China's Tencent expands search engine presence with Sogou deal

Competition in China's search market is heating up with a new US$448 million deal that will bolster Internet giant Tencent's presence in the country's search market.

Tencent is spending $448 million to buy a 36.5 percent stake in Sogou, a local search engine owned by Chinese company Sohu.com. As part of the deal, Tencent's own search engine, Soso, will merge with Sogou, the companies said on Monday.

The deal will put Tencent in closer competition with Baidu, another Chinese Internet giant that has reigned over the country's search market for years. Baidu currently has a 61 percent share of the market, according to Internet analytics site CNZZ.com.

Both Tencent's and Sohu's search engines have struggled to individually gain traction in the market. But by combining forces, the two companies will together have a 15 percent share of the market.

Although less known internationally, Tencent is one of China's largest Internet companies, and has businesses in online games, social networking, and e-commerce. More than half of its staff is devoted to research and development, and one of its newest mobile chat apps, called WeChat, has over 300 million registered users.

Under the deal, Tencent and Sogou will collaborate in search technology. Sogou can also integrate its services into Tencent products, giving the company a sizeable user base to access.

Monday's deal will intensify competition in China's search space after Google in 2010 decided to partially exit the country's market, following repeated disputes with local authorities over online censorship. Since then, Baidu has focused on expanding into China's mobile Internet market with its online mapping, search, and app services.

No company has yet come close to toppling Baidu in search. But last year, Chinese online security vendor Qihoo 360 launched its own search engine that has steadily gained a following in the country, with a 20 percent market share. This has made it China's second largest search engine.

Previously, the company had long been rumored to be in talks with Sohu to buy its search engine, which would have given Qihoo 360 a 30 percent share of the market.

Monday's announced deal was closed on the same day. Sogou will continue to operate as an independent subsidiary of Sohu.