China's Baidu to acquire local app stores for $1.9 billion

Baidu wants to expand its presence in China's mobile Internet market

China's largest search engine Baidu is planning to acquire two leading app stores in the country for US$1.9 billion, as the company seeks to expand its presence in the mobile Internet space.

Baidu on Monday said it signed an agreement to acquire 91 Wireless Websoft, a subsidiary of Chinese online gaming developer NetDragon Websoft. As part of the agreement, Baidu and NetDragon will negotiate and agree on the terms of the acquisition by Aug. 14.

91 Wireless manages two leading app distribution platforms in China, called 91 Assistant and HiMarket. Both essentially work as third-party stores for apps that can be downloaded to smartphones. More than 10 billion apps have been downloaded through the two platforms.

The acquisition could help Baidu bolster its own position in China's competitive mobile Internet market. For years, Baidu has reigned as the country's largest company for PC-based Internet searches. But recently Baidu has shifted more of its focus to mobile devices, as China has become the world's largest market for smartphones.

Baidu search is already pre-installed on most smartphones on the country. But rivals have introduced their own hit products, including popular social networking and messaging apps, that Baidu has yet to replicate.

The company has released its own mobile software products, including browser, mapping and photo sharing apps, and said it wants to become a key provider of third-party mobile apps.

By acquiring 91 Wireless, Baidu could further diversify its revenue streams by charging fees from developers on the app store platforms, said Mark Natkin, managing director for Beijing-based Marbridge Consulting. Baidu currently relies on online advertisements for most of its revenue, but mobile ads have yet to generate the same level of sales as PC-based ads do.

"In the mobile space, Baidu has so far struggled to really get advertisers to put down a major budget on mobile search advertising," he said. "Maybe they are now looking at other revenue models to diversify their revenues."

The deal could also bring more visibility to 91 Wireless and its app stores. But competition among third-party app stores in China remains fierce, Natkin said.

"There are not just a few app stores in China, but legions of app stores," Natkin said. "And they are all competing for the same user traffic."

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