China's lively search engine market is getting even more interesting.
Heads turned last week when Tencent agreed to pay $448 million for a 36.5% stake in Sohu.com's (NASDAQ: SOHU ) Sogou, the country's third most popular search platform. It had been widely believed that Qihoo 360 (NYSE: QIHU ) would make a play for Sogou -- or even all of Sohu -- in an attempt to become a more formidable competitor to market leader Baidu.
Things didn't exactly pan out the way that Qihoo probably wanted, and now the transaction is getting personal.
Wedge Partners analyst Juan Lin -- as retold by Barron's -- pointed out that things are starting to get hairy between the two largest search engine providers outside of Baidu.
Sogou's CEO commented over the weekend that some users of its Internet browser running Qihoo 360's popular antivirus program are complaining about having the Sogou browser removed as their default selection. If the finger-pointing here ends at suggesting that Qihoo 360 is deliberately moving customers away from rival programs, it wouldn't be the first time that the company has been involved in this kind of controversial practice.
Qihoo 360 quickly countered the knock, accusing Sogou of misleading users into installing the browser in the first place.
Lin also noted that Qihoo 360's video search site is scaling back on the number of popular videos hosted on Sohu that are promoted on its landing page.
In short, Qihoo 360 plays a vital role in the traffic that it sends to Sohu's video site and its market-leading antivirus software can funnel traffic from one site to a rival. One can argue that if it abuses those perks, users will vote with their feet, but it's never that simple.
Sohu probably thought Sogou would get a spike in traffic by teaming up with the gaming and mobile chat giant Tencent, but it's hard to underestimate the venom of a rumored acquirer's scorn.
This is all happening as the Chinese government is easing controls in Shanghai's Free-Trade Zone. Right now the story is how Twitter and other social sharing sites will be welcomed into at least one small market in China, but if the loosening continues, we may very well get to the point where Google is ready to give it another try in search.
Google all but bowed out of China a couple of years ago, bequeathing the market to Baidu while fleeing on principle. However, if China's restrictions ease there may be little reason for Google not to come back and challenge Qihoo 360 and Sogou for the silver medal here.
Yes, the Chinese search market is getting interesting. Sohu and Qihoo 360 better make sure that they don't spend too much time fighting one another to forget about the importance of keeping their users happy and in place.
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