With Only One Year, Qihoo Is about to Take over A Quarter of China’s Search Market

With Only One Year, Qihoo Is about to Take over A Quarter of China’s Search Market

By Tracey Xiang on August 6, 2013

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Shortly after its launch in the same month of last year, Qihoo’s search service became the second largest in China. Later, unsurprisingly, it became a full-fledged search service with the launch of an independent search site, more vertical channels such as musicmedical & healthcareshopping, maps (powered by AutoNavi), and Weibo serach (powered by Yunyun), and a mobile version. One the mobile end it came up with Leidian.com, an app search that is complementary to its mobile app manager.

As of June 2013, it had pocketed 16.58% search market share and a 15.26% share in usage, according to CNZZ, a third-party online data service. (Update: August 7th when the company celebrated the first birthday, Qi Xiangdong, president of Qihoo claimed its market share had reached 20% citing a research report by iResearch) Considering it is in talks with Sogou, the third largest search engine with a 9% market share, on potential acquisition or a strategic investment and now is powering the search business of Netease’s, what it is involved is about a quarter of China’s search market. Earlier this year, Qi said that their goal for this year is a 20% market share and that for 2015 is 40%.Monetization initiatives kicked off at the beginning of this year and accelerated later on. Now it has had agencies across the country to sell paid search ads for it. Before the launch of So.com, Qihoo’s browser and its landing page provided Google China as the default, and other options including Baidu and Bing. Back then about 10% – 15% of its online advertising revenues was from paid search on Google and Youdao. Previously it also received some payments from Baidu.

There’s no secret of Qihoo’s strategy. With offerings like free security products, the company lured away users from other Internet services and then began monetizing the huge user base and traffic. As online advertising and online games had become stable revenue streams, the lucrative search business naturally was its next target.

As Baidu has been dominating the market, Qihoo is always eyeing its share. And obviously the share it has been gaining is at cost of Baidu’s. To cripple Baidu and attract users, Qihoo promised to provide with legitimate medical and health information and not to profit from it which is one of the biggest chunks of Baidu’s advertising revenues.

Though smaller players’ combined market share is minor, Qihoo wants to pocket theirs, too. Apart from the deals with Sogou, Netease’s Youdao, it also reached out to players such as Jike.

Baidu isn’t blind. It launched mobile security product and software management products which are Qihoo’s flagship services on mobile. Baidu also recognized the competition in mobile search could be very different from that on PC. As app search is expected to be a major demand on mobile end, Baidu is acquiring 91, one of the biggest app distributors in China.

Not New in the Search Market

Qihoo used to be a search company. In 2006, when its management left Yahoo! China and started a new business, they wanted to build a search engine again. Prior to that they had been employees of 3721, a Chinese domain name search service, before the company was acquired by Yahoo!China. Zhou Hongyi, founder of 3721 and then CEO of Yahoo!China, at first being one of the investors of Qihoo, got on board to become the CEO of Qihoo.

The company claimed that the reason that its search service could become the second largest search service so fast was because the search engineering team was in place all the way. But we know it has more to do with strategies other than technologies.

Qihoo started as a social search that didn’t perform well. But one of their side projects, online security service, gained traction. By partnering with Kaspersky, the service began generating a considerable amount of revenue for the company. But to Zhou that was far from good enough. Then Qihoo decided to offer security services for free and built a browser to pen users that rushed in. When the whole security market had to follow suit to give away security products, Qihoo already had started making money through online advertising and online games.

Now users do searches through Qihoo’s is not because that’s their choice but that its search box is everywhere, on security products, browsers, the start-up page, or mobile apps they use on daily basis.

There are people like me that don’t like it’s practices or don’t think it creates new markets — personally I don’t like Baidu, either, for I don’t think Baidu ever created more values to the economy or society. But here is a rising power who is able to grab market shares from existing giants and become a giant itself. Hope it’s not a bad-hearted one.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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