Internet & Tech

Search and destroy

Ugly battle begins between Baidu and Qihoo 360

Taking on Goliath: Zhou Hongyi

Zhou Hongyi is not afraid to punch above his weight. Back in November 2010, the chief executive of antivirus software provider Qihoo 360 engaged in a very public battle with Tencent, China’s largest internet company. The accusation was that Tencent was letting its instant messaging system QQ scan users’ computers for personal data. The feud escalated and Qihoo took Tencent to court in Guangzhou this April. The case is ongoing.

But the latest internet titan to feel Zhou’s wrath is search giant Baidu, after Qihoo launched a competing search engine.

“Only through competition can the quality of search engines be improved, thus benefitting users,” Zhou declared on his personal weibo.

Little-known outside China, Qihoo counteracts the viruses and malware that have sprouted in the country’s cyberspace, offering a more secure browser and portal. According to the company’s own figures, Qihoo’s secure browser had 272 million monthly users (that’s half of the country’s internet population) in the first quarter of this year. Its website also had 77 million unique daily hits.

Why the spat with Baidu? That firm controls the search market with almost 80% share. So Qihoo’s new search engine, which is bundled with its popular browser, could pose a threat to its market dominance.

Baidu has acted quickly to protect its turf. CBN reported that the Beijing-based company has asked its business partners, including the many agents that sell Baidu’s advertising space and other products, to stop using Qihoo products.

Since last Tuesday, internet users also found that Baidu had begun to redirect certain links away from the Qihoo search engine directly to the Baidu homepage. “Whenever users do a search about Baidu, instead of being taken to a particular Baidu website, they are redirected to Baidu’s search homepage. That’s not how an internet firm is supposed to behave – you are affecting the users’ experience,” Qihoo’s chief financial officer Alex Xu complains.

Several hours later, Qihoo fired back by deleting all of Baidu’s products – news, maps, and photos – in its own search results, replacing them with its own, as well as those of rivals Google and Sogou (a search engine developed by Sohu).

Baidu’s action has caught many industry observers by surprise. Clearly, the search giant has a lot at stake. Second-quarter search revenues in China surpassed $1 billion, says research firm Analysys International. So when news reports suggested that Qihoo’s search engine had already started grabbing market share since its August launch, Baidu must have taken notice. But Bill Bishop, a Beijing-based internet watcher, doesn’t think David will take down Goliath this time. “Baidu is still far and away the dominant search provider in China, and it is unlikely that Qihoo will take significant share in the short-term,” he suggests.

Indeed, Baidu is a much bigger company (with a market capitalisation of $39.8 billion, compared to Qihoo’s $2.6 billion). Building a search engine to rival Baidu’s will also require enormous investment, which would put pressure on the smaller firm. All this begs the question: why did Qihoo want to challenge Baidu’s dominance?

“No matter how hard Qihoo 360 works, its current business model can only sustain 200 brand advertisers. So there’s a cap to its revenue growth,” says Hong Bo, founder of 5G, a consulting company. “On the other hand, the search market has an infinite number of advertisers. Baidu, for instance, has more than 40 million small- and medium-sized companies that pay to advertise on its site. Therefore, for Qihoo, the browser is only the first step. Its ultimate goal is to tap into a huge market so it can share the gold mine with Baidu and Google.”

As WiC has reported (see issue 158) this isn’t the only battle Qihoo is fighting. It is also fighting short-seller Citron Research. And it won a small victory this week when the former head of Google China, Lee Kaifu, and 60 other tech leaders signed a letter defending Qihoo and criticising Citron for “targeting legitimate companies with either no problems or minimal problems”. It added that short-sellers “boldly tell lies, knowing that their American readers have no way of verifying them”. (Citron denied the allegations, reports Wall Street Journal.)


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