Baidu.com, Inc. (ADR) (BIDU), Youku Tudou Inc (ADR) (YOKU), Qihoo 360 Technology Co Ltd (QIHU): Competition Heats Up in the Chinese Internet Industry

The largest Chinese search engine, Baidu.com, Inc. (ADR) (NASDAQ:BIDU), has just announced that the company will acquire the online video business, PPStream, in a $370 million deal. The “Chinese Google” is seeking to become a competitor to the Chinese internet television company Youku Tudou Inc (ADR) (NYSE:YOKU) and is also attempting to fend off rising search engine star Qihoo 360 Technology Co Ltd (NYSE:QIHU).

Will this acquisition help out Baidu.com, Inc. (ADR) (NASDAQ:BIDU), or is it simply Baidu’s attempt at plastering a Band-aid over a large, festering wound? I believe that in the short-term, this acquisition is simply covering up larger problems in Baidu’s current business model; but in the long-term, the PPStream deal will assist Baidu in its efforts to shift its overall strategy to keep up with the fast pace of market movements.

Baidu blues

Baidu.com, Inc. (ADR) (NASDAQ:BIDU) is absolutely dominant in the search engine market in China. However, the stock has been hammered over the past year, recently hitting 52-week lows. Baidu.com, Inc. (ADR) (NASDAQ:BIDU) has had to face the music of the consumer market in China moving en masse to mobile platforms, as opposed to the traditional desktop computer which Baidu specializes in. The emergence of Qihoo as a competitor is certainly not helping out matters either. Qihoo has slowly started to grab more market share away from Baidu, which decreases Baidu’s revenue.

Baidu now has to deal with new challenges that could eat away at its market share and longtime position as the widely recognized leader of Chinese search engines. Other companies like Qihoo 360 Technology Co Ltd (NYSE:QIHU) are ratcheting up their games, thus making life a little more difficult for Baidu.com, Inc. (ADR) (NASDAQ:BIDU).

Youku blues

However, Baidu isn’t the only Chinese internet tech company in hot water. Youku Tudou Inc (ADR) (NYSE:YOKU) has also been struggling to gain traction. Youku Tudou Inc (ADR) (NYSE:YOKU) has not been able to turn a profit ever since being listed on the New York Stock Exchange, bleeding cash profusely while trying to get a foothold. The stock of Youku Tudou Inc (ADR) (NYSE:YOKU) has followed suit, tumbling precipitously for quite some time. The company is, however, China’s current leading video provider and might be in a better position to capitalize on China’s expanding mobile market than Baidu…until now.

Right back at Youku!

So, how does Baidu’s new purchase factor in to the raging Chinese search engine wars? Baidu.com, Inc. (ADR) (NASDAQ:BIDU) is seemingly seeking to continue copying upon the proven successes of Google Inc (NASDAQ:GOOG). After all, as the oft-repeated maxim states, “if it ain’t broke, don’t fix it.” Baidu and Google Inc (NASDAQ:GOOG) were both built upon similar business models, and that model has been quite lucrative. Baidu is emulating Google, which owns YouTube, in seeking to be a video streaming company. Google Inc (NASDAQ:GOOG) is currently searching for a way to monetize YouTube — but Baidu might be able to leapfrog that process entirely and start off with monetizing PPStream rather quickly.