Ltd. (SEHK: 1688) is refusing to take part in a deal with its parent Alibaba Group to buy a stake in Inc. (Nasdaq: SOHU | PowerRating)’s search engine unit, Sogou, said David Wei, the chief executive of the e-commerce company on August 10.

The deal, which was announced on August 9, would involve Alibaba Group and a fund founded by its Chairman Jack Ma buying a 16% share in’s search engine unit Sogou. Although the deal has yet to be finalized, it could potentially boost Sohu’s search engine presence in the Chinese market while also attracting more users to Alibaba Group’s e-commerce business., however, sees no value in participating in the deal with another search engine, said it’s CEO David Wei during a conference call with the media. Search engines are not in direct competition with the company, he added. “We will not use third-party search technology,” Wei added. Alibaba Group, however, can still choose to continue with the deal, Wei added. “Any investment, it is coming from Alibaba Group.”  Source: Trading Markets

Background:  Sohu, China’s second-largest internet portal, said on August 9th that Alibaba and Yunfeng, a fund co-founded by Alibaba founder and chairman Jack Ma, had agreed to acquire a 16 per cent stake in Sogou, its search engine. Based on above statement by Ltd. the deal appears to be a private investment by Mr. Ma’s fund. Another 16 per cent of Sogou would be sold to a fund set up by Charles Zhang, its chairman, the company said.  The move fueled speculation over which search engine Yahoo China, which Alibaba controls, is likely to use in its web portal.  It follows a move late last month by Yahoo Japan, an affiliate of the US internet portal, to choose Google to power its web searches in a snub to Microsoft’s Bing.

The announcement also comes at a time of upheaval in the Chinese search market as Google’s public argument with Chinese authorities over censorship and its half-retreat from the mainland have raised hopes at Microsoft that Bing might be able to benefit.  Yahoo Japan said it had chosen Google because its engine was better at conducting searches in Japanese.  As with Yahoo Japan, which is owned by Softbank, Yahoo Inc has no control over Yahoo China, which it sold to Alibaba Group several years ago.   Yahoo Inc owns a 40 per cent stake in the unlisted Alibaba Group and has said it intends to keep it.

China has the world’s largest internet population with 420m users. Baidu, China’s leading search engine, held 70 per cent of online search market revenues in the second quarter according to research firm Analysys.  Sogou is China’s third-biggest search-engine service, after Google.   Source: Financial Times

BIIA Newsletter Sept. I – 2010 Issue