What's wrong with me being a rich man?

Chapter 661 Fundamentals (4k)

A joint investigation team from multiple departments was dispatched to Baidu, and the results of the investigation into medical advertising and paid search ranking were released in just two days over the weekend.

As it turns out, the situation, which was already on the table, did not require a complicated and lengthy investigation.

The investigation team gave a clear conclusion: Baidu's keyword bidding ranking objectively and directly affected the treatment choices of the parties involved. Furthermore, this bidding ranking mechanism has problems such as excessive weighting of paid services and unclear commercial promotion labels. Therefore, specific rectification requirements were put forward to Baidu.

The two most important points are: first, to conduct a comprehensive cleanup and rectification of Baidu's commercial promotions related to life, health and safety; and second, to change Baidu's current bidding ranking mechanism, which should not be based solely on how much money is paid as the ranking standard.

Such a direct demand will undoubtedly severely damage Baidu's advertising revenue system. Regardless of recent media analysis or criticisms from Bi Sheng and others, everyone knows that Putian-affiliated hospitals are now the biggest source of revenue for Baidu's advertising.

In other words, Baidu's fundamentals have also changed.

Furthermore, according to unofficial sources, due to the impact of this incident, multiple departments are drafting regulations for the management of internet information search, which will be a "provisional measure" addressing the issues across the entire industry.

According to accurate information obtained by Yu Xing, the authorities will for the first time explicitly define search engine bidding ranking as internet advertising, which was previously a gray area, resulting in ambiguity in the scope of regulation.

As for how Baidu will actually change...

Following the release of the investigation team's announcement, Li Yanhong's open letter and internal division of responsibilities also came out.

Li Yanhong remains heartbroken, and this time she stated that "Baidu is only 30 days away from bankruptcy," demanding that the company return to its user-first values, acknowledge the excessive commercialization of its paid search ranking system, and promise to establish a 10 billion yuan advance compensation fund for the relief of victims.

Along with Li Yanhong's voice, Xiang Hailong, Baidu's vice president in charge of search advertising, publicly apologized again and took responsibility for management, stating that he had provided a work plan to completely separate promotional information from organic results in accordance with the rectification requirements.

Meanwhile, Baidu's medical business unit was officially dissolved, General Manager Li Zheng was dismissed, the core sales team was disbanded, and several senior executives in the entire medical advertising sales line were given pay cuts, reassigned, or disciplined.

This incident has shaken the entire internet. Baidu's handling of the situation, the drop in its stock price, and the potential impact on its fundamentals have all shocked everyone, from top to bottom, according to a Baidu employee on the pseudonym Baixiaosheng.

Nasdaq reacted reasonably on the first trading day after the weekend, with Baidu's stock price hitting a multi-year low and dropping another 3 points, wiping out more than $100 billion in market value over the past week.

Several institutions, such as Citigroup and Morgan Stanley, have lowered their target prices for Baidu, believing that it will inevitably experience growing pains this year and its revenue will be greatly affected.

Originally, based on the development in 2015, institutions estimated that Baidu's advertising revenue growth rate for the whole year of 2016 would be over 30%. However, due to public opinion and rectification, it is now generally believed that this year's growth rate is likely to be close to halved, or even more severe.

Baidu's Q2 financial report is bound to be very bad, and Q3 and Q4 will certainly continue to be under pressure. As for how to recover...

This does look quite difficult.

The stock price fell again on Monday and continued to decline steadily on Tuesday. Just like the concerns raised by outsiders, Baidu is also discussing internally how to ensure the company's future growth given the stock's performance.

Whether they like it or not, Baidu's medical advertising has declined, and it must find a way to make up for the 2% of its revenue.

Baidu now faces three main challenges: first, a sudden and sharp decline in medical advertising; second, the company's lack of success in the mobile internet era; and third, the emergence of companies like Alibaba, Tencent, Meituan, and Silicon Carbon, all of which have found their niche and are gradually encroaching on Baidu's market share.

Li Yanhong convened a series of meetings, concluding that the company was now facing a strategic crisis.

“In the past, we had healthcare, gaming, and e-commerce as our three main pillars of advertising, and our growth rate was indeed very fast.” Vice President Xiang Hailong had been relatively silent in several meetings, but when he saw the boss becoming increasingly anxious, he spoke up, “But their compliance risks were high, and this incident has proven that they really cannot continue to grow so wildly.”

