Sohu’s Sogou Still Looking for Search Bite 搜狗壮志难酬

By newsdoug on May 7, 2012

Sogou keeps barking with latest plan You have to admire the dogged determination of Sogou, the online search unit of web portal Sohu.com (Nasdaq: SOHU) that, after nearly a decade in business is still just a bit player in its space. Despite its lack of progress, Sogou is now telling the world about its latest strategy to steal market share from Baidu (Nasdaq: BIDU), the China Internet search giant which controls more than 70 percent of the market. (English article) The only problem with this latest plan is that most of us have heard this kind of talk before from Sogou, and the result is always a lack of any real progress. Let’s look at this latest plan, which has Sogou’s CEO saying the unit will rely on searches that focus on users’ needs rather than the more commonly used keyword approach used by most major search engines. He added that Sogou still isn’t profitable, and gave what looks like an impossible target of controlling 15 percent of China’s online search market by next year. All this sounds remarkably familiar to forecasts Sohu founder Charles Zhang gave me in an interview way back in 2006, a year or 2 after Sogou’s launch. At that time he boldly predicted his new unit could take around a third of China’s online search market within a few years. Of course that never happened, and Sogou now controls just around 2 percent of the market. Zhang loves to trumpet Sogou’s recent gains, which saw his search engine post revenue growth of more than 200 percent last year. Those gains did indeed look impressive, though when you’re coming off such a small base it’s certainly not impossible. But even that growth is showing signs of stalling, with the company recently predicting that Sogou’s revenues would just double in the current quarter. (previous post) I don’t want to dampen Sogou’s aspirations too much, especially since I think that China really needs a good competitor to challenge Baidu. But that said, Sogou might do well to take a look at Soso, the search engine unit of Tencent (HKEx: 700), China’s largest Internet company. Despite gaining success in many of the areas it has entered, Tencent failed to make much of an impact in online search despite major investment in Soso, which 6 years after its founding has even less market share than Sogou. After wavering on the future of Soso, Tencent reportedly decided just a week or 2 ago to sharply cut back the unit rather than close it outright, with plans to slash about half of its workforce. (previous post) Perhaps Sogou would be well advised to make similar plans, though Sohu hasn’t shown any signs of abandoning this money-losing unit. Then again, following a recent online video tie-up between Tencent and Sohu aimed at competing with the new industry leader formed by the marriage of Youku (NYSE: YOKU) and Tudou (Nasdaq: TUDO) (previous post), maybe we’ll see a similar Sohu-Tencent tie-up in online search.

Bottom line: Sohu’s determination to keep funding its money-losing Sogou search engine seems destined to fail, and it might be better served by closing the site or looking for a merger partner.

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