Beijing - For months, the Web site China City Map ranked among the top results for the Chinese term "provincial map" on Google (GOOG) and other search engines, including China's No. 1 player, Baidu (BIDU). Then in August, salesmen representing Baidu asked the site to buy ads that would appear after a user typed in words related to maps in China. Chief Executive Michael Chen declined, figuring he was doing just fine without the ads. But in September, the site vanished from Baidu's results, though it still ranked high on Google and Yahoo! (YHOO) Traffic dropped by 90%. "If you have problems with Baidu," says Chen, "you're basically dead."
Chen isn't alone in feeling Baidu is abusing its position as China's search leader. Salespeople working for Baidu drop sites from results to bully companies into buying sponsored links, say some who have been approached. Former clients say their rankings fall precipitously after they stop buying search-related ads from Baidu. At least one Baidu salesperson acknowledges they're right. "The key is whether a company buys Baidu's sponsored links," says Zhong Hongjun, a salesman from a company that represents Baidu in the central city of Wuhan. "If they don't, the search engine won't find them. If they do, they'll be in there."
Baidu denies the accusations. In a written response to queries, the company said: "We never block or lower the rankings of Web sites because they do not purchase our sponsored links, and we maintain a strict firewall betweendivisions to prevent such practices." China City Map, Baidu adds, doesn't turn up because the server that hosts it isn't in China. Chen says the site was hosted in China when it was dropped from Baidu, but today it's in the U.S.
Baidu does, though, say it has a team that goes through searches and removes banned topics and sites suspected of using unfair tactics to elevate their rankings. And the company acknowledges that it mixes ads in with unpaid search results, rather than separating the two as Google does. At the end of every result, gray characters say "Promotion" for ads or "Baidu Snapshot" for unpaid entries. Research firm China IntelliConsulting says 90% of Chinese search users don't differentiate between the two. ...
Here is Frank Pasquale's reaction to this. Frank points to a notion he has been developing and I have dubbed "public failure": The phenomenon in which a private firm steps into a vacuum created by incompetent or gutted public institutions. A firm does this not for immediate rent seeking or even revenue generation. It does so to enhance presence, reputation, or to build a platform on which to generate revenue later or elsewhere. It's the opposite of "market failure." And it explains a lot of what Google does.