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Baidu.com, Inc. (BIDU) and Qihoo 360 Technology Co Ltd (QIHU): The War Is On

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Baidu.com, Inc. (ADR) (NASDAQ:BIDU)China’s leading search companies are investing heavily into their respective business developments, and have been acquiring or trying to acquire companies that will help them grow and diversify. Baidu.com, Inc. (NASDAQ:BIDU) was very active on the acquisition front, spending a part of its large cash position. On the other hand, Qihoo 360 Technology Co Ltd (NYSE:QIHU) is said to be in talks with Sohu.com Inc (NASDAQ:SOHU) about buying their Sogou search unit. These developments represent major changes in China’s search market, and will have a meaningful impact on Qihoo’s and Baidu’s future prospects. Baidu’s monopoly in the search market is at stake, and so is Qihoo’s leading position in mobile markets and security software.

Baidu keeps acquiring and introducing competing products

I wrote in my previous article about intensifying competition in the Chinese search market. Qihoo 360 Technology Co Ltd (NYSE:QIHU) is gaining share in the search market, while Baidu.com, Inc. (NASDAQ:BIDU) is trying to expand into Qihoo’s markets, like the antivirus software market, where Qihoo is the leader. Baidu released a beta version of “Baidu Guard”, a Windows XP and Windows 7 application similar to Qihoo’s “Safe Guard”. The application offers computer acceleration, system cleanup, software management and anti-Trojan functionality.

More recently, Baidu.com, Inc. (NASDAQ:BIDU) took another step into Qihoo 360 Technology Co Ltd (NYSE:QIHU)’s territory, with the acquisition of 91 Wireless from NetDragon, in a deal valued at $1.9 billion. 91 Wireless is the top Chinese mobile app distributor, and is estimated to host around 900,000 Android apps from 93,000 developers at the end of 2012.

91 Wireless is growing fast, with a 219% surge in revenue in the first quarter of 2013. This is an aggressive move from Baidu in order to position itself in the growing mobile market. The deal will most likely result in further margin pressure, but the long-term prospects are more promising. The adoption of mobile internet in China is growing fast, and it will certainly be a growth driver for the company for years to come.

When Baidu.com, Inc. (NASDAQ:BIDU) completes the acquisition, it will have an advantage over Qihoo’s 360 Mobile Assistant, which currently has the most app downloads so far this year. However, with 457 million PC Web users and 275 million users of its mobile security products, Qihoo 360 Technology Co Ltd (NYSE:QIHU) is well-positioned to take advantage of the growing mobile market in China. Citigroup’s analyst Bin Liu says that Qihoo is clearly the leader, and that it will emerge as a leading mobile games platform.

Qihoo fights back?

Qihoo is certainly not taking Baidu’s latest moves lightly. In fact, the company’s efforts in gaining search market share are paying off, and according to the latest report, Qihoo 360 Technology Co Ltd (NYSE:QIHU)’s search market share was around 15% in June 2013.

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