Baidu Is No Match for Google

When Google threatened to pull out of China last month, many experts interpreted the move as a last-straw response to Beijing's aggressive policy of Internet protectionism. It was assumed that in the wake of Google's departure, the government would set up domestic rival Baidu to become the Google of China; indeed, the company's stock surged 16 percent on the day of Google's announcement. Baidu's ambitions may be even larger: on Jan. 16, Baidu CEO and founder Robin Li announced plans to expand the brand to reach half the global market within 10 years. But there are many reasons Baidu will make a weak global challenger to Google, even with strong backing from Beijing.

In an industry that depends on trust between users and advertisers, Baidu's biggest enemy is itself. Rivals and customers have accused Baidu of tailoring its search results to favor companies that advertise most heavily on its site, of favoring domestic over foreign firms, and even of blackmailing small and medium enterprises into buying ads—using the threat that they will be removed from Baidu results if they do not comply. A Baidu spokesperson denies that the company manipulates or discriminates in its search results. Many analysts see the familiarly streamlined Baidu Web site as a direct copy of Google. Li has done nothing to quiet those critics by dismissing innovation, the bedrock of Google's global strategy, as oversold.

Even if Google does exit China, Baidu could have a hard time maintaining dominant share even in its home market. Alibaba, part owned by Yahoo, has a much better reputation for providing fair search results without scandal. Following charges that Baidu was accepting ads for quack doctors that were made to look like real search results, Baidu quit the practice, but the image problem remains. Baidu's CTO and COO both left the company in the past few weeks, citing "personal reasons," and leaving behind an impression of internal turmoil. In a November report on Chinese e-commerce, Credit Suisse predicted that Baidu's share of the domestic-search ad market would fall from 58 percent in 2008 to 36 percent in 2012, while the Taobao site owned by Alibaba would gain. Whatever the truth is about Baidu's internal practices, this does not look like a company well positioned to take over the world.