Baidu-Qihoo Search War Returns With Lawsuit

By newsdoug on June 10, 2013

After disappearing from the headlines for a few months, the ongoing search war between industry leader Baidu (Nasdaq: BIDU) and challenger Qihoo 360 (NYSE: QIHU) has jumped back into the news with reports that the former has sued the latter. This new lawsuit is most likely just the first phase in a new stage of the battle between these 2 companies, and I fully expect Qihoo to file a countersuit within the next few weeks. I could even be a bit sarcastic and express my surprise that Qihoo didn’t file the first suit in this rivalry, since the software security specialist is notoriously litigious and has probably sued just about every major Chinese Internet company at some point.

According to the latest media reports, Baidu filed its lawsuit in Beijing, and the court has agreed to hear the case. The suit accuses Qihoo’s webmaster platform on its So.com search engine of containing intellectual property stolen from Baidu’s own industry-leading rival site. (English article) In addition to seeking a court order for Qihoo to stop its infringement, Baidu is also seeking 500,000 yuan ($82,000) in damages. Baidu’s action doesn’t look directly targeted at So.com’s core search engine, since Qihoo only launched the webmaster platform at the center of the lawsuit in January this year.

Qihoo launched its So.com search site last summer, incorporating a number of innovative features that have helped it to quickly challenge the industry leading position of Baidu, which controls more than 70 percent of China’s search market. Qihoo also drew on its popular free web browser to steer traffic to its search site, helping it to quickly gain around 15 percent share of China’s online search market. Hype about its sudden challenge to Baidu has helped to turbocharge Qihoo’s shares, which have tripled since the site’s launch last year.

Baidu responded to the sudden challenge with a number of its own moves, including widely publicized remarks from founder Robin Li last November saying his company needed to rediscover its “wolf spirit.” (previous post) Baidu also reportedly made moves to discourage its advertisers from using Qihoo software. All this happened as Baidu’s own shares were on their own prolonged downturn, shedding about 20 percent of their value over the last year.

In all fairness, Baidu’s shares had previously soared nearly nonstop since the company’s IPO in 2005, and were long overdue for a correction. Investors seemed to find an excuse for that sell-off in an ongoing downturn now gripping China’s advertising market, along with concerns about the new threat from Qihoo.

I was a bit surprised to see this rivalry pop back into the headlines, since both companies seemed to have largely abandoned their open hostilities in favor of quietly focusing on doing business over the last few months. For its part, Qihoo is looking for ways to quickly monetize its big new search audience, which may be more difficult than it previously thought. Baidu, meantime, is focusing on developing its mobile search business and also diversifying into other areas of the Internet. Last month it took a step in that direction with its $370 million purchase of online video site PPS, and it has reportedly been eying a number of other major targets as well. (previous post)

This latest lawsuit by Baidu shows that the rivalry with Qihoo will continue in the years ahead, even if it has entered a newer, low-key phase. I do fully expect Qihoo to file a countersuit in the next few weeks, and would be quite surprised and even a little disappointed if the company didn’t take such action. But at the end of the day, the market and not lawsuits or other behind-the-scenes tactics will determine who wins this battle for dominance of China’s online search market.

Bottom line: Baidu’s lawsuit against Qihoo is the latest twist in a battle that’s likely to last the next few years for dominance in China’s online search market.