Baidu Takes On Youku Tudou

As investors are fretting about Baidu  (NASDAQ: BIDU  ) as it spars with a feisty Qihoo 360 (NYSE: QIHU  ) , and wondering if China's leading search engine can make a bigger play in mobile, it turns out that Baidu also wants to be a video star.

The fallen dot-com darling will be reportedly paying $370 million for PPS.tv's streaming video service. That, combined with the majority stake in iQiyi that Baidu acquired late last year, and it's clear that Baidu wants to be a major player in video.

Why not? Google (NASDAQ: GOOGL  ) has YouTube, and it seems as if Baidu is always finding a way to copy what Big G is doing.

However, the real development here is that fortifying its video offerings through iQiyi and PPS.tv will make Baidu a legitimate competitor to Chinese top dog Youku Tudou (NYSE: YOKU  ) .

Investors won't necessarily be applauding this move. They've seen Google struggle with the monetization of YouTube. Youku Tudou continues to post quarterly deficits, though analysts see the video-streaming giant finally turning the corner of profitability next year.

In other words, even if it succeeds with the eye candy, it's only likely to contract margins.

However, just as Google has been able to use YouTube to push video ads and establish its relevance to the clip culture community, there's more for Baidu to gain here than any potential near-term profitability. Baidu's success in video will ideally translate into success in mobile and a stickier user base.

It's a welcome distraction.

Shares of Qihoo 360 hit a fresh all-time high yesterday as it continues to gain traction in Baidu's search engine stronghold. Unlike Google investors that don't fear the desktop migration to mobile because the global leader's Android happens to be the smartphone platform of choice, investors do feel that Baidu needs to do a better job getting in front of smartphone and tablet users in China.

Baidu's transformation into a multimedia leader may be another page ripped out of the Google playbook, but there are fates far worse than aping Google -- which, like Qihoo 360, hit an all-time high yesterday. After hitting a new 52-week low last month, Baidu isn't too proud to copy what works.

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