"Now it can be said that regulation is forcing us to seek new developments. Medical advertising is being phased out, and the potential of brand advertising needs to be further explored. In addition, we are good at B2B products, and enterprise marketing solutions also have great potential."

Xiang Hailong talked about the business he was familiar with, which was also a question he had been thinking about recently. Corporate marketing is not as bold as medical advertising, but it is still a good filler.

"Mr. Li, Mr. Xiang, the company has reached a point where it cannot afford not to transform." After listening to the speech, Yin Shiming, General Manager of Baidu Cloud, said seriously, "Medical advertising is a thing of the past. We need to look at the next ten years. Baidu's next ten years cannot rely solely on advertising. We need the explosion of emerging businesses. Alibaba is not only e-commerce, it also does Alibaba Cloud. Tencent is not only social networking and games, it also makes comprehensive ecosystem investments. Even Lingang, Carbon Silicon Data has been emphasizing its algorithm technology in recent years."

Xiang Hailong said coldly at this moment: "Yes, Lingang also sells cars and engages in short selling. It has emerging businesses there."

Yin Shiming didn't respond to that, but simply said, "Revenue needs to be restructured, and Dr. Wu's research institute's technology is a key area that we need to transform in the future."

As he said this, he suddenly realized something, glanced around the room of the "open and frank meeting," and asked in surprise, "Why isn't Dr. Wu here?"

Andrew Ng's resignation has not yet been made public within Baidu.

Li Yanhong said slowly, "Dr. Wu has resigned."

Yin Shiming was taken aback. He greatly admired Andrew Ng, and the proposed transformation was a carefully considered suggestion, but to leave at this juncture...

He didn't know what to say for a moment.

Just then, Xiang Hailong glanced at his vibrating phone, his expression changed slightly, and then he looked at Li Yanhong out of the corner of his eye. The boss's expression also changed noticeably.

Following Andrew Ng's resignation, several key members of the research institute also resigned.

They not only resigned, but also gave extremely frustrating reasons, such as not agreeing with the company's values, which was not much different from what Andrew Ng did at the time.

Li Yanhong held back for a while, but clearly couldn't hold back any longer. While gesturing for everyone to continue speaking freely, she picked up her phone to inquire about the situation.

A moment later, he slammed his phone on the table and uttered four words.

"Too deceiving!"

The discussion in the meeting room was interrupted, and everyone looked at each other in bewilderment.

Li Yanhong did not state the reason for her anger, but news always spreads quickly in the company, especially bad news.

The meeting ended hastily, and the relevant news was known intentionally or unintentionally. Dean Andrew Ng went to the DLF Foundation, and most of the key members who resigned this time chose to join the DLF with him, while a small number went to Horizon Robotics, founded by former Dean Yu Kai.

Baidu is relatively lenient in its non-compete agreements, treating globally renowned talents like Andrew Ng with great respect, and its research institute employees in deep learning and artificial intelligence are not subject to excessive constraints.

There's not much room for growth domestically, so there's not much to jump to abroad. Baidu is confident in this regard. As for the relatively new DLF Foundation, I haven't heard of any projects there. At least Baidu is still researching autonomous driving and has made progress in voice recognition. Moreover, the stock options and bonuses offered by Baidu are quite generous.

But... these people would rather give up these benefits than leave.

Soon, the reason for leaving despite the losses was found out, and the DLF Foundation directly compensated for this.

The first time Xiang Hailong saw his boss, Li Yanhong, his face was ashen.

What's even more disheartening is the amount of money the DLF Foundation contributed...

Could it be from shorting Baidu?
It may not be, but it is suspect.

As Xiang Hailong thought about it, he felt his face might turn pale.

"Mr. Li, how should we handle this?" He still asked for his boss's opinion.

Li Yanhong didn't answer immediately, but after a while she said, "Flowers don't stay beautiful for a hundred days, and people don't stay popular for a hundred days. If you're so capable, dig it up! Go ahead and dig up the entire research institute!"

Baidu's reputation is already damaged, and if it steps forward to criticize Lingang for poaching talent at this critical juncture, it will likely face widespread ridicule.

If those who were exposed then speak out about their disagreement with Baidu's values, the situation will become even more awkward.

Li Yanhong felt aggrieved, but she could only choose to endure it.

Xiang Hailong understood, but he was still relatively optimistic about DLF's poaching efforts. He felt that those cutting-edge technologies were still far away, and it was impossible to know when they would be implemented. So, if they left, so be it.

Li Yanhong's face darkened; she didn't intend to discuss the research institute any further, but she still needed to talk about artificial intelligence.

