BUSINESS

Baidu to suffer under China’s new ‘cyber crime’ crackdown

TAGs: Baidu, China

china-baidu-illegal-gambling-advertisingChina has launched a new crackdown on illicit online activity, including online gambling sites.

On Wednesday, the Xinhua news agency announced that Beijing police had launched a two-month crackdown on illegal online activity, including gambling, guns, drugs, pornography, fraud and anything that damages political security or the existing social order.

The online purge spells more trouble for Baidu, China’s leading search engine, which was publicly embarrassed last month following a Beijing News report that found illegal online gambling operators were using Baidu’s platform to advertise their services.

Following the revelations, Baidu CEO Robin Li warned investors that the heightened regulatory scrutiny “will likely suppress company revenues for the next two to three quarters.” Baidu’s 2015 annual report showed that advertising accounted for over 96% of the company’s total revenue.

This week, Beijing media outlet Caixin took a closer look at Baidu’s gambling ad scandal, strongly suggesting that the company was well aware of its dealings with illegal gambling operators but chose to look the other way because the money was too good.

After the scandal broke, Baidu blamed some of its regional sales offices for striking deals with third-party agencies, who in turn struck deals with gambling operators while disguising the true nature of the businesses purchasing the ads.

But sources told Caixin that, if regional offices had turned a blind eye to the agencies’ activities, it was because they were under pressure to meet aggressive revenue targets handed down by Baidu executives. As one former Baidu ad sales rep put it, “bad businesses make money quickly.”

In the wake of the Beijing News report, Baidu has reportedly begun putting pressure on regional managers to perform more due diligence on agencies and the clients these agencies bring in.

The gambling banner ads in question had a tendency to appear on mainstream sites starting in the late evening before disappearing in the morning, leaving noncontroversial ads in their place. Sources said this was likely because “there are fewer censors” watching during off-peak hours.

Last week, Xinhua reported that China’s internet population had topped 710m users as of June, representing just under 52% of the country’s total population. The figure is up 1.3% from the end of 2015. Around 92.5% of users access the internet via smartphones.

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