INTERNET: Sogou Chases News, Hollywood Sues Xunlei
Bottom line: Sougou could gain some momentum in the search market this year following some innovative new tie-ups with WeChat, while Xunlei’s stock will remain under pressure as it gets dogged by more piracy issues.
More than a year after emerging as China’s third-largest search engine with the merger of 2 second-tier players, Sogou is finally making an interesting move by launching a news app that takes advantages of its ties to Internet titan Tencent (HKEx: 700). The move looks particularly promising, since the rapid rise of another similar app called Today’s Headlines shows that this is clearly an area with strong demand. The move could pose a serious challenge to the high-flying Today’s Headlines, which earlier this week was named as one of China’s top 10 mobile apps for 2014. (previous post)
Meantime, recently listed online video site Xunlei (Nasdaq: XNET) is also feeling some new heat from a separate source, after the major Hollywood studios sued the company for hosting pirated content on its service. The news sparked a fresh sell-off for Xunlei’s stock, and I would give the company the dubious title of most likely to de-list in the next year or two among the large field of New York-traded Chinese Internet companies.
Let’s begin with Sougou, whose newly launched news feature is the first exciting move I’ve seen from the company since its formation in September 2013 through the combination of the search businesses of web portal Sohu (Nasdaq: SOHU) and Tencent. Despite its deep resources, Sogou hasn’t done much since the merger and is still a distant third in China’s search market with about 13 percent share, behind leader Baidu (Nasdaq: BIDU) and the much younger Haosou.com search engine operated by Qihoo 360 (NYSE: QIHU).
All that said, this new Sogou move to better leverage its ties with Tencent looks quite smart, starting with the WeChat top headlines feature. (Chinese article) The news feature is part of a bigger package, which also saw Sogou roll out “local life” and price comparison features on WeChat this week. Last year Tencent also made content on WeChat available to Sogou for indexing on its search service. (previous post)
I’m happy to see that Sougou is finally starting to try and leverage its ties with Tencent more aggressively, and this news feature looks full of potential. That potential for news apps was in the headlines last year, when a start-up app called Today’s Headlines raised a hefty $100 million in funding less than 2 years after its founding. (previous post) Such apps help readers to sift through the huge volumes of news on the Internet and create packages tailored to their personal interests. This kind of move could finally help Sogou get the traction it needs to mount a serious challenge to Baidu and Haosou.
Next let’s look at the latest setback for Xunlei, which is being sued by the Motion Picture Association of America (MPAA), which represents all the major Hollywood studios. (English aritcle) The MPAA has taken the interesting step of filing its action in the southern Chinese boomtown of Shenzhen, which is where Xunlei is based but is also emerging as a champion of intellectual property protection as Beijing tries to stamp out piracy.
This kind of piracy issue has dogged Xunlei for years, and scuttled previous attempts at an IPO before it finally made a successful listing on the Nasdaq last year. Since then Xunlei’s shares have moved steadily downward, losing another 5.6 percent after word of the lawsuit came out. They are now down 37 percent from their IPO price, and I would expect them to come under more pressure as this loss-making company deals with yet another piracy crisis has become one of its biggest headache.
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