China’s Leading Search Engine Is Playing Catch-Up in Mobile

China’s long-preeminent search engine is losing on devices
Smartphones are used to demonstrate Baidu’s new Internet browser at the company’s annual forum in Beijing Photograph by Nelson Ching/Bloomberg

Baidu claims 82 percent of China’s Web-page searches, but the company is struggling to hang on to mobile users. Although Baidu Chief Financial Officer Jennifer Li puts the company’s share of mobile search at “well above” 50 percent, its total search share has fallen in the past year, IResearch data show. As Baidu’s share drops, rivals such as messaging powerhouse Tencent and software maker Qihoo 360 Technology see opportunities to gain ground in mobile by luring users with games and other apps.

Baidu is fighting back with a spate of acquisitions. In May it spent $370 million to buy PPS TV, a peer-to-peer streaming video network. Baidu spokesman Kaiser Kuo says PPS, combined with Baidu’s homegrown video site, IQiyi, will make it No. 1 in China for mobile video viewing. To compete with Alibaba and Tencent for app revenue, Baidu in July paid $1.85 billion for 91 Wireless, a mobile-app store. On Aug. 23, Baidu announced a $160 million deal for group-buying site The company says it’s teaming with smaller businesses to develop and host mobile shopping apps, taking a cut of app-generated sales.

These moves add up to an expensive bet on mobile. The 91 Wireless deal was the priciest in China’s Web history and valued the company at 16.7 times 12-month sales. Nuomi was valued at 12.7 times sales. To put that in perspective, is valued at only two times its sales. Baidu also has sold $2.5 billion in bonds since November.

Jefferies analyst Cynthia Meng says Baidu was “quite late in getting into mobile” and that in the last year Qihoo has snagged close to 10 percent of the search market. Tencent on Sept. 16 agreed to pay $448 million for 36.5 percent of search engine Sogou, which Barclays analyst Alicia Yap says could cut Baidu’s search share, especially in mobile. While Tencent and Alibaba have made moves in e-commerce and social media that could give them an edge with mobile users, Baidu and Japanese e-tailer Rakuten last year pulled the plug on their mobile joint venture, Baidu’s first big foray into e-commerce.

Still, investors view Baidu’s mobile catch-up plans favorably, boosting the company’s stock 60 percent since July after a lackluster year. With 130 million daily mobile-app users, Baidu “has taken steps to put together the building blocks for a competitive mobile strategy,” Fitch Ratings said in an Aug. 25 report.