Baidu Has Taken Offline 126 million P4P Advertisements after Investigation into Wei Zexi Event

Wei Zexi, died at age 21

The Cyberspace Administration of China (CAC) on Monday demanded an overhaul of China's leading search-engine Baidu (NASDAQ: BIDU) following an investigation into the widely-publicized Wei Zexi event.

The CAC said Baidu relied excessively on profits from Pay for Placement (P4P) listings in search results, and did not clearly label such listings as the result of commercial promotion, compromising the objectivity and impartiality of search results. The public are likely to be misled by the search results they find on Baidu, the CAC said.

The P4P scandal swept Baidu into a public-relations storm after Wei Zexi, 21, went through a controversial cancer treatment advertised on Baidu, at a the Second Hospital of Armed Police Beijing Corps, which the Wei family also found through a Baidu search. The treatment was unsuccessful and Wei died on April 12, 2016.

A team of investigators from the CAC, the State Administration of Industry and Commerce, and the National Health and Family Planning Commission was dispatched to Baidu on May 2.

The results CAC published on Monday say that Baidu search results did influence Wei’s choice of medical treatment.

The search-engine must eschew the current model of paid listings and stop ranking search results solely according to price-tags. It needs to propose and implement a new listing mechanism which places the heaviest weight on credit-worthiness of products and organizations, the investigators said.

They asked Baidu to clearly label advertisements, and feature a risk reminder; and to restrict the share of commercials in search results to less than 30 percent of each screen page.

Baidu was also ordered to streamline its commercial services regarding the medical industry. Such information featured must be pulled off should it break regulations, and medical institutions unaccredited by industry regulators should not be commercially promoted.

The investigators also required Baidu to respond to Internet users' tip-offs regarding imprudent content, and to compensate them for any losses stemming from misleading information.

The CAC said it will tighten regulation of the country's Internet search services and crack down on false medical advertising online.

Baidu on Monday says that they would firmly support the overhaul and will execute them before May 31. According to Baidu, they will replace their price-dominate P4P mechanism to credit-dominate one. In accordance to relevant military regulations, Baidu will ban commercial promotion for military-related institutions, including PLA and Armed Police hospitals. The advertisement on the search result page and front page of Baidu will be limited to less than 30 percent, and will be noticeably labelled. Baidu will set up a 1 billion yuan fund to pay for the loss of web users in similar incidents.

During the investigation, Baidu has taken offline 2,518 medical institutions and 126 million advertisements.

However, web users voiced out their discontent as to the fact that Baidu was not painfully fined after the investigation. “The price for doing vile is too cheap,” commented one of the netizens.

There are also concerns that the biggest problem in the Wei Zexi Event, that the P4P service is for the time being not under regulation of the advertisement law, as the Advertisements Law of the People's Republic of China and relevant regulations are yet to include P4P as a form of online advertisement.

The performance of Baidu on the NASDAQ (BIDU) indexed has suffered a black Monday- down 3.66 percent as of Monday noon Eastern Standard Time.