Baidu seems to be galloping along. Net income jumped 42% to RMB493m ($72m) in the third quarter compared with the same period last year, and revenue was up 39% year on year to RMB1.28 billion. Baidu holds 61% of the market in China, while Google has 29%.
But now Baidu has warned that some of its customers are not ready to start using Phoenix Nest, a tweaked version of its search word bidding system — whereby companies pay to have their websites listed higher up in Baidu’s search results.
Baidu introduced Phoenix Nest in April, and 70% of its customers that pay for priority search results have started using the platform. The company plans to switch off its old bidding platform in early December.
As a result, the company forecast revenues in the fourth quarter will drop to between RMB1.19bn and RMB1.23bn, and management said it expected the squeeze to be felt for most of the first half of next year.
Shen Haoyu, vice-president, told investors, “It will probably take a couple of quarters from the date of the switch for…us to return to a normal growth trajectory.” Immediately the value of the shares dropped.
Robin Li, chief executive, said the switch to Phoenix Nest was the right decision. “Twelve months from now, when we look back we will be happy with the switch,” he said.
The Financial Times reports that last year Chinese state media criticised Baidu, saying its business practices allowed unlicensed medical sites to have top listings on its search engine, hurting consumers and squeezing “legitimate” businesses.
The group quickly responded by terminating services for customers without valid licences. And Baidu also said at the time that Phoenix Nest would help make its paid search fairer and more transparent. Shares fell almost 11% at the news.