There's an old expression in China for the three kings of the Internet there. They're referred to as the BATs. It stands for Baidu-Alibaba-Tencent.
For a long time, these three were able to grow as the Chinese Internet grew and they didn't really step on each other's toes.
Baidu did search, Alibaba did e-commerce and Tencent did gaming and messaging.
But something has changed in the last year. It really started with the rapid growth of WeChat last year. Tencent created the private messaging application that was seen as a successor to its earlier popular QQ messaging service that was popular when everyone still had feature phones running on 2G networks.
For a while, Tencent got blindsided by the rapid growth of Sina's (SINA) Weibo product, which is simply a copycat of Twitter (at least initially and now it's grown to include much more functionality than Twitter). It responded by creating its own Weibo clone, which it heavily promoted with marketing dollars.
But then Tencent realized that services like WhatsApp were growing quickly in the U.S. and internationally with users who wanted to connect across all different phone types and do private messaging. They jumped in with both feet and have now the de facto standard messaging service in China with WeChat.
You would think that in itself wouldn't upset the natural balance between Tencent, Baidu, and Alibaba, but it did. As WeChat's users increased, so did Tencent's stock price, which is up 108% in the last year. Tencent has started to experiment with monetizing its WeChat user base, which is now around 400 million.
It did things like send out Groupon (GRPN)-like flash sales of products. It tried a service where you could pay for a taxi ride with your WeChat app, using the TenPay payment service (think of that like a PayPal alternative).
These attempts were hits, or at least characterized that way.
All of these examples are what the Chinese refer to as O2O (online to offline). Many Chinese Internet execs believe it's going to be the next big thing in Internet over there. It involves using an app as a starting point and then driving you to offline real-world purchases or actions.
As you can imagine, this is highly relevant to the world of e-commerce.
Alibaba is dominant in traditional e-commerce, where Amazon.com (AMZN) has also wielded the most power over the last few years. But O2O offers new entrants, like Tencent, to get into the e-commerce mix.
Alibaba sees this, which is why both Alibaba and Tencent have been making acquisitions like crazy over the last four months. They both see this as the future to e-commerce and messaging. Their old discrete worlds are now overlapping.
Who will win? We will have to see.
Where does this leave Baidu? It hasn't been doing more acquisitions. Its last one was for 91 Wireless, which you can think of if the App Store wasn't owned by Apple (AAPL), but by a third party. It was a great deal for Baidu and propelled its shares to $180 from the $80s over the last year.
But what about now?
Baidu's stock gains haven't kept pace with Tencent's and, presumably, Alibaba's over the last year. There seems to be a risk that it is becoming shoved to the background. The BATs might be about to become the ATs.