Baidu is the dominant mobile search engine, but mobile search is much harder to monetize than conventional desktop search. Baidu is currently at a disadvantage to Tencent and Alibaba because it has failed to build a widely used social media or messaging application. It has splashed significant cash to buy a mobile strategy: in July it paid US$1.9 bn for 91 Wireless, a leading store for mobile applications, with the apparent hope that users will flock to it as a gateway to the mobile internet. But Baidu is at risk of falling behind other BATs as mobile apps increasingly dominate.

The BATs are also trying to expand internationally. Tencent, which has several former Goldman Sachs and Google executives on its manage- ment team, has the most advanced investment and operational strategies for its overseas expansion. Its president, Martin Lau, recently disclosed that it had spent US$2 bn on overseas investments and M&A—including plowing money into top-tier US venture capital funds, enabling it to take a sneak preview of hot new startups. WeChat, with over 200m overseas users, is a credible threat to Facebook in some markets and Tencent has established local WeChat teams in several regions, including North America. It has even signed the Barcelona football star Lionel Messi as its global advertising face. Alibaba has hired experienced American dealmakers for its new US investment team and recently led a US$206m investment in Amazon competitor Shoprunner. Baidu, by contrast, is just starting its international expansion, and so far lacks the global management talent of Tencent and Alibaba.

We demand positive energy!

This explosive commercial growth has been accompanied by increasingly sophisticated government efforts to manage online discourse. Social media, and specifically Weibo, have long been the focus of Beijing’s efforts to direct public opinion online. China’s leaders emphasized the need to strengthen controls at the Third Plenum in November. “While actively popularizing the internet,” the Communist Party declared in its “Decision on Deepening Reform” document, “China will reinforce its overall administration over cyberspace in accordance with the law and accelerate formation of a sound internet management system to ensure national internet and information security.” The government derives tremendous value from monitoring the discussions on social media and understands that its citizens need an outlet. It does not want to kill social media, but it does want it to be better controlled and have more “positive energy.”

We are now in the midst of a new campaign to rein in certain types of activity that is unprecedented in its scope, intensity of official media coverage, number of arrests and impact on Weibo activity. The campaign began in early May when the government declared war on online rumors that “impaired the credibility of online media, disrupted normal communication order, and aroused great aversion among the public.” This new campaign has specifically targeted the “Big Vs” on Sina Weibo—opinion leaders who have millions of followers on their verified accounts (hence the “V”). Big Vs are able to drive discourse and skew propaganda in ways that are anathema to the Party-state’s approach to information control. For example, in the wake of the July 2011 high speed train crash in Wenzhou, actress Yao Chen sent a message to her tens of millions of followers poking holes in an early version of the explanation of the crash. In September, China’s court issued a set of judicial guidelines that include the possibility of arrest for intentionally spreading false information online. Yet, from an investor perspective, the crackdown is more noise than a real concern. Sina even reported that both Weibo activity and advertising revenues rose in July to September, despite the crackdown.