The internet market is still growing at a very fast pace in China and it’s already the time for mergers and acquisitions here! We have learnt, few days ago, that the leading Chinese search engine Baidu was planning to acquire the second search engine Sogou earlier this year but failed to finalize the deal.
Sogou, a Not So Small Competitor
Sogou, the search engine owned by the web portal Sohu, is still a small player in the search engine field in China compare to the giant Baidu but it has been reported by Infodesk that Sogou would be considered the second player just in front of Google. In a very fragmented search engine market, where more than eight local and international platforms are competing, it comes with no surprise that some players want to gain time by choosing to grow externally and remove potential threats by acquiring some competitors.
Internet in China: A Now Mature Market
Earlier in March this year, the two video sharing platforms Youku and Toudu had announced their merge into one bigger company called Youku Toudu Inc. Currently Youku’s market share is about 25% while Toudu is about 14%, the deal is about US$ 1 Billion and will create the first video sharing platform in China with around 40% of the market share.
With all the acquisitions going on during the past months, it is very likely that the internet market in China is going to concentrate within the next months.
Sogou is a search engine which can search text, images, music, and maps. Launched in 2004, it is owned by China's No. 2 Internet portal Sohu but Alibaba Group is going to buy shares. Sogou means "Search Dog" in Chinese.
Youdao is a search engine released by Chinese Internet company NetEase in 2007. It is the featured search engine of its parent company's web portal, 163.com, and lets users search for web pages, images, news, music, blogs, etc. Youdao roughly translates as “there's a way”.
Sohu sells shares of its Sogou search engine
Sohu will actually sell 16% to Alibaba Group, parent of Hong Kong-listed Alibaba.com and Yunfeng fund, co-founded by Alibaba Chairman Jack Ma, and another 16% to a fund invested by Sohu Chairman Charles Zhang. The remaining 68% of Sogou will be held by Sohu.
When it launched Sogou, Sohu had big hopes for its wholly-owned search engine, but it has failed to gain market share against Baidu and Google during the past few years. The deal with Sohu will help Alibaba expand in the nation’s $1 billion search-engine market.
Sogou is China's third-biggest search engine
Alibaba doesn't seem to really believe in the search potential of Yahoo! China that it entirely owns. It actually pitched Yahoo! China site as an entertainment-oriented portal. By the way, we were wondering last week whether Yahoo! China would team up with a search partner.
In March 2010, Google decided to stop censoring its search results in China, the Chinese version of Google now redirecting all queries to its Hong Kong version.
What are the consequences of Google’s move in the Chinese Internet search area ?
Baidu gains market share, Google loses positions
Google’s decision to pull out of China results in giving a boost to Baidu. Baidu was already leading the Chinese Internet search market even before Google’s announcement ; this decision has given a more dominant position to Google’s rival.
In the end of 2009, Baidu’s market share was 58% while Google held 36% of the market. The figures provided by Analysys International, a Beijing-based market researcher, show interesting results. For the first quarter of 2010, there has been a significant increase in Baidu’s market share (now at 64%) while Google’s went down at a level of 31%.
|Search engine||Q4 2009||Q1 2010||Growth|
Source : Analysys International
Other search engines in China do not take advantage of Google's announcement
One could have guessed that Google’s decision would have a negative impact on its market share. One would have been right. Nevertheless, more surprisingly, not all other actors took advantage of Google’s withdrawal : only Baidu has actually gained market shares in Q1 2010 compared to Q4 2009. Other competitors, including domestic companies such as Sogou and Soso, have dramatically lost positions.
Baidu announces excellent financial results
From a financial point of view, Baidu also took advantage of the situation. The Chinese firm reported that its revenue rose 59.6 percent year-on-year in the first quarter to 1.29 billion Chinese yuan and that its forecast for the second quarter would break a new record.
Where are Yahoo and Bing ?
I am wondering what Yahoo and Bing (Microsoft’s search engine) are doing. They have stayed rather discreet till now, but it is certain that a rival’s withdrawal is a good opportunity for both of them. I am sure they will strive to take advantage of the situation : China remains the biggest market with a population of 384 million users connected to the Internet, as of December 2009. Thus, even 1% market share represents almost 4 million of potential customers…