2. Baidu will change its paid search ranking mechanism such that trustworthiness of the advertiser, rather than bidding price [per click], is the main ranking factor, with bid price playing a secondary role.
3. The number of paid advertisements included within search results will not exceed 30% of the listings per page.
4. Paid advertisements will be marked with appropriate logos.
5. A review and grading system will be introduced for medical information in search results.
6. A RMB 1 bln protection fund will be set up to provide compensation, after verification, to users who are harmed by fraudulent information or deception due to information provided in advertisements that display on Baidu's website.
During the investigation period, Baidu reviewed the credentials of all of its medical industry-related advertisers, including businesses advertising medical institutions, medical devices, and pharmaceuticals, and took down more than 126 mln advertisements listed by 2,518 organizations. Baidu said that it will implement the six measures announced today before May 31.
Editor's Note: How much impact the measures listed above will have on Baidu's revenues will depend largely on the details of their implementation. In a phone conversation with Marbridge, Baidu's Associate Director of International Communications Tracy Hu clarified that the company would limit advertisements to 30% of listings per page, rather than 30% of those listings appearing above the crease (i.e. "above the crease" meaning the portion of the page that appears in the first screen, in contrast to that portion of the page which the user can view only by scrolling down the page). This is an important distinction, as the total number of search results Baidu displays for any given keyword search varies broadly. For example, searching Baidu for the Chinese-language equivalent of "wealth management" today, Marbridge found that 18 results covering roughly 4.5 screens were returned in the first page, of which the first 8 results covering the first 1.3 screens were all ads. Searching instead for the Chinese-language equivalent of cancer, Baidu's first page displayed only 10 results covering 2.5 screens, and none of the results were ads. Since the number of results Baidu displays for any given keyword search is variable, Baidu can easily guarantee that less than 30% of results will be ads without reducing the number of paid results; it can simply increase the number of organic (i.e. unpaid) results at the bottom of the page. The 30% limit, confirmed Hu, will be applied to all verticals, rather than only to the medical/health vertical.
As for indicating paid results with an "appropriate marking," Baidu already marks ads with the word "tuiguang," which translates loosely to "marketing/recommendation," generally the same designation used by most of China's online ad media, but perhaps now will change this to something like "guanggao," a slightly clearer term meaning "advertising." Currently both Google's Chinese-language search platform and, more recently, Tencent's various online/mobile platforms designate ad links with the word "guanggao," but it's difficult to say whether switching from "tuiguang" to "guanggao" or some other term or indicator will really result in significantly lower click-through rates (ultimately it will depend on how distinct the indicator is).
Baidu has not, in conjunction with the announcement of the new measures it plans to adopt, revised its Q2 revenue guidance, suggesting that it does not expect the measures to have any significant negative impact on revenues.
Last week, the Chinese government announced it would investigate Baidu's (Nasdaq: BIDU) healthcare-related advertising practices following an incident in which a student died after undergoing an experimental cancer treatment that he found through an advertisement on the online search giant's platform. For more information on this topic, please see "Chinese Regulators Impose Stricter Rules for Baidu's Healthcare Search," MD 5/09/16 and "Chinese Regulators to Investigate Baidu over Medical Ads, Student's Cancer Death," MD 5/03/16 issues.
Keywords: search advertising regulation Internet online healthcare Baidu BIDU Xiang Hailong Cyberspace Administration of China online search scandal
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