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Qihoo muscles in on China’s massive Web search market

China's Internet search wars are flaring up again.

Following Google's 2010 retreat, domestic rival Baidu was left with a lion's share of China's $880-million a year search market. Now it faces a new challenge from Qihoo 360 Technology. But Qihoo, whose name means "extraordinary tiger," may make the search industry less profitable.

Search is one of the few bright spots in China's highly competitive Internet sector. Since Google withdrew from China due to censorship concerns, Baidu's share of the market climbed to 79 per cent in the second quarter, according to Analysys International, from less than 60 per cent at the end of 2009.

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Qihoo is well positioned to muscle in: 272 million people, or roughly half of China's Internet population, use its browser as the first stop for surfing the Web. The company used to direct its users to searches by Google and Baidu: Half of Google China's search queries and 15 to 20 per cent of those on Baidu originated with Qihoo. Just directing its users to its own search engine could give Qihoo 20 per cent of China's search market, according to Deutsche Bank. Indeed, the company grabbed a five to 10 per cent share in its first week.

Qihoo's founder, Zhou Hongyi, is a formidable figure. He launched one of China's first search engines and sold the business to Yahoo in 2003 for less than $20-million (U.S.). He also has a track record of picking fights with China's Internet leaders. In 2010, Qihoo battled with China's most valuable Internet company Tencent, forcing hundreds of millions of users to choose between the two.

Baidu has more to lose than Qihoo has to gain. In the short term, Qihoo will have to finance the cost of developing its nascent search technology while losing a chunk of the fees it generates by referring searches to Baidu and Google. Qihoo's market value rose by $500-million in the week that it jumped into the fray, while Baidu's market capitalization dropped by $6-billion. The extraordinary tiger is bringing new chaos to China's Internet search.

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