Too much too soon? Baidu overcomes search scandal & lawsuit; launches video & ecommerce sites.

But after two years of highs and lows, analysts doubt that the site can keep up its momentum.

In the span of two years, Baidu has gone from a digital villain - engrossed in a melamine-related search scandal and lawsuits from the globe’s largest record labels - to a progressive media entity looking to expand its horizons. It’s made strides to capitalise on its millions of users and gain leverage, and has worked to strengthen its capabilities, independent of the buzz surrounding the Google versus China saga.

Baidu has now overcome the summer of 2008, when it was accused of accepting money from dairy company Sanlu to block listings of negative news at the height of the Chinese milk scandal. That same year, Baidu was found to be receiving money from unlicensed medical companies to include their websites in its search rankings, and e-commerce giant Alibaba ended its advertising contract with Baidu. It also blocked Baidu from crawling its websites after voicing its intention to launch its own e-commerce platform.

“I remember two years ago how Baidu was in the news for all sorts of things,such as not differentiating its paid search results from natural search results,” managing consultant of Text 100 Jeremy Woolf says. “It faced huge issues, but turned that around and still has the dominant search share of around 60 per cent. Baidu has turned that corner.”

But with its attempts to move from strength to strength, analysts say that Baidu is in danger of not only spreading itself thin, but doing too much too soon. A Beijing source notes that Baidu’s full success lies in its ability to manage its endeavours. Early 2010 does not bode well, with Baidu losing both its COO Ye Peng and its CTO Li Yinan over a span of 10 days.

According to Analysis International, Baidu’s search hold has weakened. In September 2009, it claimed 63.9 per cent of the search market share, compared to Google China’s 31.3 per cent. By January, this had slipped to 58.4 per cent while Google China climbed to 35.6 per cent.

“No one every doubted that it was a good business,” says Jeremy Goldkorn, editor of Danwei.org. “It’s gained bad press and it’s rushed to launch other services, but ultimately no one knows how much any of this has truly harmed its core business in China. Audiences still turn to Baidu for search.”

Woolf points out that, in order to stay relevant to China’s growing internet population, Baidu is being forced to extend beyond its search-engine shell to compete with other major players. Its main competitor in China isn’t necessarily Google, but the prospect of companies like Alibaba or Tencent putting a concerted focus on search.

“Baidu must diversify because the nature of search technology dictates that anyone can come along, which is what Google did when the market belonged to Yahoo and Alta Vista,” adds Woolf. “The question is: will it go down the same route that Yahoo has, where it started out as search and now it’s difficult to identify what it is.”

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This article was originally published in the 11 February 2010 issue of Media.