Here’s Why Baidu Should Keep an Eye on Qihoo

Baidu (NASDAQ:BIDU), China’s equivalent to Google (NASDAQ:GOOG), should start looking over its shoulder because the company’s smaller rival Qihoo (NYSE:QIHU) is planning to increase its share in the country’s search market.

In an interview with the Chinese Media, Qihoo’s Chief Executive Officer Zhou Hongyi said that the company wants widen its share to 15 or 20 percent from its current 9.2 percent. Already, the company has eroded some of Baidu’s market share — since its entrance into the search market in August, Baidu’s share has dropped from above 60 percent to 58.3 percent. However, Zhou did not give an estimate of when the company will reach the targeted market share.

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The pronouncement sent the company’s shares up 5.8 percent on Thursday.

To increase the company’s competitive edge, Zhou has hired several former Google employees which has allowed Qihoo to add new technologies to its So.com search engine, including tools to rank search results. The company is also planning to add a suggestion feature similar to Google’s “+1” or Facebook’s “Like” button to its Web browser.

According to the Financial Times, “Qihoo’s rocketing rise marks the first time another company has looked remotely likely to challenge Baidu’s absolute dominance of China’s online search market since Google.”

Qihoo has already begun to cause problems. While Baidu reported that the company’s total revenues rose by close to 50 percent from the year-ago-quarter on October 29, the company’s stock fell 6 percent on Wednesday after a downgrade from Citigroup initiated concerns over rising competition.

Baidu’s stock began to decline at the beginning of October after series of analyst downgrades from Credit Suisse, Jefferies, and Raymond James indicated that the company was under pressure from Qihoo’s growing market share. Credit Suisse cut its rating on the stock to Underperform from Neutral and company analyst Wallace Cheung wrote in a subsequent research note that, “estimates on Baidu are likely to move lower given increased competition, a weaker than expected ad market and mobilization challenge on mobile devices.”

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