By Paul Mozur
BEIJING--Tencent Holdings Ltd. (TCEHY) has invested $448 million
for a minority stake in Chinese search engine Sogou, the latest
example of how China's largest Internet companies are spending big
to expand their arsenal of products.
The deal brings to an end months of talks between Sohu.com Inc.
(SOHU) and potential suitors for its Sogou search unit.
Tencent's investment, which gives it a 36.5% stake in Sogou, is
designed in part to keep rivals like Baidu Inc. (BIDU) and Qihoo
360 Technology Co. (QIHU) from getting their hands on China's
third-largest search engine by traffic, according to research firm
CNZZ.
China's largest Internet companies are scrambling to acquire or
invest in companies that can give them a competitive edge in
attracting China's growing number of smartphone users. Battle lines
are being drawn among China's three largest Internet
companies--Tencent, Baidu and Alibaba Group Holding Ltd. This
latest move firmly aligns Sohu with Tencent.
Baidu in July agreed to spend $1.9 billion to acquire 91
Wireless Websoft Ltd., which operates one of China's largest
mobile-app stores. Alibaba this year paid more than $800 million
for investments in online mapping company AutoNavi Holdings Ltd.
and Sina Corp.'s (SINA) Weibo microblog business. Tencent has been
less active than its rivals but said in August it was spending
about $200 million to market its mobile-messaging application
WeChat outside China.
Sohu, together with its affiliates, remains the controlling
shareholder of Sogou, which will continue to operate independently
as a subsidiary of Sohu, according to a statement from the two
companies.
For Tencent, the investment helps the company gain an edge in
search. For years, Tencent, which had a market cap of $100.95
billion at close of trading on the Hong Kong Stock Exchange Monday,
has operated its Soso search unit without gaining much traction
among Chinese Internet users. Tencent's Soso will merge with Sogou
as part of the deal, according to the statement.
Sogou is a popular search engine among China's higher-end users.
Last year, the company integrated its Chinese Pinyin input directly
into a search bar, drawing many users who used its Chinese
character-writing software but not its search engine.
Sogou is China's third-largest search engine, with 9% of traffic
at the end of last month, according to CNZZ. Qihoo had 15%, while
Baidu had 69%. Google Inc.'s (GOOG) share of the Chinese search
market has declined steadily since 2010, when the U.S. company
stopped censoring Internet searches as required under local law and
shifted operations to Hong Kong. Since then, analysts say,
government blocks have rendered Google's services slow and
unreliable.
Though Sohu was in talks to sell Sogou to Qihoo 360, a person
familiar with the matter said one top executive at Sogou objected
to cooperation with Qihoo, which he believed would alienate Sogou's
user base.
Charles Zhang, Sohu's chairman and chief executive, will remain
chairman of Sogou. Martin Lau, president of Tencent and Mark Ren,
Tencent's chief operating officer, have joined Sogou's board. Wang
Xiaochuan will continue to lead Sogou as a director and chief
executive.
--Yajun Zhang contributed to this article.
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