Op-Ed Contributors
Will 'phoenix Nest' incubate same-feather bird?
(China Daily)
Updated: 2009-11-30 07:41
Top Chinese search engine Baidu is expected to fully operationalize its Phoenix Nest advertising system tomorrow, by which time the new system will clearly distinguish search ads from normal, or organic, search results. That means the controversial keyword advertising bidding system is going to step off the stage.
Baidu's keyword bidding system has been under fire because it mixed paid and organic results. Even now, users are not able to tell the CPC (cost per click) from normal search results, and consequently, many of them have been tricked by scam ads.
This time, however, Baidu seems to have made up its mind to draw a clear distinction between the two kinds of results. "Noticeable changes will appear on the search pages", says a company employee.
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Among the cases against the company, the most famous is the lawsuit by Hebei-based Renren Information Service Co, which accused the former of altering its natural search result placement to penalize the company shortly after it reduced its ad spending on Baidu.com.
All the proceedings point to the keyword bidding system, which is Baidu's most important income source. Indeed, the system is problematic. Whether an advertiser spends money to be listed among the paid results should have no bearing on whether it appears in the organic results. By blurring this distinction, Baidu has eroded consumer confidence in the quality of the results. Therefore, numerous accusations have arisen against Baidu since the end of 2008, including varied charges such as extortion, click default and manual intervention in search results.
Against this backdrop, Baidu introduced the Phoenix Nest in April. Vice-President of Business Operations Shen Haoyu said on Oct 27 that the Phoenix Nest advertising system would completely replace the old keyword bidding system on Dec 1. The top three buyers will be placed at the top on the left side of the search result page, and the right side will be left for the top 10. Experts said the new system copies the convention established by Google, in which the search ads are clearly distinguished from the organic search results. Baidu controls 29.4 percent of all Web advertising in China, while Google has 13.9 percent.
The move to the new advertising system, however, is likely to frustrate Baidu for a good while. And it may open a window of opportunity for others salivating for a piece of the country's fast-growing online market.
Despite the fact that the company's net profit surged 41.7 percent year on year according to its financial report for the third quarter of this year, its shares dropped from $433 to $371 after the new system was announced. Baidu's keyword bidding system has been enjoying a ready market for eight consecutive years.
Shen said that he expected the fourth quarter revenue to decline by 10 percent, and admitted frankly that the income from the right column on the search result page accounts for only a small portion of total advertising revenue.
The Phoenix Nest system has triggered huge media attention, including skepticism. Some believe the new system will not root out click default because it doesn't make any difference on the cost per click business model. They think the Phoenix Nest system is only an updated version of the keyword bidding system: It only changes the way it arranges the search results, but not the substance.
But if Baidu can truly separate the ads from organic search results, it will gradually build trust among users and business will pick up in the long run.
China Daily
