Chinese Internet giants Qihoo 360 Technology Co Ltd (NYSE:QIHU) and Baidu Inc (ADR) (NASDAQ:BIDU) have turned into fierce rivals. Qihoo started making an impact into Baidu’s stronghold, the search business. Baidu is now aggressively expanding its business into other categories, including the security software market which is dominated by Qihoo. While the “Google of China” is yet to make a dent in Qihoo’s territory, Qihoo is rapidly eating into Baidu’s search market share.

Qihoo eating into Baidu’s search market share

According to Chinese research firm CNZZ, Qihoo has increased its search market share from 10.4% in December 2012 to 24.9% today. In the same period, Baidu’s share has shrunk from 71.7% to 58.3%. The Internet security giant is currently indulged into a spending war with its rival to capture a larger share of the Chinese PCs and mobile devices. Baidu’s market share could shrink further as its rival continues to make more moves in the search business.

Qihoo 360 Baidu

Baidu has identified five strategic areas: search, location-based services, mobile & cloud, consumer products and international expansion. The company definitely has immense growth opportunities. However, Alibaba has emerged as another big rival in mobile browser and search business by acquiring the remaining 33% in UCWeb. Meanwhile, Qihoo is successfully monetizing its desktop search business. In 2013, desktop search accounted for about 30% of its total business.

Baidu needs to keep an eye on Qihoo

Qihoo is already a big player in the Chinese Internet market. Its rising market share in the search business is a real threat to Baidu. Qihoo’s PC-based products and services have 479 million monthly active users. Its mobile security software protects about 467 million Chinese smartphones, giving it a 70% market share. Qihoo expects its second quarter revenues to double to $300-$305 million. The company’s mobile app store remains the No.1 Android app store in China. It has the potential to erode Baidu’ search market share.

Qihoo shares jumped 1.01% on Monday to close at $92.04 while Baidu gained 1% to close at $186.81.