Local media reported that Sohu just bought back 10,88% of Sogou from Alibaba, a move ending a two-year long relationship between the two since Alibaba invested into Sogou in 2010, the same year Sogou was spun off from Sohu as an independent operation.

The valuation of Sogou now is $0.237 billion, which increased by over 70% compared to 2 years ago. According to Sohu’s Q1 earning reports, Sogou pulled in $ 23 million in revenue, growing by 184% year over year and the company is having more than 1300 staff now. Things look good, so what makes this change?

No material coopration

People used to be optimistic about the cooperation between the two. Think about Taobao’s commodities showing in Sogou’s search engine. One gets the traffic and one gets the money, isn’t it perfect match? However, during the past two years, we didn’t see any real collaboration actually. Sogou wanted a strategic partner, but Alibaba clearly seems just to be an investor.

In the previous stage, Sogou revealed that they once offered a safety online shopping browser specially customized for Taobao, but was rejected by the partner. Two months later, Alibaba launched an independent price engine, etao.com. Conflicts in business like this made the cooperation even harder. From Alibaba’s view, Sogou may be expecting too much, for the investment is more of a defensive move.

Getting Ready for IPO?

National Business Daily reported that Sogou has been preparing for a new round of fund raising from investors before its IPO, though the company gave no comments on that by now. The current valuation of Sogou ($0.237 billion) is far from its target valuation of $ 2 billion. And rumor has it that Alibaba is in need of money for the privatization of its B2B company and the buy-back of stakes from Yahoo!.

Browser and search engine are the two main businesses of Sogou. Sogou has replaced Google China as the No.2 in Chinese searching area, only next to Baidu in 2010. Earlier this year, Baidu once offered to acquire Sogou at the price of its target valuation, the offer was rejected. Sogou has its own ambition.

Sogou tried to compete with Baidu by leveraging on its browser, but met a stronger competitor, Qihoo 360 whose browser if far more popular, ranking No.2 in China, only trailing Microsoft’s IE browser. It seems that Sogou is stuck in the No.2 dilemma. After the breakup, Sogou still needs to complete many missions before its IPO.

动点科技驻湾区记者. Charlie is an entrepreneur based in San Francisco and Hong Kong who calls herself the undefeated caffeine champion. You can reach her at charlie.sheng (at) technode.com

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