Sogou's IPO: Wang Xiaochuan's hopes and worries

On the evening of October 9th, Beijing time, Sogou successfully landed on the New York Stock Exchange. Based on the opening price of US$13.25, Sogou's current market value has reached US$5 billion. Even though Chinese stocks have generally been cold, as of the current closing, Sogou's stock price has still risen, making it a veritable small unicorn.

Of course, the most heartwarming thing on the day of listing was that Wang Xiaochuan brought his mother to ring the bell. According to the report of "Leidi Touching the Internet", Wang Xiaochuan talked about his current situation at the New York Stock Exchange and burst into tears. He said that he came to Beijing in 1996 and has been there for 21 years. He has a good job and is quite willful. Zhang Chaoyang said to Wang Xiaochuan's mother, you have raised a good son.

Everything is so warm and beautiful.

However, as the last unicorn in the PC era, after Sogou's successful listing, the most important thing facing Wang Xiaochuan and Tencent Sohu is how to continue to tell the story behind Sogou.

Judging from the current situation, there is no doubt that Sogou's stock price will continue to rise, but as to how much it can rise and at what high a level it can maintain, it is worth discussing. When Sogou's stock price rose on the day of its listing, everyone saw hope, but also saw worries.

Sogou's business structure needs to be "evolved"

According to the data disclosed in Sogou's roadshow PPT, in 2016, Sogou search and search-related advertising revenue accounted for 92.4% of total revenue, of which pay-per-click services based on bidding ranking accounted for 70.2%, online advertising accounted for 20.2%, and revenue from games, Sogou Reading and smart hardware accounted for 9.6% of Sogou's total revenue.

In other words, 90% of Sogou's main revenue still comes from traditional search advertising.

Investors' confidence in Sogou mainly comes from their optimism about its revenue-generating capabilities. According to data disclosed, Sogou's revenue in the third quarter was US$257 million, a 55% increase from US$166 million in the same period last year and a 22% increase from US$211 million in the previous quarter.

However, the revenue growth of search advertising has an upper limit and ceiling, especially when the overall search market structure has been determined, there is still a very obvious gap between Sogou and Baidu in terms of market share. Although Sogou's revenue structure has begun to slowly shift to mobile terminals, considering that all other companies have begun to focus on information flow advertising, Sogou is still a step behind in information flow advertising.

For example, last year, Toutiao relied on information flow advertising to snatch $1 billion in revenue from BAT. After Baidu launched its information flow in Q3 last year, it predicted that its information flow advertising revenue this year should be around $1 billion, which has caught up with the amount of Toutiao. Tencent officially launched its content open platform at the Global Partner Conference the day before yesterday, announcing that it would use 10 billion industrial resources, 10 billion traffic, and 10 billion cash to support the content ecosystem, and its Penguin account has also been fully upgraded. Alibaba has also made Dayu an important focus in the field of culture and entertainment, and has set aside 2 billion in cash to subsidize content creators.

In comparison, Sogou's investment in information flow is much slower.

Currently, Sogou Search has also launched an information flow, that is, a waterfall flow of content has been added below the search box. But if you look closely, Sogou's content is basically in cooperation with the media, such as Qianjiang Evening News, The Paper, National Business Daily, People's Daily, etc.

Even the video content is produced in collaboration with some larger video organizations and media.

Today, when even news clients have added self-media channels, Sogou itself is aware that it is a step late in the content ecosystem. So there have been rumors that Sogou will launch a Sogou self-media platform next. However, facing the "veterans" such as Toutiao, Penguin, Yidian, Baijia, etc. that have been tempered and polished in the market for more than a year, how much of a chance of success Sogou's self-media platform will have is still worth discussing.

Another thing is the relationship between Tencent and Sogou. It should be said that although Tencent does not have the absolute control and voting rights over Sogou like Sohu, the relationship and attitude between Sogou and Tencent largely determine the future fate of Sogou.

