What would you do if you had a privatization party and no one came or took care of it?
This is what is happening with the near-finalized takeover of Sogou by Tencent, which acquires the No. 2 search engine in China after becoming one of its controlling shareholders eight years ago. While such a title may have caused a stir a decade ago, it has barely registered on the internet in China since Tencent first unveiled its Sogou buyout plan last September.
Internet Chinese elders will recall that 2013 was the year Tencent and Internet veteran Sohu.com merged their two online search engines into the current Sogou, with Tencent receiving its primary stake in the merged company. as part of this agreement.
Many hoped the new Sogou would be the first serious challenge in years for search leader Baidu to combine China’s third and fourth search engines to create a competitor with Sohu’s pedigree and deep pockets and wealth of information. searchable from Tencent.
But not much happened to the suit, which came one step closer to becoming a wholly-owned subsidiary of Tencent when the repurchase received the official blessing from the anti-monopoly regulator last week. Sougou went public in New York in 2017, then quickly dropped below its IPO price of $ 13. It was trading at less than a quarter of that price last May, but staged a rally after Tencent announced plans to privatize the company last year at $ 9 per US depositary share (ADS).
This antitrust clearance was a relatively positive sign, allaying any fears the deal could be canceled as part of the regulator’s recently aggressive stance targeting China’s largest internet companies – including Tencent – for anti-competitive behavior.
Now, it’s probably only a matter of time before the company, whose name means ‘research dog’, gets pro forma approval from its shareholders to seal the deal, which would be followed by delisting. of his actions in New York. The big question after that becomes: does anyone care? The answer seems fuzzy at best and could very well be “no”.
A quick glance at the numbers shows why research in China is increasingly losing its luster for both major engine operators and investors. Baidu has been the search market leader in China for more than a decade after stealing the crown from former leader Google in the first decade of the 21st century in what has been billed as a major tech victory. local on imports.
Google left the market completely in 2010 after a high-profile feud with Beijing over the self-checking rules required for content, although many said at the time that it was just an excuse for the already stumbling US giant. leaves the market. This left the lucrative search market in China to mostly local companies, as well as Microsoft’s Chinese version of Bing which never really managed to find an audience.
Baidu continued to rule the roost for years, even though it faced a serious challenge at one point from the Haosou engine operated by security software specialist 360 Security Technology. But the latest rankings show Baidu is still the king of the castle with 80% of the search market in China as of June this year, according to StatCounter Global Stats. Sogou was far behind with 11% of the market, followed by Bing and Google with tiny 3.5% and 2.4% respectively.
But what these market share figures don’t show is that China’s total search pie is shrinking rapidly.
Baidu’s research revenue, defined as the online marketing revenue of the Baidu Core section of its business in its most recent reports, fell 5% in 2020 to 66.3 billion yuan (10.2 billion yuan). dollars) compared to 2019. The company defined it slightly differently the year before, but also noted that overall online marketing revenue fell 5% in 2019 compared to 2018.
Sogou’s financials looked even worse, with the company’s research revenue falling 22% last year to $ 837 million, erasing more than a 5% gain the year before. This huge swing, which was admittedly made worse by the Covid-19 epidemic as companies cut their marketing budgets, pushed Sogou into the red with a loss of $ 108 million for the year.
The collapse of the search market seems to owe at least in part to the move towards super apps like WeChat and Taobao, which jealously guard created content in their ecosystems and often block its indexing by third-party engines like Baidu. At the same time, people like me are increasingly avoiding Baidu for the simple fact that it quite blatantly promotes content created in its own ecosystem in areas like its Wikipedia-style Baike and its news site Baijia. .
“Research as a self-sufficient person is no longer really an entry point – applications are,” one of my sources told me when asked for his opinion on the buyout. “So, I don’t know what the rationale is for the Tencent buyout. Like everyone else, I’m curious about what Tencent will do with the business. They no longer need it to stab Baidu in the ribs, as Baidu has kind of withered on his own.
Indeed, Baidu is struggling to stay relevant in China’s internet arena after losing its long-standing status as the country’s third-largest internet company, behind much bigger Tencent and Alibaba, in 2017. Since then, the company has been overtaken by a number. other names as well, including online-to-offline specialist Meituan, e-commerce giant Pinduoduo, and even the much younger and losing online video company Kuaishou.
Ultimately, the Chinese search market is likely to contract by around 6% per year, with no indication of when the trend may reverse, if ever. Tencent can certainly afford the roughly $ 2 billion it will need to buy the Sogou stake it does not already own. But it could be about taking control of a vehicle that is quickly running out of fuel and may just need to be retired.
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