Baidu, owner of the mainland's most popular internet search engine, is buying application store 91 Wireless for US$1.9 billion, the company's biggest acquisition so far and a deal that signals its strategy to secure a stronger foothold in the mobile internet market.
The news came as fellow Chinese internet giant Alibaba announced it had bought a stake for an undisclosed sum in a mainland budget tourism website company, Qyer, and highlights the scramble for assets among the mainland's cash-rich internet players.
"With tonnes of yuan at hand, the best choice is to invest in potential growth for the future," said Hong Bo, a Beijing-based IT industry expert.
"If you don't buy and if your competitor buys, then you will really find yourself in trouble," Hong said, adding that he expected to see a wave of consolidation in the mainland mobile app market currently populated by hundreds of different distributors. Chi Tsang, internet analyst at HSBC in Hong Kong, echoed the view that Baidu was using its US$3.5 billion cash pile wisely.
"Management is becoming more aggressive in using its balance sheet to take advantage of a fragmented sector," Tsang wrote in a note to clients.
The Baidu purchase of 91 Wireless - China's No1 third-party app distribution platform by active users and cumulative downloads, according to iResearch, with more than 10 billion application downloads to date - is the third major announcement in China's mobile internet space in as many months.
Tencent, the country's largest listed internet company, said earlier this month it would open its platform to more application developers, while Alibaba, the mainland's top e-commerce company, acquired an 18 per cent stake in web portal Sina's microblogging service, Weibo, for US$586 million, in April.
Under a binding memorandum of understanding, Baidu will pay US$1.09 billion for the 57.4 per cent stake in 91 Wireless owned by NetDragon Websoft, both companies said. Baidu will also buy the remaining shares in 91 Wireless from other shareholders on the same terms, according to the announcement. Philip Wan, a vice-president at Morgan Stanley, said Baidu had become more aggressive in expanding into mobile internet services via mergers and acquisitions.
Baidu purchased PPS, an online video platform with mobile-user penetration, for US$370 million in May.
Beijing-based Hong said Baidu needed to develop popular products like Tencent's Weixin, a WhatsApp-like messaging app.
"Traditionally, Baidu attaches importance to the web, however, with the fast growth of smartphones, the majority of mobile phone users are accessing the internet on their phones these days."