Sogou has the Sogou Input Method, an absolute national-level application second only to WeChat and QQ. However, the Sogou Input Method is difficult to monetize (most of the revenue comes from search), and its effect on traffic diversion (directing traffic to Sogou Search) is not very obvious.

According to the roadshow PPT, 36% of Sogou's current traffic comes from Tencent, including WeChat, QQ Browser, and Tencent.com, with QQ Browser accounting for the vast majority of the proportion.

So, there are a large number of users and active users, but there is no way to monetize on a large scale. I am afraid this is the pain of all tool-type products. There is a rumor that Sogou Input Method will launch an ad-free version for 9.9 yuan per month. Although it is not known whether it is true or not, the pressure on input methods to monetize should be great.

Cash loans: quietly enter the village, don't fight with guns

The search business looks very profitable, but in fact it has a cruel Matthew effect. The money-printing business that seems effortless to the market leader is very painful for the latecomers.

Only when you occupy more than 50% of the market share can you have the pricing power and earn excess profits, because the profits come from the top customers, and the top customers pursue the biggest investment and the best results. Under the bidding ranking mechanism, this "only looking at the top" approach is like adding leverage, constantly stimulating platforms and advertisers.

So from a macro perspective, the industry position suppresses Sogou's growth, and the overall ecological structure also constrains Sogou's potential. If you want to make money, you may have to take an unconventional path. Betting on multiple points is a better choice. In addition to the information flow business with many competitors, Sogou is also looking for new opportunities.

For example, Internet finance - because what is very interesting is that there are reports that Sogou may try the cash loan business.

Sogou currently has a wholly-owned subsidiary called "Chengdu Jiyifu Technology Co., Ltd." whose main product is the "Yi Dian Jie Qian" app. Obviously, this product is a cash loan product.

In fact, Sogou has previously launched Sogou Finance and started its layout in the financial field very early. Sogou Finance's business includes three major businesses: lending, wealth management, and insurance, which basically cover the mainstream financial services.

Wang Xiaochuan is also open about finance. He said: "We have already digitized and informationized people's consumption. In the future, we will explore industries such as micro-loans and insurance that we can enter." In fact, this is indeed the case.

Compared with directing traffic to search ads, the input-output ratio will be higher if the traffic is directed to finance and Putian ads, especially this year when cash loans have exploded and everyone is doing the cash loan business. Sogou has so much traffic and wants to make more money, so it will naturally focus on the cash loan business.

In fact, there are many people who have such ideas. Like Sogou, Ersanbawu, which started as a traffic platform, has openly engaged in cash loan business. According to media reports, Ersanbawu's revenue last year was 1.742 billion yuan, an increase of 18.48% year-on-year, mainly due to the growth of cash loan business.

2345's core cash loan product is "2345 Loan King", which provides small cash loans of 500 to 5,000 yuan to individual users. How high is the profit? 2345 said it is 98.51%. You should know that in 2015, financial business accounted for less than 0.62% of 2345's revenue. In other words, 2345 made nearly 1 billion yuan in one year.

How can Sogou not be jealous?

Therefore, with Ersanbawu as an example, Sogou is likely to shift heavily to the cash loan business in the future. However, with the lesson of Qudian being criticized for its IPO, even if it does so, it is estimated that Sogou will not make it public.

Of course, the most important thing is the policy and regulatory risk. As relevant government departments begin to strengthen the supervision of cash loan business, policy will become one of the most important factors affecting cash loan business. Before Qudian went public, Kunlun sold Qudian’s shares, which is a typical case. So if Sogou wants to do it, can it catch up with the good time?

For Sogou and Wang Xiaochuan, who have endured for 13 years, going public is obviously the most glorious moment. After Sogou went public, the only ones left should be TMD (Meituan, Didi, and Toutiao). The three TMD companies are unicorns that have risen based on the wave of mobile Internet. Compared with Sogou, which started out with PC search, they seem to be an era apart.

Wang Xiaochuan has to run faster.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.