One of the claims that Baidu makes is that it is the unwitting search engine that has no means to verify the legality of the music on third party sites it links to, but a new report on The Register shows that Baidu may have a little more to do with it than it lets on.
Where Baidu is infamously known for its illegal mp3 search, the signs are that its shenanigans are darkly extending beyond the music space. A backlash against China’s No.1 search engine, Baidu is brewing on multiple fronts, most of which are a reaction to Baidu’s dubious practices, some of which are illegal and others downright unethical and despicable
With around 70% market share in search in China, Baidu has seemingly actualized the nightmare scenario that others have warned is within Google’s power to unleash with its dominance and influence in the West. Whereas Google is at least guided by its unofficial “Don’t Be Evil” ethos, Baidu in China is unfettered by any such principles.
The Feudal Backlash
Reports in China are revealing that other websites are hitting back at Baidu, and these include heavyweights like Alibaba, Sohu and leading social networks, 51.cm and China’s Facebook clone, Xiaonei who have all announced that they are blocking Baidu from indexing their sites. As Media reports,
“While these portals and social networks assert their decision to block Baidu is based on users’ rights to privacy, analysts say much of their motivation comes from dissatisfaction at Baidu’s domineering web presence.”
Added Paul Denlinger of China Business Strategy,
“I find this excuse a real stretch. Since when has anybody worried about user privacy in China before? What guidelines do they use for protecting user privacy? This sounds much more like a desire to dial back the power of Baidu and its search.”
Whereas sites were willing to tolerate some of Baidu’s machinations, the straw that seemingly broke the proverbial camel’s back was Baidu’s announcement last week of its move into e-commerce and directly challenge not only Alibaba but other players too.
Rose-Tinted News Filter
Already in true Big Brother fashion, Baidu has been known to call up editors of news websites to take down unflattering news reports about it, with the unsaid retribution for non-compliance being a downgrading of news links to said news site on Baidu’s search – which would have disastrous advertising revenue consequences for the news site. Search de-linking of news negative to Baidu has proven to be de rigueur behaviour by Baidu.
And, it has been rumoured that non-subservient sites have been the unfortunate beneficiaries of Denial-of-Service attacks soon after….connect the dots, and the recognized pattern of a street thug manifests.
This clever maneuver and subversion of the truth is why readers and analysts have been unable to more easily find out about Baidu’s dubious modus operandi.
Update 17 Sep 08: More chillingly, the Chinese internet is abuzz with reports that Baidu had suppressed negative news on the developing tainted Sanlu baby milk powder scandal prior to Sep 12 for a purported fee of RMB 3 mil. If indeed, this was true, one shudders to think of the deadly consequences of their actions - however, Baidu itself has released a statement denying this, but their prior cut-throat behaviour of omitting news items certainly clouds the issue of the truth of the matter. It’s not our place to debate this particular incident further but more information on the matter can be gleaned from other search engines. (end of Update)
“Music Search” Fraud via Mysterious Websites?
Baidu’s rise to power first started with its illegal mp3 search engine which now brings 30%-40% of its entire search traffic. It is on the strength of this habit forming music search activity via Baidu that has not only led to 85% of all Internet users in China accessing music but upon which Baidu draws its traffic and reaps the benefits via advertising – a lucrative move which earned Baidu more than RMB 1 billion in 2007.
Where Baidu’s apologists have stated that it is simply a neutral search engine and it is not their responsibility to figure out if the so-called third party sites they link to are purveying illegal music, a small number of Chinese news sites and The Register report that
“a network of mysterious sites with closely related domain names contributed more than 50 per cent of the search links returned by Baidu. The songs hosted on the mystery sites were unreachable except through the Baidu search engine. Furthermore, infringement notifications resulted in unlicensed songs simply moving from one of these domains to another.
With Baidu’s illegal practice of deep-linking to these mysterious sites, as the screen shot of the process below shows, the user is not even brought to the third party mystery site hosting the illegal music file, and the download action appears superimposed upon the Baidu search window itself.
