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This story was written by David Kaplan.


Thanks to the relative growth of China’s economy, the country’s dominant search-engine company Baidu (NSDQ: BIDU) hasn’t been hurting in terms of revenue and profits the last few quarters. But that doesn’t mean everything has been going smoothly for Baidu, the WSJ says. The company, which has 62 percent of China’s search market as of Q2, came under fire for not clearly identifying ads from search results. It also drew criticism on Chinese TV for running ads by unlicensed physicians.

On top of those problems, after introducing its new ad system, Phoenix Nest, in April, Baidu’s revenues were dented when it had to offer a variety of financial sweeteners to get marketers to try it. In an interview with the WSJ, Baidu CEO Robin Li tried to make the case the company’s blandishments will pay off quickly and paper over its recent problems.

In fact, Li said the new system has attracted 40 percent of Baidu’s customers—roughly 100,000 advertisers. Li also made the case for the company’s continued growth. He claimed that China’s search market is about equal with South Korea’s. Considering that South Korea’s population is under 50 million, while China’s is around 1.3 billion, that certainly does leave a lot of room to add more users and advertisers.

But China’s growth has been attracting challenges from all quarters. While Google (NSDQ: GOOG) has been trying to make inroads in Asia, Baidu’s closest rival is homegrown in the form of Alibaba Group’s Taobao.com. The e-commerce company has been ramping up its marketing services lately, and it may buy a mobile or payment technology, which could give it an additional edge. Naturally, Li has an answer to questions about competition from Alibaba’s site. As he told the WSJ, “Baidu is an open system willing to link to anything on the Internet,” while Taobao “is more or less a closed system. You can only find information that’s available on that site.”

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By David Kaplan
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