Qihoo Ups Search Target, Attacks Sogou
Online search aspirant Qihoo 360 (NYSE: QIHU) is back in the headlines, this time by boosting its targets as it gains ground on market leader Baidu (Nasdaq: BIDU). At the same time, the company is also watching its flank, launching a new war of words against a new potential rival from the newly formed combination of Sohu’s (Nasdaq: SOHU) Sogou search engine and Tencent’s (HKEx: 700) Soso. From a tactical standpoint, this kind of attack on current and future rivals probably looks like a smart move. But from a more practical standpoint, these kinds of assaults are unlikely to have any real effect on Qihoo’s search business; instead such acts of aggression give off a signal of slight desperation as Qihoo tries to justify the recent run-up in its share price resulting from hype about its year-old So.com search engine.
Qihoo is probably feeling pressure to show some financial rewards from the rapid rise of So.com, which controlled around 21 percent of China’s search market in October about a year after its launch, according to traffic monitor CNZZ. (English article) I should quickly add here that I’m just slightly suspicious of those numbers, since Baidu referral traffic to my own website currently outpaces So.com referrals by a huge factor, something like 25 Baidu referrals for each So.com referral.
But let’s look past those figures and zero in on the latest news, which has a Qihoo executive saying the strong October results have prompted his company to raise its target from a previous 20 percent to a new 25 percent of China’s search market by the end of this year. (English article) Qihoo previously said it aims to control 30 percent of China’s search market by the end of 2014, and 40 percent by the end of 2015. By comparison, Baidu controlled about 63 percent of China’s search market in October, and Sogou and Soso combined controlled 13 percent.
Qihoo’s shares have tripled this year on high hopes for So.com. The company has yet to announce a reporting date for its third-quarter results, but acknowledged in its last report that monetization of its search business remains in the nascent stages. I suspect we won’t see much contribution from search when the company does report its third quarter results, most likely later this month. While that’s not a huge surprise, it could also explain why Qihoo is doing so much to focus attention on other matters in the search space.
One of those matters has Qihoo launching a new assault on Sogou, accusing the Sohu search engine of secretly collecting user data. (Chinese article) I find it somewhat humorous that Qihoo actually held a news conference to announce its discovery, which marks the latest move in a colorful war between the 2 companies. Qihoo was in talks to buy Sogou earlier this year, but ultimately lost that contest when Sohu wisely opted to sell a strategic stake of itself to Tencent. After that happened, Sohu sued Qihoo of using unauthorized means to secretly change settings on people’s computers to make Qihoo their default web browser instead of Sogou. (previous post)
This latest allegation by Qihoo shows the war of words between the 2 companies is likely to continue for a while. Qihoo is no stranger to such hostility, and is also currently embroiled in a series of lawsuits also with Baidu. (previous post) All of this looks at least partly like a diversion by Qihoo to hide its lack of progress in monetizing So.com. Investors may be realizing that too, as Qihoo’s shares have tumbled 13 percent over the last 3 trading sessions amid a broader sell-off for many Chinese tech shares. Look for more downward pressure on Qihoo stock in the months ahead, as investors get tired of all the rhetoric and grow impatient for some real results.
Bottom line: Qihoo’s raising of its search targets and new allegations against Sogou look aimed in part at diverting attention from its slow progress in monetizing its search business.
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