This begets the question of why any third party site (mysterious or otherwise) would risk prosecution for hosting illegal music files with no recourse to any revenues from advertising or other means when it can only be accessed via the Baidu mp3 search engine where the only beneficiary of this process seems to be Baidu. That the mysterious sites are actually closely related domains following a pattern and the illegal music files are moved around in an organized manner which as The Register noted,
“reduces Baidu’s administrative cost of policing infringement…Baidu can claim that it has complied with the take-down notice without removing the offending sites from its search index. …The net effect is that the MP3 song file in question is always available on Baidu’s MP3 search engine, despite any number of take-down notices by content owners, and Baidu’s MP3 search users are always gratified - keeping Baidu’s traffic flowing. Whoever the manipulator of these domain names turns out to be, the contents infringes PRC Copyright Law Article 47(1), and the hoster therefore bears direct and primary liability.”
With the common wisdom in the market being that music search engines in China with the exception of Google are actually secretly hosting the mp3 files in question, it is no surprise that the Hebei Copyright Administration and legal authorities finally managed to catch Baidu’s smaller rival music search engine Zhongsou in the act of hosting illegal music files on its servers. Employing laborious investigation to track down the servers and network of domains which were registered under false names of individuals, the copyright authorities had to then seize the evidence against initial ISP resistance.
It all points to a scenario where Baidu is allegedly hosting music files illegally but managing to mask this due to its superior technology proficiency which unfortunately it seems to be channeling into unethical, if not illegal practices. Just last month, Baidu announced that it is using Solid-State Drive storage, to replace its mechanical hard drives and though there are efficiency benefits, it would also serve to mask any incidences of Baidu’s hosting of illegal files. There are also indications that Baidu is actively blocking copyright monitoring agencies URL’s and denying them access from monitoring music search URLs by revising URLs with decoy codes.
Is Google Running Scared From the Truth?
There is every reason to believe that Google China with its undeniable knowledge of the search space knows exactly what is going on with regards to the true state of illegal hosting of files by other music search engines in China but chooses not to publicly state its views. Baidu has already played the nationalistic card once against Google with their campaign of claiming to know the Chinese language and users better than a foreign company like Google. With Google also facing accusations by American activists of collusion with the Chinese government, they are certainly caught between a rock and a hard place, and until they exercise the nuclear option of authoritatively revealing the truth about the illegality of music search engines in China, their recent attempt at introducing a limited legal music search engine is unlikely to change the force of habit of existing Baidu music downloaders.
Exploiting The Den of Thieves
International companies like Motorola, Nokia, Samsung, Lancome, Estee Lauder, Adidas, Puma, Coca-Cola, Nissan and Nikon who themselves are intellectual property owners and are acutely aware of Baidu’s dubious legally challenged state with regards to music IP but yet they choose the duplicitous route of advertising on Baidu.
These advertisers are blatantly capitalizing on a thieves den and marketing directors of each of these companies are disingenuous if they claim not to realize the infringing nature of the environment which generates the traffic they crave. In certain cases, there is also the situation where the advertisers are averse to making any statements announcing a pullout of display ads from Baidu for fear of Baidu playing the nationalist card against them. Invariably, advertising dollars are certainly feeding the Baidu music piracy beast.
Baidu’s apologists will again claim that there are other Chinese or international companies that likewise cross the line into dubious territory, but Baidu’s chosen path dictates that its practises should be subject to greater scrutiny as The Register points out,
“Baidu’s decision to trade its shares on NASDAQ was a conscious decision to distinguish itself from the scrabble of Chinese internet entrepreneurs. A New York stock listing brings legitimacy - as well as blue chip investment. In turn, this raises questions of due diligence: the JP Morgans are simply investing somebody else’s money. Ironically, a significant portion of Baidu’s institutional shareholders and mutual fund investors are American companies, including blue chip investors such as US investment companies like Morgan Stanley, JP Morgan, Fidelity and Goldman Sachs.”
