Qihoo 360's search engine challenges Baidu

The war between Baidu Inc, owner of China's most popular Internet search engine, and Qihoo 360 Technology Co Ltd, a newcomer in the field, is heating up.

The share price of Baidu stumbled on Wednesday after Qihoo announced it was using a self-developed search engine.

Qihoo's announcement came after earlier reports speculated that the company, famous for its anti-virus software products, was grabbing results from other Web search engines to create its own.

"The company holds the patent of 360 Search, a self-developed engine that took us seven years to develop," the company said, adding that Qihoo is equipped with "Web search engines".

Many analysts believe Qihoo is not yet ready to challenge Baidu, which became the nation's top search giant after Google Inc left the Chinese mainland in 2010, investors have expressed their concerns.

Baidu's share price declined more than 6 percent on the Nasdaq on Wednesday to close at $113.10. The company's stock has dropped nearly 8 percent since Aug 23, according to US financial website CNNMoney.

Qihoo edged up 2.04 percent on the New York Stock Exchange on the same day.

Baidu, which generates nearly 80 percent of online advertising revenues in the nation's Web searching sector, on Tuesday afternoon started to redirect search traffic coming from Qihoo to its own home page.

Qihoo quickly responded by leading all Baidu-related search requests to cached pages, which mostly have outdated content and awkward typesetting.

"The conflict will compromise users' experience, although it may fuel the development of the industry in the long run," said Dong Xu, an analyst at research firm Analysys International.

Kai-Fu Lee, the Internet veteran and former president of Google China, criticized both companies on his micro blog, saying the losers in the conflict are Chinese netizens.

In response, Zhou Hongyi, Qihoo co-founder and CEO, said Baidu has monopolized the online search industry and threatened the industry and Internet users.

Qihoo's ambition in online searching was inherited from Zhou. In 1998, he set up the first Chinese-language search website, 3721.com. The site was purchased by Yahoo Inc in 2003.

On Aug 21, Qihoo decided to use its default search engine on all of its browsers, replacing Google and Baidu. Qihoo announced five days later that its search engine had lured about 10 percent of the search traffic, and proclaimed itself the second-largest Web search provider in the nation after Baidu.

Zhou's idea of entering the Web searching market is likely to boost the company's revenue in the future, given Qihoo's user base of more than 400 million in the browser and anti-virus sectors, said a company report released by Hong Kong-based Guosen Securities.

"We expect Qihoo to gain some market share from Baidu that may at least enhance its revenue by 30 percent within three years," the report said.

But some analysts argued that it was too early to tell if Qihoo can beat Baidu. "The dramatic change in market share does not reflect a shift in advertising revenue," said Dong, from Analysys International.