GOOG) was doing for search in America, where he was working. So he got the idea to do the same back in China with a Chinese-focused search engine. Tencent got its start as a messaging platform tailored to the Chinese market. Their popular QQ platform became the first way a majority of Chinese started texting one another once they got their first mobile phone. Tencent used this messaging platform to sell games on. A few years ago, when Sina ( SINA) began to show success with its Weibo micro-blogging platform, Tencent created its own Weibo. Also a couple of years ago, Tencent started a WhatsApp clone called WeChat. It's now up to 200 million users over that time period. Alibaba Group owns three significant e-commerce platforms in China: Taobao, Tmall and Alipay. Taobao is most similar to eBay ( EBAY), selling second-hand goods. On one day recently in November, Taobao did $3 billion in revenue. Tmall is most similar to Amazon ( AMZN). Alipay is most like PayPal. Together, these three properties cast an enormously large shadow on the online space in China. Alibaba is expected to have a higher EBIT than Amazon this year and it is expected to pass Amazon in online sales by 2015. For years, these three giants have ruled over the Chinese Internet. However, I think Baidu could be headed for problems in 2013. Baidu has had a fairly easy rise to prominence in Chinese search over the past five years. Local companies haven't made the decision to invest in search, leaving Baidu to compete with American companies like Yahoo! ( YHOO), Microsoft's ( MSFT) Bing, and Google. Only Google has been a worthy competitor.
However, Google left China in March 2010 after its founders decided they no longer wanted to comply with Chinese censorship restrictions. This decision led to Baidu doubling over the course of the next year. In the last six months, Google's Chinese market share has dropped precipitously. But now there are several Chinese companies showing great interest in coming after Baidu in search. Alibaba has said it wants to do this in the future. Smaller Qihoo 360 ( QIHU) has shown the most ambition to get into the space and started to take some real market share in the PC space at least, around 10%. At the same time as newer competitors are starting to salivate at the possibility of getting into the space to compete with Baidu, Baidu has been showing decelerating growth. Its most recent quarter reported in October showed the slowest growth of any quarter they've reported for the last two years. Adding to the concerns of Baidu longs is that Baidu's valuation is still sky-high. The forward P/E is 11.5x. The price-to-sales is over 10x. The enterprise value-to-Ebitda is over 16x. If Baidu continues to show soft growth, investors might start punishing the shares. Baidu's stock is already off one-third from its all-time high of $154/share. But it could get worse in 2013. Baidu's market cap is now at $33 billion. Meantime, Tencent is up at $60 billion. Alibaba is prepping to IPO in 2013 and could be valued as high as $80 billion when it does go public. China's three Internet giants are going to become two in 2013. At the time of publication the author had a position in YHOO. Follow @ericjackson This article was written by an independent contributor, separate from TheStreet's regular news coverage.