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5Some of Google¶s success in China will be determined by the actions and strategies of itsmain competitor Baidu. Up until now, Baidu has exploited its knowledge of Chinesecustoms and outmaneuvered Google in the search engine market. Recently however,Baidu has made several missteps that could cost it market share and investors haveresponded. Over the past year, Baidu¶s stock has been down over 33 percent versusGoogle¶s 18 percent.
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The single greatest source of controversy surrounding Baidu has been its practice of giving preference to paid advertisements over organic search result. This practice came tohaunt Baidu when China¶s state run CCTV network reported in November that some patients sought care from unlicensed pharmaceutical companies because they appearedhigher on Baidu¶s search results. Baidu¶s stock took a 25 percent hit in one day xiv and thecompany cut its fourth quarter revenue forecast by 15 percent. Baidu quickly removed theunlicensed companies from its results and on March 29 th , 2009, it announced it woulddrop paid search rankings completely xv .Baidu¶s search problems do not stop there. Some former Baidu clients claim the searchengine dropped their web sites after they stopped buying search ads from Baidu xvi . Baiduhas denied these accusations, but a group of more than 50 companies are planning tolaunch a lawsuit against Baidu for anti-trust, fraud, and infringement violations xvii . Baiduis also allegedly complicit in another Chinese corporate scandal: a leaked documentshows Sanlu, the dairy company responsible for the melamine milk crisis, offered to payBaidu to bury negative publicity xviii . Baidu denied it took any action.In the short term, the damage has been done. Baidu saw its first sequential decline inquarterly sales since the company became public xix . Google was able to make gains in theonline advertising

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