On November 9, Sogou was listed on the New York Stock Exchange. On the first day of listing, Sogou was up 3.85% from the issue price of US$13 to close at US$13.5, with a total market value of approximately US$5.29 billion.
Founded in 2005, Sogou, China's second-ranked search engine, ran for 14 years behind Baidu (if Wang Xiaochuan joined Sohu in 2003 for 15 years), he finally ushered in the harvest season.
This is a unique company. The search engine is the winner-take-all industry. Baidu was once the largest entrance to the Chinese Internet, and it still occupies the majority of China’s search engine market share. Sogou’s market share was once very small. However, Sogou did not give up, but in the 15 years constantly looking for new breakthroughs, and finally seize the new opportunity after the arrival of the mobile Internet era, ripped a hole.
The current search engine market, Baidu is still the first. However, Sogou has found its own differentiated survival strategy in this market. Relying on cooperation with Tencent and mobile device manufacturers, Sogou's search volume on mobile has experienced rapid growth in the past three years. It also owns star products such as "Sogou Input Method." Sogou medical search and English search have differentiated competitive advantages.
From the perspective of the prospectus and the industry information currently held by Netease Technology, the gradual increase in the value of Sogou after listing is inevitable. However, after 15 years of sticking, Sogou will face more severe challenges in the future.
The search engine market is still growing rapidly
From a broader perspective, Sogou’s online search market in China is growing rapidly.
The prospectus shows that according to the report of iResearch, the total size of China's online search market in 2016 was 76.5 billion yuan. From 2016 to 2021, this market will maintain a compound annual growth rate of 21.7%, and by 2021 it will grow to 204.3 billion yuan.
The prospectus shows that iResearch believes that the real growth figure will be higher than 21.7%. Because China's online search market is still at an early stage. According to the report of iResearch, the total size of China's online search industry accounted for 0.1% of China's GDP in 2016; according to IDC statistics, the total expenditure of U.S. online search industry accounted for about 0.2% of GDP, which is about China’s double. These data illustrate the early stage of China's online search market and its great potential for future development.
Since 2014, Sogou’s market share has grown rapidly, mainly from the mobile side. The prospectus disclosed that from September 2014 to September 2017, Sogou’s total page views increased by 28.0%, but page views from the mobile side increased by 71.9%.
Differentiated competitive strategy
Sogou’s main income comes from Sogou search, which is disclosed in the prospectus, which accounts for approximately 90% of total revenue.
Sogou search has three main channels: First, Sogou’s own products, such as Sogou’s mobile search application, Sogou’s browser, and Sogou’s input method; Second, it cooperates with Tencent to provide products for Tencent’s system. Third, it has partnered with mobile device manufacturers such as Vivo, Oppo and Xiaomi to search Sogou as the default universal search engine for browsers pre-installed on certain mobile phone models.
The disclosure of the prospectus was measured by page views. Sogou’s search volume accounted for 20.8% of the search volume. Among Sogou’s total search volume, Tencent’s contribution rate was 36.2%, and mobile device manufacturers’ contribution rate was 43.0%.
Of particular note is that in October 2017, Tencent began to test search to WeChat. Its users can use Sogou search as a general search function in WeChat to access information other than WeChat. This may have a huge impact on Sogou’s business. The prospectus also disclosed that after the completion of product testing and optimization, Sogou and Tencent will discuss commercial arrangements.
In the future, Sogou’s strategy includes expanding to the emerging search industry and providing users with differentiated content, such as strengthening cooperation with content providers and providing authoritative and comprehensive medical information. These are all industries that currently have pain points. There is indeed a lot of room for optimization.
More serious challenges
However, there are more serious challenges waiting for Sogou in the future.
The future of search engine development is driven by AI technology. In this respect, Sogou has a slightly weaker investment than its strong competitor Baidu. This will affect the overall user experience of Sogou search. At this point, if Sogou cannot beat Baidu, there will be no chance of surpassing Baidu. The future is still looking for opportunities in Baidu’s own areas of limitations, inaccessibility, or poor performance.
As for the current three big blocks of search business, there are also certain challenges.
Sogou’s own channels will increase with the improvement of user experience and greater marketing efforts.
Traffic from Tencent will grow with the increase in WeChat search usage and Tencent’s opening up of more cooperation channels. The cooperation with Tencent has both advantages and disadvantages. Sogou said that in the BAT, Tencent was selected as the team leader, and Tencent was the major shareholder of Sogou. It is not clear that such close cooperation will bring about huge traffic and what negative impact it will bring.
Traffic from mobile device manufacturers, this part may not be so stable, because the threshold of cooperation with mobile device manufacturers is low, other competitors can use this strategy. At the same time, users are free to download other mobile search applications.
With the advent of artificial intelligence era, the future may be another scene. In terms of the entire industry, search engine advertising revenue is likely to occupy only a small portion of the revenue of artificial intelligence companies. More income comes from the combination of artificial intelligence technology and various industries.
For Sogou, the new highlight is the development of smart hardware. The disclosure of the prospectus, IDC data show that in 2014, Sogou launched a self-developed children's smart watch Teemo Watch, the smart watch quickly became one of the leading brands of smart watches in China. Also based on IDC's data, Teemo Watch's sales ranked China's top five smart wearable devices in terms of ocean freight volume in the first quarter of 2017. Sogou also plans to launch the home smart device Teemo Home by the end of 2017.
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