Global Economics

Click Trickery Claims Land Baidu in Court


Online click fraud isn't a scourge only in the U.S. (see BusinessWeek.com, 10/2/06, "Click Fraud"), it's also giving headaches to online advertisers in China.

Earlier this year, marketing execs at Beijing-based Analysys International, an IT research firm, started to worry when they noticed that the number of click-throughs from keywords on Baidu.com (BIDU), China's top search engine, started soaring without any corresponding increase in actual business for the company. In April alone, Analysys burned through one third of its yearly online marketing budget of $3,800. "It was crazy," says Edward Yu, Analysys' president. "Every day, $25 to $35 was gone—and we didn't get anything."

Yu decided it was time to start asking other people about click fraud. Analysys conducted a survey of 2,000 Chinese online advertisers and found that one-third believed they had been victims, too. "This is very common," concludes Yu. He has stopped buying keywords from Baidu and has also cut Yahoo (YHOO) China but continues to patronize Google (GOOG) China.

FLURRY OF LAWSUITS. Other Chinese advertisers are also getting fed up and taking more drastic action. Dr. Liu Wenhua is the director of the Beijing Zhongbei Cancer Medical Research Center. In August he led a small demonstration in front of Baidu's headquarters in the capital, protesting alleged click fraud.

Dr. Liu claims that his center suffered from fraudulent clicks that came from a Baidu-affiliated site about music and entertainment. He also complains that Baidu suddenly jacked up the prices twelvefold of some of the 1,000 keywords that his center had purchased. According to Dr. Liu, Baidu offered to refund him his money, but he refused their offer and has taken Baidu to court. "I'm not satisfied," he says.

Representing Dr. Liu is Zhang Xinwei, a partner with the Beijing Hetong law office who says that he has four other clients who also are suing Baidu. "The problem is very serious," says Zhang. This isn't his first run-in with Baidu: Zhang himself sued the company in June, claiming that Baidu had suddenly jacked up the price for keywords that he had purchased to advertise his law firm. Zhang says that he and Baidu settled the case out of court and he can't comment on the details of their agreement.

HARD TO PROVE. Another plaintiff against Baidu is a Beijing travel agency specializing in trips to Canada called Land of Maples Tourism and Culture Exchange. Steven Donne, who runs the travel agency, says that he became suspicious of a batch of 600 clicks this summer because they all came from one source. Donne blames aggressive salespeople.

"Some agents click on the words that you have bought so they can increase their commission," he says. But Donne feared he wouldn't be able to prove click fraud, so his suit focuses on a claim that Baidu manipulates search results to punish certain advertisers who won't buy additional keywords.

Baidu executives would not speak with BusinessWeek for this article, but a Baidu spokeswoman did e-mail a statement explaining the company's policy regarding click fraud. "Baidu places the highest priority on preventing fraudulent clicks," the statement said.

TINY PERCENTAGE. "We have set up numerous measures both through automated technology and manual efforts to prevent fraudulent clicks and the effectiveness of which [has] been verified by [an] independent third party. We believe our anti-fraudulent clicks measures have been working quite effectively. We are, however, continuing to invest aggressively in safeguarding measures which will help ensure that our customers and users continue to have the best possible experience using Baidu."

Porter Erisman, a spokesman for Yahoo China's owner, Alibaba.com, said in an e-mail that "click fraud is a serious but manageable issue," adding that fewer than 0.01% of customers have complained.

The nature of the Chinese search market might make that job harder for companies such as Baidu and Yahoo to eliminate the problem. In the U.S., a search engine such as Google deals directly with customers, as would-be advertisers buy keywords online. Not so in China. Even with more than 120 million Chinese people online, e-commerce is still an unfamiliar concept for many Chinese businesspeople. So Baidu and others rely on third-party distributors that employ armies of salespeople to drum up business.

OPEN TO TEMPTATION. For instance, Baidu uses 200 different distributors, which in turn often farm out the work to others, says Richard Ji, an Internet analyst with Morgan Stanley (MS) in Hong Kong. Ji estimates that there are close to 1,000 distributors in China selling keywords for search engines. "These search operators have to deploy their sales forces and knock on the doors of small and midsized enterprises to [get them to] buy paid listings," says Ji.

As a result, the distributors "are under enormous pressure to deliver revenue." For some, the temptation to fake some clicks may be too hard to resist.


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