The Wei Zexi Incident Has Cost Baidu 2 Billion RMB In Three Months And It’s Not Over Yet

摘要: According to Beijing News, Baidu has lowered its estimate on the quarterly revenue on the bulletin board on SEC. Baidu announced that the company is currently being investigated by regulators on the matter of the healthcare business and relevant advertising business, which is having a great impact on the company’s revenue from advertising service.

(Chinese Version)

The announcement shows that Baidu has lowered its estimate on the quarterly revenue from between 20.1 billion and 20.58 billion RMB (3.12 billion and 3.19 billion USD) to between 18.1 and 18.2 billion RMB (2.81 and 2.82 billion USD). Additionally, the estimated income has also been lowered to 2 billion RMB (300 million USD), a 10% decrease.

Around May 10th, the Cyberspace Administration of China concluded that Baidu is responsible for Wei Zexi’s death, which was caused by the misleading medical information on Baidu. On that matter, the Cyberspace Administration has demanded Baidu to make the following adjustments: reorganize and clean up the commercial promotion service for the healthcare industry that might bring prominent impact on people’s health; change the bidding mechanism for ranking, excluding money from the factors that determine the ranking of organizations.

The bidding mechanism for ranking is the business model through which Baidu’s search service makes profit and it is the main source of Baidu search’s income. According to estimates from analysts, advertising of the healthcare industry accounts for 20% to 30% of Baidu search’s business income while the search service accounts for 80% of Baidu’s total income. In response to the administration’s requests, Baidu has made the following statements:

1. The company will take immediate action to inspect the business promotion service of the healthcare industry.

2. The company will readjust its ranking system that used to base on the advertising fee to credit-based. The advertising fee will only be a reference.

3. The company will impose strict controls on the number of the search results from the business promotion, especially the ones that appear on the search result front page. The percentage of business promotion results should be less than 30%.

4. The company will put clear tags on the search results from business promotion, giving effective warning that there might be risks.

5. The company will strengthen the building of the ecosystem of healthcare content in the search results and establish a grading system for healthcare content. Furthermore, the company will team up with organizations such as the National Health and Family Planning Commission and Chinese Academy of Medical Sciences etc. to improve the quality of the content on healthcare so as to provide the netizens with accurate healthcare information and service.

6. The company will continue to work on building a rights safeguard mechanism for the netizens and establish a safeguard foundation with one billion RMB, which will compensate netizens who suffer from fraud or other losses caused by the false information in the business promotions.

Baidu’s founder and CEO even publicly stated: “If we lose the support of users and our principles on morality, then Baidu would go bankrupt in 30 days!”

Very soon, Baidu tags all the advertisements with business promotion to warn users about the risks in accordance with the requests and its statements. After more than a week of testing, Baidu has made the percentage of the business promotion in the search results less than 30% successfully since May 23rd.

On the other hand, some of Baidu’s clients from the healthcare industry have put off their advertising plans due to the percentage control and the supervision of the authority. This is the reason why Baidu lowered the expectation. To pacify the investors, Baidu states that the expectation would rise again for the fact that the new rules and regulations would draw high-end clients from the healthcare industry.

Even so, CITI Group’s analysts still decided on June 13th to remove Baidu’s grading from buy-in to indifferent with the concern about Baidu’s recent revenue performance. The analysts at CITI Group believe that it’s quite hard for Baidu to achieve the revenue expectation in the second quarter and the company’s expectation for the third quarter would be lower than that of the matket.

The Wei Zexi incident not only brought up a stir at the Wall Street but also provoked quite a heated social phenomenon in China.

According reports from Tencent Tech, patients that had been tricked by the WJ Second Hospital have established a WeChat group in which they discuss to demand for compensation and a statement. At present, these patients have been protesting in front of Baidu’s HQ since June 15th, seemingly making Baidu the last stop of their protest.

By far, Baidu hasn't really solved the issues emerged from this incidents, which are the issues presented by the business world and the healthcare industry.

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Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.

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