Tencent Search: Baidu Beware? 腾讯搜搜成功关键依赖创新

By newsdoug on November 14, 2011

Tencent's Soso seeks success with new spending drive Baidu (Nasdaq: BIDU) may be China’s undisputed search leader, but others are certainly eying the market and its big profit potential, as evidenced by a major new campaign planned for next year by top Internet company Tencent (HKEx: 700) to promote its Soso search engine. (English article) This campaign looks interesting, especially for its big price tag, and underscores the fact that Tencent and others like Sohu (Nasdaq: SOHU) and Alibaba won’t just automatically yield this lucrative market to Baidu. Whether or not any of them will succeed is a different matter. According to domestic media reports, Tencent will spend a hefty 1 billion yuan, or about $150 million, to promote Soso next year, a large sum considering that Tencent has only invested slightly more, around 1.2 billion yuan, in Soso over the last 5 years combined. After years of failing to gain traction with its Sogou service, Sohu in its latest results pegged search as one area where it is finally gaining some traction, with its search revenue soaring more than 200 percent as it finally gained enough market share — around 2.2 percent — to register on industry radar screens. (previous post) Baidu is still the clear leader in the space with nearly 80 percent of the market, followed by Google (Nasdaq: GOOG) at a distant second. Soso still has yet to gain anything close to significant market share, despite its 5 years in business. But that said, Tencent has a number of factors in its favor that could help it succeed, especially if it really carries through with its massive promotional campaign next year. The company was a relative latecomer to the online game business, yet went on to draw on millions of users for its popular QQ instant messaging service to overtake giants like Shanda (Nasdaq: SNDA) and NetEase (Nasdaq: NTES) to become the top player. Its recent tie-up with Kaixin, China’s second biggest social networking site (previous post), could give it millions more potential users for its search service. This kind of access to potential users is important to grow a search business, but in my view the really critical factor is innovation. In order to really succeed and challenge Baidu, Sogou, Soso or anyone else will have to offer something new and better that Baidu doesn’t offer. Tencent has shown a good record at such innovation in the past, and will need to use that skill again in order to make its Soso succeed.

Bottom line: Tencent’s new 1 billion yuan spending campaign on its Soso search engine could have a good chance of success if it can support its promotional dollars with strong innovation.

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