Over the weekend, The Register ran a special report on Baidu (NASDAQ:BIDU), alleging that the Chinese search giant is engaged in technological chicanery in order to keep users plugged into vast and illegal reservoirs of online music (h/t Maths at Music 2.0). The report is here.
Searching for trouble
The report explains - in forensic detail - how Baidu allegedly continues to make money on illegal downloads while maintaining plausible deniability. A taste:
Baidu's MP3 Search was monitored for six months at the end of last year, analyzing search results using 600 songs spread across multiple genre. A number of areas that seemed incongruous to a pure and neutral search engine were discovered, and three details emerged.
Firstly, a network of mysterious sites with closely related domain names contributed more than 50 per cent of the search links returned by Baidu. The songs hosted on the mystery sites were unreachable except through the Baidu search engine. Furthermore, infringement notifications resulted in unlicensed songs simply moving from one of these domains to another.
Secondly, Baidu does not link to the two leading paid download sites in China, 9Sky and Top100. While Google for example will return results for a song search to licensed providers (7Digital, Amazon, eMusic or even iTunes) as well as Torrent trackers, Baidu is much more selective.
Thirdly, music blogs and forums naturally form a significant source of music search links for any search engine. But with Baidu, these contributed to only 30 per cent of the music search links on Baidu’s MP3 Search.
The cumulative effect is to keep the "free music flowing" for Baidu's users - with devastating consequences not just for creators, but for rival internet businesses.
Even more compelling, the report also suggests that Baidu bullies journalists, publications, and websites into silence about its practices by threats and coercion.
In a superb post, Maths, a digital music advocate and avid China-watcher, builds on The Register's report and asks some penetrating ethical questions, suggesting that if the above allegations are proven true, Baidu's advertisers, investors, advocates, and anyone else working with Baidu in its music efforts are soiled by association.
It matters if the cat is white or black
I'm not quite ready argue for Baidu's conviction in the court of public opinion. The Register's report is only a few days old, and I cannot ignore that the company has a list of powerful rivals that grows as it expands its business. Time will tell how valid these allegations are. Their appearance on a global website demands further scrutiny by the music industry, the media and the Chinese authorities.
But let's leave the specific matter of Baidu aside for a moment and examine the larger question.
At what point, we need to ask, does it become unethical to deal with a company that appears to be actively violating the law? Do you take a zero-tolerance approach? Do you wait for a criminal indictment? Do you do your own due-diligence? Or do you simply shrug your shoulders and say "I really don't care what kind of people I do business with, as long as my company makes out on the deal?"
These are not easy questions, but they are an example of the kind of issues a company needs to deal with in advance of doing business in China, or failing that, right now. As I noted in my second post on the iTunes blockage, business in China is a moral and ethical wasteland, so moral quandaries are a part of doing business here. Smart companies address those issues up front with clear guidelines.
As something of a moral absolutist, I know where I'd draw the line, but I recognize that others prefer a more flexible approach. Being a moral relativist in your approach to international business ethics does not mean you don't have ethical standards, however: it just means that every company will have different standards. Each company still needs to draw a line, and you need to be able to justify it not only to local audiences here in China, but to your full range of stakeholders around the world.
Failing to do so puts your reputation - and your business - at the mercy of your least ethical partner.
Why are we here?
More important, such issues also give us a precious opportunity to demonstrate that the presence of our companies in China exerts a positive influence on the healthy development of the country and its economy. Either we come to Rome and do as the Romans, or we show up determined to leave the place better than we found it.
Deciding who we will (and will not) do business with - and under what circumstances - lies at the heart of our effect on China.