Shots Fired: China’s Coming Internet Wars


War is hell.

Last week was a fascinating one for China internet watchers because it saw what look to be the first sparks in a new flare-up of the ongoing feuds between Baidu and Qihoo and Tencent and Qihoo. Both Baidu and Tencent are moving into Qihoo’s turf (web and mobile security), and given the blustery reputation of Qihoo CEO Zhou Hongyi, a fight looks fairly imminent.

But Baidu, Tencent, and Qihoo may not be the only players in this game. E-commerce giant Alibaba has been moving into all kinds of new areas recently, including online mapping, social networking, mobile chat apps, search, and music, as well as rumored forays into online video streaming and even set-top boxes. Needless to say, this puts the company in a position to challenge a lot of Baidu and Tencent services.

It will be interesting to see whether clear alliances actually form, but the stage seems set for a Baidu and Tencent vs. Qihoo and Alibaba tag-team grudge match (and there are some serious grudges between these companies). Who’s likely to win? I have absolutely no idea. In the short term, the answer is probably consumers. In the long term, it’s more complicated.

Although historically the battles between these companies have been divisive enough that they’ve disrupted users (such as when Qihoo and Tencent basically blocked each others’ apps, forcing users to choose one or the other during the 3Q War), generally speaking, more competition is good for consumers as it lowers prices and pushes companies to offer more competitive services.

In the long term, though, if the coming battle — which I expect will last through the next few years and be waged across web and mobile services — ever produces a winner, consumers could end up worse off. All of these companies already have virtual monopolies over their original areas of focus; if one or two of them are eliminated or significantly weakened by this war, then China’s net users will have to contend with even fewer companies controlling even more of China’s internet landscape. That’s probably not a good thing no matter who the winner is.

So who should we be cheering for as this war (probably) begins to unfold? The only answer is users. If China’s internet comes out the other side of this ugliness with better services, then whatever happens to everyone’s stock prices in the middle will be worth it (at least from the perspective of someone who doesn’t own any China internet stock). But we’ll have to hope that the battle doesn’t do any permanent harm to China’s internet industry, or leave it with even fewer options and even bigger monopolies when the dust finally settles.

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