Qihoo 360 takes on challenge of Baidu
By Sherman So
HONG KONG - Beijing-based Qihoo 360 Technology - whose US-listed shares have surged more than 300% in the past year - is no longer satisfied with being the number one anti-virus company in China. It is challenging Baidu for its dominance in the search engine market and is aggressively developing a mobile Internet business. It also plans to enter the international market with its free anti-virus products.
''Some people would liken us as the 'George Soros' of China internet market. He strikes when the market has some huge problems,'' Qihoo vice president Li Tao told Asia Times Online. Qihoo is doing the same. ''Since Google left China [in 2010], Baidu has had virtually no competitor,'' said Li.
Qihoo intends to do that even after last week's breakdown of talks
to buy the search-engine unit of Sohu, reportedly for as much as US$1.4 billion, which would have given it 24% of the market.
Lack of competition caused Baidu to ease back on search quality and user experience, said Li. ''CCTV has mentioned many times Baidu's search results are full of false advertisements. It hurts users' experience and their interests,'' he added. ''We believe there is an opportunity for a different search engine. That is why we entered the search engine market last year,'' he said.
It instantly got encouraging results. By the end of last year, Qihoo was China's second-largest Internet search engine, overtaking many of Baidu's old-time rivals such Sogou (Sohu's search engine service), Google, and Soso (Tencent's search engine services). At the end of last year, it had captured 10.39% of the Chinese search engine market, as measured by page view traffic, according to Alibaba Group's third-party web analytics subsidiary CNZZ. This is increased to 15.26% in June this year. Meanwhile, Baidu's market share decreased to 69.37% from 71.76% during the same period.
This has driven the price of Qihoo's US-listed stock up by more than 133% this year while Baidu has gained 29% this year. Recently, Qihoo was in talks for a potential acquisition of Sogou, the number three player, with 8.83% market share. The two combined would have over 24% of the market and pose a real threat to Baidu.
Talks between Sohu and Qihoo on the sale of Sogou ended without agreement, Bloomberg reported on August 14. Nevertheless, Qihoo president Qi Xiangdong last week said ahead of the company's quarterly earnings report later this month that it is approaching a 20% market share and expects to meet its previous forecast for 2014 of 30%, Beijing-based Marrbridge Consulting reported.
Qihoo's success as a search engine can be linked to its dominance in anti-virus software. With 457 million users, the free software is almost a must for Chinese netizen. Unlike most anti-virus software, which just sits quietly on ones' computer, Qihoo's 360 Safe Guard frequently reminds users that it is working to protect their machines and gives ''suggestions'' that will improve their performance. One of such suggestion is to use Qihoo's web browser.
Microsoft's Internet Explore ''was the dominant web browser in China. But people in China need a faster and more secure browser, with richer content and a better user experience. We launched our browser in 2008,'' said Li. With heavy promotion from its anti-virus software, Qihoo's browser overtook Internet Explorer to become China's leading web browser.
''We have more than half of the market now,'' said Li.
According to Shanghai-based iResearch, monthly active users of Qihoo 360's browsers reached 332 million, or 69.6% of Chinese netizens, in March. The next step was to promote its search engine as the default in Qihoo's web browser.
Qihoo used the same tactic when it entered mobile internet market. Whenever Qihoo's anti-virus software detects that a mobile phone is connected to the user's computer, whether to charge the phone or to transfer data, it will ''suggest'' that the user install its mobile anti-virus software onto the phone and use its applications store to download new applications onto the phone.
The tactic is simple and it works. Qihoo's mobile security product and its app store have quickly become market leaders since they were introduced in 2009 and 2011 respectively.
''Qihoo's app store is the largest distribution channel for mobile apps right now,'' said an industry insider. Daily app download reaches 55 million to 60 million. This is almost twice the amount of its closest rival, 91 Ltd, which has about 30 million app downloads per day, said the industry insider.
Using a successful product to branch into other services is not new in China. Tencent, the country's largest Internet company, used the same tactic to build its empire. QQ, its instant messaging service, is also a must for most Chinese netizen, and Tencent uses QQ to promote its other services, such as its news portal and the company's s largest revenue stream, online games.
In theory, Qihoo can just follow Tencent's footstep and branch into all kinds of different services, but industry insiders warn that Qihoo's 360 Safe Guard might not be as effective a promotion tool as Tencent's QQ.
''If Qihoo puts too many ads into Safeguard, users will be annoyed,'' said Li Jidong, an Internet entrepreneur in Beijing, ''QQ has a lot more opportunities to promote products to its users and can do it more subtly. For example, when two users are chatting online, there can be ads on the side.''
Another limitation is the ''genes'' of the company.
''We are very good at making utility products. That is our gene,'' said Li. For other kinds of services, such as social media, Qihoo is less fortunate. Its mobile chat service, similar to WeChat, Tencent's flagship product in mobile, was a complete failure. ''It is too 'serious' and users did not like that,'' said an industry insider.
Nevertheless, there might be still many different Internet services Qihoo can try and enough room for the youthful Internet firm to grow. And if China is not big enough, the company can expand overseas.
''Most of the anti-virus software in the world needs users to pay. But we believe a safe Internet environment is everyone's right and anti-virus software should be free. That was why we started to do 360 Safe Guard in China in 2006. We believe the same opportunity exists in the overseas market,'' said Li.
Even so, that is a big ambition. ''None of China's Internet companies has made it big in the overseas market,'' said a hedge fund manager.
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