A reading of Baidu’s quarterly transcripts reveals that investors and analysts have conveniently chosen not to investigate the situation further despite the multiple legal lawsuits, one of which is an outstanding US$ 9 mil case brought on by the IFPI and major labels. With the possibility of fraud by Baidu, the failure by investors to undertake a more thorough due diligence of Baidu’s practices raises the question of negligence and the resulting riches that Baidu’s blood money has brought them, though not quite fully a matter of complicity, does point to a morally deficient but financially beneficial state that their inaction has brought about.
It is also laughable that the US Patents & Trademark Organization (USPTO) in China states that one of its missions is to advise the Chinese government on Chinese laws with regards to intellectual property while looking the other way as American institutional investment holders, mutual fund investors and venture capitalists pour money into and profit from legally suspect companies like Baidu. The US WTO action against China with regards to intellectual property infringements should likewise examine further the role of American financial interests in sustaining the very structures and channels that enable music piracy in China instead of adopting a myopic focus on the symptoms rather than the source.
The perpetuation of investment advice into these type of companies by offshore analysts who do not benefit from on-the ground experience in China and seeing first-hand the realities of dubious practices are doing the market – and truth - a huge disfavor. Neil Portnow, President of NARAS, the organization behind the Grammy awards who was in Beijing last month and after meeting the CEO of Baidu exhibited his limited knowledge on the subject with his pronouncement,
“Authority and impartiality are also the chosen rules by which the Grammies always abide by - Baidu’s Music Charts having wide recognition in the market can truly be called the Chinese Grammy.”
If the NARAS President believes that Baidu exemplifies impartiality at the level of the Grammies, then it certainly does not bode well for the Grammies’ reputation.
Rick Aristotle Munarriz of The Motley Fool especially would also do well to temper his enthusiasm of Baidu with a closer examination of the facts and realize that Baidu is not only not a neutral search engine but also loses legal immunity via its actions. The question that these investors and analysts should be asking and investigating is “who owns these mysterious music websites that Baidu is conveniently indexing and linking to?”
Update 18 Sep 08: David Wolf of Silicon Hutong/ Seeking Alph offers up some very sound advice for evaluation of partner companies in his posts “Being the Change: The Ethics of Baidu” and Baidu Report Raises Important Ethical Questions,
“At what point, we need to ask, does it become unethical to deal with a company that appears to be actively violating the law? Do you take a zero-tolerance approach? Do you wait for a criminal indictment? Do you do your own due-diligence? Or do you simply shrug your shoulders and say “I really don’t care what kind of people I do business with, as long as my company makes out on the deal?
These are not easy questions, but they are an example of the kind of issues a company needs to deal with in advance of doing business in China, or failing that, right now.” (end of Update)
The Last Post
With a looming war between Baidu and Alibaba, and also the escalation of Google vs Baidu on the music search front, it is inevitable that Baidu will be playing dirty, but for a NASDAQ-listed company that counts Morgan Stanley and Fidelity as its mutual fund investor and shareholder, it needs to clean up some of its more dubious practices especially with regards to profiteering from its illegal music activities.
One of Baidu’s more successful services has been “Baidu Zhidao” (Baidu Knows) and in keeping with the spirit of the service, it knows where the bodies are buried which we can only call ‘mysterious websites’ – the question is, does the trail of blood lead back to Baidu?
Disclosure: Maths’ involvement with Baidu lies bleeding in an unmarked grave on an unknown mystery site
- China’s Nonstop Music Machine- The Register
- Baidu’s Deeplinking To Mysterious Sites, Who Owns Them - OneTwo Music
- Baidu’s Ploy To Divide & Conquer Labels in China - Music2.0
- IFPI Wrongly Blames Chinese Law for Baidu Loss But Wins Yahoo Case - Music2.0
- Being The Change: The Ethics of Baidu - Silicon Hutong
- Kidney Stone Gate: Baidu Denies Censoring Search Results - chinaSMACK