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Billion Dollar Unicorns: Sogou a Unicorn, But Yet to Find its Mojo

Posted on Tuesday, Oct 13th 2015

According to a report from Bloomberg Intelligence, the Chinese search market is dominated by Baidu which commands an impressive 74.4% of the market. Qihoo is a distant second with 17% market share followed by Billion Dollar Unicorn club member Sogou, which accounts for 7% of the share.

Sogou’s Offerings

Beijing-based Sogou was a pioneer in China with its search engine technology back in 2004 when it was founded by Charles Zhang. Sogou, which means Search Dog, began by integrating the unique Chinese language keyword input software with a user-friendly search browser. But the market was attractive enough for other competitors to enter and soon Sogou’s first mover advantage was lost to the might of Baidu and Qihoo. Sogou’s search technology isn’t much different from anything else that its competitors use, but they are yet to find that magic potion that can help them gain a bigger pie of the market.

Sogou’s search engine helps users search for text, images, music, and maps. They run their business in two major domains, web and desktop applications. Web application products are aimed at verticalizing search into categories such as music, pictures, video clips, news and maps while the desktop applications continue to work to improve the user experience. Their biggest claim to fame, for now, is the Sogou Pinyin, a phonetic system for transcribing Chinese into Latin script in China. They also have their own browser that adopts real dual-core techniques to accelerate online surfing speed while connecting users with the cloud to detect and prevent malicious software and website attack. Additional offerings include a web directory and an online games portal.

Sogou’s Financials

Sogou’s initial funding details are not widely known. In 2013, they had become an attractive investment opportunity for Chinese Internet company Tencent that decided to invest in them. Tencent bought a 40.9% stake in Sogou with an investment of $516 million. The deal valued Sogou at $1.23 billion. Post the investment, Tencent merged its own search engine Soso with Sogou. The move helped consolidate some of the smaller players in the Chinese market, but Baidu’s leadership remains untouched.

According to Tencent’s filings, Sogou’s recently reported that fourth-quarter revenues grew 70% over the year to $119 million. Sogou’s profitability figures are not known, but as of Q2 2014, it was trending towards being profitable. Sogou ended fiscal 2014 with revenues of $386 million.

More recent news reports suggest that now Tencent may be looking to spin off Sogou through an IPO in the US later this year. The listing, if it happens, is estimated to value Sogou at $3 billion, more than doubling from their 2013 valuation.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

This segment is a part in the series : Billion Dollar Unicorns


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