I Admit It: Qihoo 360 Technology Co Ltd (QIHU) Is a Real Threat to Baidu.com, Inc. (BIDU)

First, Google Inc (NASDAQ:GOOG) is taking a cut of Qihoo’s search revenue. Back on January 18, Google and Qihoo reached a sales agreement whereby Qihoo 360 Technology Co Ltd (NYSE:QIHU) can use Google Inc (NASDAQ:GOOG)’s ad platform to help sell some ads. In turn, Google Inc (NASDAQ:GOOG) receives a share of the revenue.

Second, Qihoo is taking in so little money because they’re probably undercutting Baidu.com, Inc. (NASDAQ:BIDU) with cheaper ads. Last November, Qihoo CEO Zhou Hongyi said that he hopes to capture 15% to 20% of China’s search market. So far, the company seems like it will soon hit that mark. In just a year, the company went from 0% to 12%. However, to push it farther, Qihoo 360 Technology Co Ltd (NYSE:QIHU) will need incoming revenues to fund its growth. Given that the company has entered this space only recently, charging advertising partners less will help the company keep ahead of rivals like Sohu‘s Sogou and Baidu.com, Inc. (NASDAQ:BIDU), which are in third place with 8% and in first place with 70% of the search market, respectively (according to CNZZ via Tech In Asia).

Put together, Qihoo’s partnership and pricing tactics may be what it needs as search undergoes a shift to mobile. Since not even Baidu.com, Inc. (NASDAQ:BIDU) has figured out the mobile market yet, Qihoo 360 Technology Co Ltd (NYSE:QIHU) has entered at an opportune time. If Qihoo can continue to accelerate its search presence, then this may be the beginning of the end for Baidu.

Is it time to buy Qihoo?
While Qihoo has proven that it’s here to stay, that doesn’t necessarily mean that this is the best time to buy. I still have qualms about the company’s product quality — and you should, too. Until the company can show that it can build a better search engine and not simply grow by partnerships and pricing, I would hesitate to invest, especially since the stock is still trading at all-time highs.

The article I Admit It: Qihoo Is a Real Threat to Baidu originally appeared on Fool.com.

Fool contributor Kevin Chen owns shares of Baidu. You can follow him on Twitter at @TMFKang, or on Google+. The Motley Fool recommends Baidu, Google, and Sohu.com. It owns shares of Baidu.com, Inc. (NASDAQ:BIDU), Google Inc (NASDAQ:GOOG), and Microsoft Corporation (NASDAQ:MSFT).

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