There’s a flurry of interesting new developments in China’s online search market, which has suddenly become a hotbed of new activity after a several years of quiet during a period of domination by sector leader Baidu (Nasdaq: BIDU). Leading the reports is news that e-commerce giant Alibaba, which already operates an e-commerce search site called eTao, is entering the more mainstream search market. At the same time, other reports are saying that Sohu’s (Nasdaq: SOHU) Sogou, the industry’s third largest search engine, is in talks to acquire Soso, the search engine run by Chinese Internet titan Tencent (Nasdaq: 700). Lastly there’s the more minor news bit that the search engine run by the People’s Daily has run into hard times and is laying off up to 10 percent of its staff.
The first 2 pieces of news reflect the new life that is suddenly entering China’s online search market, which had been largely quiet for the last 2 years following the high-profile exit of Google’s (Nasdaq: GOOG) China-based search engine due to a spat with Beijing. The market began to show signs of new life last summer, when security software specialist Qihoo 360 (NYSE: QIHU) entered the picture with the launch of its so.com search engine. Since then, Qihoo has gone on to quickly gain 10 percent of the market.
Now it looks like Alibaba also wants to try for a piece of the lucrative market with the launch of a new search service under its Alibaba Cloud Computing unit, also known as AliCloud. (English article) The new engine at s.aliyun.com offers search services for the web, news and photos, which is quite similar to what Baidu, Google and other mainstream search engines offer. Alibaba already runs its eTao search engine, but that business is focused on allowing shoppers to look for items online and compare prices between various sites. It’s obviously still way too early to say if this new initiative will succeed, but I do think the service will face a big uphill battle, since it will have to compete with at least 5 or 6 players that have been in the market for several years or more.
Meantime, media are citing an unnamed industry source saying that Sogou is in talks to buy Soso from Tencent. The move would be interesting if it really happened, as Sogou has been gaining steady market share over the last year and an acquisition of Soso would give it some extra momentum that could help it pass Qihoo to become the market’s second biggest player.
But I seriously doubt that anything will happen in this particular case. Rumors about Soso have been common over the last year, including reports of layoffs and plans to even close the site. Tencent has repeatedly denied the reports, and has indicated it is committed to remaining in the search space. As China’s biggest Internet company, Tencent certainly has enough cash to keep funding Soso for many years even if it continues to lose money.
At the same time, rumors about Sogou alliances have also been rife in recent months, including the latest talk of meetings between the company’s chief executive with Qihoo 360’s CEO. (previous post) When there’s so much chatter in the space, it usually means that overeager reporters and company executives are just trying to create buzz, even though there’s little or no substance to the reports.
Finally let’s take a look at Jike, the search engine of the Communist Party’s flagship newspaper the People’s Daily. Media are reporting the struggling search engine will lay off about 500 employees, equaling a 5-10 percent workforce reduction. The company countered that it is laying off people, but said the 500 figure was overstated.
I won’t comment on this development too much, except to repeat my previously stated view that big Chinese state-run media companies like People’s Daily and Xinhua should focus on their main role as propaganda machines and stop trying to form commercial ventures. Such ventures usually perform poorly or fail because these companies lack entrepreneurial instincts. Tere’s no reason to believe that Jike will be any different, and I predict this search engine will most likely remain a minor player and possibly even close in the next 2-3 years.
Bottom line: Alibaba’s new search engine will have a difficult time in the crowded market, while rumors of Sogou’s potential buyout of Tencent’s Soso are most likely untrue.
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