A recent report indicates there are now 270 million active Android users in China. The report didn't come from Google (GOOGL 0.35%), but from Baidu (BIDU 1.24%), which stands to gain much more than Google from the increasing number of Android devices in the country, but not without serious competition. Qihoo 360 (QIHU.DL) has made huge strides in the last year to capitalize on the fragmented Chinese Android market.

Locked out
Google has long been at ends with the Chinese government over censorship policies. As a result, Google's presence in the country is close to nil outside of the name Android.

Most Android phones in the country come with stripped-down versions of the open-source OS Google provides. There's rarely a Google Play store on a Chinese Android phone with the flagship Android app store accounting for just 5.6% of all app downloads in China. What's more, a good number of phones don't even come with the standard Google services -- GMail, Maps -- and most default to Baidu for search.

So, while Android is dominating the Chinese smartphone market with a 90% share, Google isn't seeing the benefit. Google has acknowledged this problem, and in April updated its device activation numbers to reflect only devices with Google Play installed.

Third-party app stores
With Google locked out, there are a plethora of options for buying apps for Chinese Androids. Big-name OEMs -- Huawei, Lenovo, Xiaomi -- often package their own app store on their phones. Downloads from those stores, however, are absolutely dwarfed by the number of downloads from third-party app stores.

One of the largest third-party app store companies is 91 Wireless, which Baidu paid $1.9 billion for this summer. The acquisition gives Baidu a much stronger position in the extremely fragmented industry of Chinese app "assistants." It's now one of the top channels for app distribution, when you include the company's flagship app store, delivering 80 million apps daily.

Additionally, Baidu recently unveiled a new platform for web apps called Light Apps. The idea is to facilitate the use of the 99.9% of apps that account for just 30% of downloads. Light Apps goal is to reduce the amount of friction in experiencing new apps -- no downloads, easier to find. The web app platform ought to complement native apps nicely.

Baidu's biggest competition
The openness of the Android platform makes it a breeding ground for competition. Indeed, there are hundreds of third-party app stores available for download. The largest, according to the China Game Industry Committee, is Qihoo's 360 Assistant with 29% of the market.

Qihoo is quickly encroaching on Baidu's territory. It's successfully leveraging its strong PC security software user base into a mobile powerhouse. Total active users of its PC-based software were 465 million in the third quarter. 408 million mobile users use Qihoo's mobile security software, up from 149 million a year ago.

Qihoo's brand recognition has helped it grow its mobile security software, which it has used to increase installs of its app store. Moreover, the company launched a search engine, So.com, which is quickly growing in popularity, eating away at Baidu's market share as more search queries come through mobile devices. In October, So.com saw 23% of unique visitors to search sites, up 400 basis points from September.

The biggest smartphone market
China is the biggest smartphone market in the world. If you, as an investor, want to capitalize on  the rapid growth of smartphone and tablet adoption in the country, particularly Androids, you ought to look at Baidu and Qihoo. Qihoo is making great strides in capturing market share, but the market is growing so quickly there's plenty of room for both companies to thrive.