Baidu (BIDU 3.56%), Alibaba (BABA 4.92%), and Tencent (TCEHY 2.46%) are China's top search, e-commerce, and social networking companies, respectively. Those industry-leading positions make the three "BAT" stocks sound investments for long-term investors who believe in the growth of China's tech market.
However, all three companies are also constantly expanding into adjacent markets to gain strategic advantages against one another. These moves can be hard to follow, so today I'll narrow them down to four battleground markets.
1. Mobile search engines and web browsers
Baidu controls 64% of China's online search market, according to StatCounter. Alibaba's Shenma comes in second with a 21% share, followed by Qihoo 360's Haosou at 6% and the Tencent-backed Sogou (SOGO) at 5%.
But if we only look at mobile searches, Baidu's share drops to 59%, Shenma's rises to 34%, and Sogou ranks third at 5%. Baidu, which controlled 90% of this market last October, lost a lot of users to Shenma, which held only a 4% share back then.
Shenma's growth can be attributed to the growing popularity of Alibaba's UC browser, which controls 25% of the Chinese mobile browser market and ranks second to Chrome. Safari comes in third, with 13% of the market, followed by Tencent's QQ Browser, which controls 12%. Sogou is the default search engine in the QQ Browser.
Baidu's own mobile browser, which launched in 2012, remains a distant laggard in this market -- which could hurt its ability to counter Shenma and Sogou on mobile devices.
2. Streaming media
Baidu's iQiyi and Tencent Video are the two largest video streaming platforms in China. Alibaba's Youku Tudou ranks a distant third. None of these platforms are profitable, but they are gradually generating higher revenues with subscription plans and premium content.
In streaming music, Tencent Music Entertainment (TME) -- which Tencent owns a majority stake in -- controls 76% of the entire market, according to research firm DCCI.
TME was formed after Tencent spun off its music unit and merged it with China Music Corporation in 2016, which pulled the top streaming platforms QQ Music, Kugou, and Kuwo into a single ecosystem.
TME's biggest rival is NetEase Cloud Music, which controls about 16% of the market. Baidu controls about 4% of the market with Baidu Music, while Alibaba's tiny Ali Music (Xiami) platform reaches even fewer listeners.
3. Artificial intelligence
Baidu, Alibaba, and Tencent all accumulate a lot of data from their users. But that data is useless until AI-powered tools process it into actionable information. That's why these three companies are all investing heavily in AI.
Baidu's "Baidu Brain" unit improves its machine-learning algorithms, core search technologies, and big-data applications. The unit created Baidu's virtual assistant Duer, opened Silicon Valley labs to deepen its ties with American tech companies, and launched an open-source platform for autonomous cars called Apollo.
Tencent established an AI lab last year, and poached Baidu's big-data chief Tong Zhang to lead the unit. Tencent uses AI tools to enhance its social apps, online games, and cloud services, and states that AI already powers "over a hundred" of its products -- including WeChat, QQ, and the Tian Tian Kuai Bao news app.
Alibaba uses AI to improve its core marketplace business by predicting customers purchases, tracking inventories, and streamlining logistics. But it also uses it for less obvious applications, like monitoring food safety in pig farms and outperforming humans in a recent reading comprehension test at Stanford University.
4. E-commerce and fintech
Alibaba's Tmall controls over half of China's e-commerce market, according to Analysys International EnfoDesk. However, its top rival JD.com (JD 3.41%) has gained ground over the past few years, and currently controls about a third of the market.
On their own, Baidu and Tencent can't compete against Alibaba in the e-commerce market.
However, both companies are now partnered with JD.com. Baidu currently shares its user data with JD and integrates its marketplace into its mobile app, while Tencent (which owns about a fifth of JD) integrates its marketplace into WeChat, the most-popular messaging app in China.
Tencent also signed e-commerce partnerships with retail giants like Walmart (which also owns a major stake in JD.com) and Carrefour, and co-invested in third-place e-commerce player Vipshop with JD.
Alibaba is fighting back with big brick-and-mortar investments, including its purchase of department store chain Intime and investments in Suning, Sun Art, and supermarket chain Lianhua.
All these e-commerce moves are related to moves by Baidu, Alibaba, and Tencent into the mobile payment and fintech markets. Baidu Wallet, Alipay, and WeChat Pay are all competing in the mobile payments market, as Baidu's Financial Services Group, Alibaba-backed Ant Financial, and Tencent-backed WeBank all offer competing financial services and loans to customers.
The bottom line
Baidu, Alibaba, and Tencent dominate their respective markets, but they're definitely not sitting still. Investors should keep a close eye on all these moving parts to see if one of the BAT giants could lose ground to the others in these key battleground markets.