Baidu up, Qihoo down in flared-up Internet search war

A flared up Internet search war in China has sent shares of the country's largest searching engine operator, Baidu Inc., (NASDAQ: BIDU), higher by 3.18 percent Wednesday, and the other player Qihoo 360 (NYSE: QIHU ) down by 6.22 percent.

Shares of Baidu rose for the third consecutive trading day to close at 120.62 U.S. dollars, posting the fastest growth in three days after it hit back against Qihoo by blocking users' visits via Qihoo's searching engine to services provided by Baidu including Baidu Knows, Baidu Baike and Baidu PostBar, two weeks after Qihoo forayed into the searching market in a high profile.

Shares of Qihoo fell 1.43 U.S. dollars to 21.55 U.S. dollars. In the meantime, Bloomberg China-US 55 Index, which traces performance of Chinese stocks with the highest trading volumes in the U.S. market, nudged up by 0.5 percent to 89.48.

Baidu's share of the market climbed to 79 percent in the second quarter, according to Analysys International, from less than 60 percent at the end of 2009, after its major rival Google was forced out of China due to censorship concerns.

To preserve its dominance, Baidu has begun to redirect all search queries made through its search engine to its homepage, www.baidu.com, including those originated from other search engines like Qihoo's since late Tuesday.

"This change will have a negative impact on users' search experience on Qihoo's platform," Henry Guo, an analyst at ThinkEquity LLC told Bloomberg, "We remain positive about Baidu's long-term growth potential ,considering its strong leadership position and momentum in new growth drivers such as mobile and cloud."

Qihoo 360's new search engine, embedded in its 360 Brower which is taken by as much as 272 million people, or roughly half of China's Internet population as the first stop for surfing the web, snagged a market share of around 10 percent only one week after it launched, data from Hitwise, a search body, shows.

The company used to direct its users to searches by Google and Baidu, and directing its users to own search engine only could give Qihoo 20 percent of China's search market, according to Deutsche Bank.

Analysts say Qihoo's foray could make a splash in the domestic dormant market. "China has a search giant that dominates market with 80 percent of share, leaving users no choices, and that hurts users and the industry the most," said Qihoo's founder and CEO Zhou Hongwei.

"Users of Google, whose network disrupts frequently [in China], have to turn to Baidu due to the lack of choices. That's why the search giant could wilfully manipulate searching results," he added, "A moral indictment could do nothing to the giant, and only competition can break its monopoly."