More Turmoil at Tencent Soso 腾讯搜搜内部更加混乱

By newsdoug on June 18, 2012

A major restructuring at Tencent (HKEx: 700) is moving forward with the latest rumors that the top executive at the Internet giant’s Soso search business has left, in what looks like the latest sign of turmoil at this particular unit. Tencent has previously declined to comment on reports that anything is amiss at its search business, following reports last month that it had considered closing the unit but later decided simply to reduce Soso’s workforce by about half. (previous post)

Of course, all of this comes against the backdrop of the fact Soso and a handful of other Internet search wannabes, despite spending years and big bucks to build up their businesses, have yet to make any major inroads into the China search business against industry heavyweight Baidu (Nasdaq: BIDU), which controls more than 70 percent of the market. What’s more, the broader online advertising market, which is hte major revenue source for search companies, is showing every sign of a major slowdown as China’s economy slows. According to the latest reports, Soso General Manager Sun Liang has handed in his resignation, and so has another top Tencent executive, Wu Jun, who came to the company 2 years ago from Google (Nasdaq: GOOG). (English article) The source of the rumors is quite weak, coming mostly from various microblog postings from industry people both inside and outside of Tencent, meaning its far from clear that these reports are true. But considering the broader situation in the market and Soso’s disappointing lack of progress after years in business, I wouldn’t be at all surprised if these rumors are true. In fact, I suspect that Tencent is probably doing some major rethinking about its search strategy as the company undergoes its broader reorganization, and that it may perhaps issue an announcement on a new strategic direction if and when it finally decides how it wants to proceed. My educated guess is that in the end, the company will decide to close its traditional desktop search business and focus exclusively on mobile search. That strategy would be a smart one, as it’s quite clear that Baidu will be difficult to challenge in the search business using traditional desktop and laptop computers. But the sector is still much more open in mobile search, mostly involving searches from smaller devices like mobile phones and tablet PCs, where Baidu now only controls about a third of the market. Furthermore, mobile search is clearly the wave of the future, as more and more people access the Internet from these smaller, more mobile devices. At this point search is still a very minor part of Tencent’s overall business and is probably still losing money, meaning this kind of turmoil at Soso probably won’t hurt the company’s bottom line. But that said, Tencent really does need to quickly put an end to the rumors by announcing its longer-term search strategy, or risk losing an opportunity to make a more serious attempt at developing this important business.

Bottom line: The latest rumors of turmoil at Tencent’s search business reflect a lack of direction at the unit, which the company should address by focusing on mobile search.

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