Blog #3 Myopia, “Smart” Strategy and Terrible Monopoly

Google ended its Chinese internet searching service in 2013, and since then, due to the existence of the Chinese Great Firewall, Google is no longer accessible from China mainland. Thanks to the lack of competitors, the only huge search engine that was left, Baidu, started its monopoly of internet searching engine since then.

Given its monopoly status, Baidu had a unique and incredibly powerful strategic position: since the absolute majority of people access the internet through searching engines and Baidu is the only choice internet users in China had at the time, Baidu acted as the gateway to the internet for hundreds of millions of users. Ideally, Baidu, with the control of the internet content of users, could shape the development of the internet industry in China. A good example would be Google who developed amazing technologies over its dominance in search engines worldwide. However, Baidu had chosen another path: a seemly “smarter” path.

Since Baidu had dominance in the number of users, advertising through searching service is hugely profitable. Instead of offering more justifiable indexing of websites according to relevance and authenticity. Baidu initiated biddings among website hosts and rank the website according to the bids the hosts pay. Moreover, since it controls a lot of user’s access to the internet, it using search indexing to direct users to its other products, such as news feed, forums, blog platforms, and so on. Such indexing even puts Baidu’s product on higher rankings than mainstream alternatives that are well-known for good product quality or services. Indeed, this indexing strategy that encourages bidding and self-promoting made Baidu the most profitable per user search engine over that past few years. However, such strategy backfired as well. The bidding strategy only cared about how much bidder pay, not the actual quality of the website. Meanwhile, as it’s way to easy to gain a large user base from search engine recommendation, other products made by Baidu suffered from poor development quality due to lack of competition. Over time, bad reputations started to accumulate for Baidu, creating a PR nightmare for the company.

However, due to its ridiculously advantageous strategic position as the only mainstream search engine in China, Baidu still remains one of the major players in the IT industry. With a lack of competition, such a myopic strategy can still sustain huge profits for Baidu for years. There’re also potential changes in the trend, as more and more users are shifting towards mobile internet. Phone apps become the new gateway to the internet, and Baidu has no control this time. It will be interesting to watch if Baidu can properly evaluate its position this time to coherently transition into the new competition.