He stated, "I've spoken with Lu Qi of Microsoft several times, and he believes we have a significant advantage in the development of artificial intelligence. This is the future's foothold, and it's a story that Nasdaq wants to hear."

Lu Qi is a vice president of Microsoft and one of the heads of Microsoft's four major business units. He reports directly to the CEO and is also the highest-ranking person in the overseas giant.

Xiang Hailong hesitated and asked, "Lu Qi?"

Li Yanhong said, "I get along very well with him, and we may have the opportunity to work together in the future."

Xiang Hailong considered his options but didn't offer his opinion on the man. Even if an outsider wanted to preach, he just wanted to make sure it didn't interfere with his own work.

The latter half of March was basically all about Baidu making moves. Netizens and media were watching its attitude and internal reforms closely, while Wall Street was constantly analyzing the future of this Chinese search giant.

After losing over $110 billion in market value in just two weeks, Baidu's stock price has stabilized. There may be further movement after the Q2 earnings report is released, but a small rebound has already occurred.

However, $110 billion... such a scale is enough to make the parties involved feel resentful.

On the first day of April, Citron Research, a well-known short-selling firm, posted on Twitter to express its gratitude to Guo Shanfeng, believing that Yu Xing's relentless criticism of Baidu was also an important factor in the sharp drop in its stock price, and that Citron had profited a lot from this wave of decline.

Yu Xing naturally didn't respond to this. He saw the news, just smiled, and was busy talking to everyone about business MPVs and the production capacity release of the Lingang No. 2 plant.

However, the very next day, Citron Research mentioned the mountain peak again, this time with a piece of bad news.

"The EU is going to sue Guo Shanfeng and Yu Xing. I hope this Eastern counterpart can escape this calamity. Haha, offshore funds are not omnipotent. The Cayman Islands should protect legitimate business privacy, not become a shield for criminal activities! I firmly support EOI!"

EOI is a tax information exchange agreement between the EU and offshore centers, designed to promote transparency in finances.

Citron Research was clearly gloating, but subsequently, different insiders from various channels provided similar information: the EU was already preparing indictments against Yu Xing and Guo Shanfeng, accusing them of insider trading, information disclosure violations, market manipulation, and other charges.

The administrative complaint was drafted by BaFin in Germany, while at the EU level, ESMA submitted a report, initiating cross-border enforcement proceedings.

In just two days, German media revealed more specific details, including the legal provisions cited in the lawsuit, namely Articles 14 and 15 of the MAR and Article 5 of the short selling regulations.

Both Germany and the EU are serious about this.

Immediately, analyses of the future prospects of the "King of Short Sellers" spread widely both domestically and internationally. If the charges are proven, the Silicon Carbon Group, which had only recently gone public, could be delisted as a result.

Baidu Vice President Xiang Hailong shared a related news article on his WeChat Moments, commenting quipped, "According to Guo Shanfeng, this means its fundamentals have changed."

Xiang Hailong's wording was relatively mild, but many of his statements were more eye-catching. Some domestic media outlets reprinted analyses from German news outlets, suggesting that the German Federal Prosecutor's Office is likely to file criminal charges under Article 262 of the German Criminal Code for insider trading, which carries a maximum sentence of five years.

Criminal prosecution, five-year prison sentence!
Cui Zhiyu has been reading a lot of news these past few days, and he has a feeling that his boss has already been sentenced...

Taking advantage of a work report opportunity, he asked the still-alive Yu Xing, "President Yu, that German lawsuit has been a hot topic lately."

"Yes, it's quite troublesome." Yu Xing said calmly. "I don't know how they operate in the Cayman Islands. We'll have to see."

After considering for a moment, Cui Zhiyu asked, "Isn't it said that offshore islands won't leak secrets?"

“This matter is rather complicated,” Yu Xing said patiently. “Germany has sent a request for mutual assistance to the Cayman Islands’ financial authority, and the EU has tools for exerting pressure such as ‘blocking regulations.’ The Cayman Islands is also applying for EU whitelist status. So, it’s hard to say what the situation is, and we don’t know whether the Cayman Islands will cooperate.”

Cui Zhiyu asked understandingly, "So, is this an intimidation tactic?"

Yu Xing frowned: "Possibly, but it's hard to say."

The legal team is also assessing the situation and gathering information through informal channels, but some of the pressure will inevitably have to be addressed by overcoming obstacles.

(End of this chapter)