TOKYO â€" Another big investment has deepened a struggle for primacy among China’s online giants.
Tencent Holdings, the biggest Internet company in China, said Monday that it had invested $448 million for a 36.5 percent stake in Sogou, a search engine. The move helps Tencent, which provides popular online games, social networking and Internet messaging services, keep pace with its main rivals, Alibaba and Baidu, which have been moving to challenge Tencent with deals of their own.
As the Chinese Internet continues to boom, the stakes are growing. This week, the stock market capitalization of Tencent climbed above $100 billion, only a few billion short of the value of Facebook. Like its main rivals, Tencent has mostly focused on the Chinese market, though it has been trying to expand its international presence.
Sogou, which is owned by a company called Sohu.com, is only the third-largest search engine in China, with a 10 percent share of searches in August, according to CNZZ, a research firm. Baidu led the way, with 63 percent, followed by Qihoo 360, with 18 percent.
Still, Sogou was courted by Tencent, Qihoo and Alibaba. The rivalry between Alibaba and Tencent has been fierce, with each company moving in recent months to expand its range of Internet services in an effort to outflank the other.
Tencent, with fast-growing messaging services like QQ and WeChat, is strong on mobile devices, but until recently it lacked strength in areas like e-commerce. Alibaba, on the other hand, is the Chinese leader in e-commerce, but weaker in search and mobile services.
In August, Alibaba moved to block online retailers on its sites from using WeChat, which has emerged as a powerful marketing tool. Tencent then added online payment features to WeChat.
By forging a partnership with Sogou, Tencent may have sought to defend its own turf rather than letting Alibaba open up a new front, analysts said.
“Tencent could not let Alibaba get a search engine,†said Bryan Wang, an analyst at Forrester Research. “It’s really about buying something that could potentially have been very beneficial to its rival.â€
Last spring, Alibaba threw down the gauntlet, agreeing to pay $586 million for an 18 percent stake in Sina Weibo, a microblogging service that resembles Twitter. That moved Alibaba into more direct competition with Tencent, as WeChat and Weibo compete for users. Alibaba followed up that deal with a $294 million investment in AutoNavi, an online mapping company.
Not to be outdone, Baidu followed up with the biggest Internet deal to date in China, a $1.9 billion agreement to acquire 91 Wireless, which operates mobile application stores.
Although mobile and e-commerce business has been booming, search is still growing, too. Revenue from search in China grew 35 percent from a year earlier, according to iResearch, a consulting firm. Baidu accounted for 81 percent of the 9.28 billion renminbi, or about $1.5 billion, in quarterly total revenue, the firm said. At only 3.3 percent, according to iResearch, Sogou’s slice of the revenue pie was considerably smaller than its share of searches.
“This partnership will immediately expand Sogou’s market presence and significantly elevate its position in the highly competitive PC search market, and even more so in the rapidly evolving mobile search market,†said Charles Zhang, the chief executive of Sohu.
Before the announcement Monday, Qihoo 360 had been seen as the front-runner to acquire part or all of Sogou. Executives of the two companies had acknowledged holding talks.
Tencent said that under the agreement with Sohu.com, it had the option of increasing its stake in Sogou to “approximately 40 percent.â€
Tencent plans to combine its search engine, called Soso, with Sogou, and the two companies said they would cooperate on the development of new services.
“We are confident that Sogou, after combination with Soso, will deliver superior search experiences to users on our social, browser and content platforms, especially on the mobile front,†Ma Huateng, chief executive of Tencent, said in a news release.
