Qihoo, Alibaba Tie-Up Set For Turbulence
A sudden rush to form new partnerships on China’s Internet is creating some interesting new tie-ups, including the latest one that is seeing e-commerce leader Alibaba join with security software firm Qihoo 360 in the e-commerce search space. This new pair-up actually seems relatively minor, with Qihoo using Alibaba’s specialized eTao search engine to power e-commerce searches on Qihoo’s own so.com general search site. (English article; Chinese article) This kind of tie-up isn’t all that uncommon in search, where portals and other companies that want to include a search function on their home page often license a third party’s engine like Google’s (Nasdaq: GOOG) or Baidu’s (Nasdaq: BIDU) for the job.From my perspective, this move has both its good points and bad points for both Alibaba and Qihoo. Alibaba has won an important new partner for its eTao search e-commerce search engine, which is competing with a newer recently launched similar product from search leader Baidu. (previous post) At the same time, Alibaba has also recently launched its own general search product, challenging Baidu. (previous post)
Qihoo itself is also in a bitter battle with Baidu, long China’s dominant search engine. Qihoo’s so.com rival search engine has rapidly picked up share since its launch last summer, and now controls more than 10 percent of the market. Despite that rapid rise, Baidu remains the industry’s dominant player with over 70 percent share.
Thus this new pairing of Alibaba and Qihoo brings together 2 companies that both have a common rival in Baidu. The only problem is, there’s plenty of room for conflict between Alibaba and Qihoo as well, which could quickly cause this new alliance to fall apart. For starters, Qihoo and Alibaba may be working together in e-commerce search, but they are also rivals in the general search market. What’s more, Qihoo has a reputation for business practices that many consider underhanded, and I could easily see it try to manipulate this newest partnership to its advantage at the expense of Alibaba.
This new tie-up is just the latest in a recent flurry for Alibaba, which is suddenly forming all kinds of new partnerships as it seeks to boost its mobile and location-based services (LBS) capacities in the run-up to a blockbuster IPO. The company recently purchased a major stake in leading social networking site Sina (Nasdaq: SINA) Weibo, and has also purchased a major stake in mapping services firm AutoNavi (Nasdaq: AMAP). (previous post) The company has also been in several lower-key partnerships, including a gaming tie-up with entertainment specialist Shanda and an insurance tie-up with Ping An (HKEx: 2318; Shanghai: 601318).
Perhaps it’s not surprising that Qihoo, given its reputation, has much less experience in forming successful partnerships. The company has been rather good instead in getting tangled up in lawsuits, both bringing such suits against other companies and also getting sued itself. The latest of those lawsuits saw a court rule against Qihoo last moth in a case stemming from a business dispute with Internet leader Tencent (HKEx: 700). (previous post) Qihoo’s founder Zhou Hongyi has also had stormy relations in the past with Alibaba itself over a former business relationship involving the China unit of US search company Yahoo. (Nasdaq: YHOO)
All of that said, this latest partnership is probably being driven by necessity more than anything else, since everyone on the Chinese Internet is suddenly forming such partnerships in a bid to gain advantage over their rivals. Alibaba’s structuring of this pairing looks smart, as it looks like a relatively straightforward business licensing deal that should involve relatively minimal contact with Qihoo. Still, I wouldn’t be surprised to see this partnership run into trouble and probably unravel within a year or two based on Qihoo’s previous record for contentious relations with its partners.
Bottom line: A new partnership between Alibaba and Qihoo in e-commerce search is smartly structured but will likely unravel in the next 1-2 years.
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