Tuesday, September 16, 2014   




First strike

Victor Cheung

Monday, January 28, 2013


Maverick web venturist Zhou Hongyi has scored a rare victory against the internet giants, with his company Qihoo 360 successfully securing a sizeable chunk of the mainland internet search market.

But the self-styled "perpetual innovator" does not hold back in slamming the bleak environment for innovation.

Many think China has a high GDP, but in my eyes, China is not yet a developed country and still lags the US. It's the values of the people that matter.

"America not only has firm values, it can even export those values. Can China do it? Our value is: youngsters should not stray from the norm, otherwise you are labeled a trouble maker."

In August, US-listed Qihoo - a market leader in offering free antivirus software and with a browser boasting 400 million users - launched its own search engine.

And in less than three months, the Qihoo search engine had captured 10 percent market share, right out of the grip of web giant Baidu - a player so dominant it is often called the Google of China.

And it is among big names Zhou has publicly blasted for monopolizing the market: innovation be damned.

"When the majority of current internet magnates, including [Tencent (0700) founder] Ma Huateng and [Alibaba founder] Jack Ma Yun, started their businesses, the internet was a complete blank and those born in the 1960s and 1970s had the first-move advantage," Zhou says.

"But when people became oligarchs, they try to fend off competition, by either predatory poaching tal
ents from the new companies or copying their ideas.

"There are already many post-80s or post-85s innovators in the US, but in China - there is none," adds Zhou, ranked No 357 on the Forbes China Rich List with a net worth of US$505 million (HK$3.93 billion)

"Yes the monopolistic environment creates some big companies because of the country's huge population, but China could be sacrificing talents for several generations."

Explosive words - but then Zhou is no stranger to controversy. The 42-year- old first made a name for himself in 2004, by selling his search engine company 3721 to Yahoo for US$120 million, and became chief executive of Yahoo China shortly after.

But his signature 3721 toolbar drew flak for being notoriously difficult to uninstall, with some considering it outright malware.

Zhou left Yahoo in 2005 and the following year founded Qihoo, a name echoing that of his former employer.

In a complete about-face, he then launched free antivirus and anti- malware software capable of deleting the 3721 toolbars.

That sparked an unfair competition lawsuit from Yahoo China, which it won together with a payout.

In 2007, Qihoo lost a similar case to Baidu in - according to media reports - just one of seven court battles his companies have fought with the mainland giant. But Zhou still regrets selling 3721, saying that under his direction it could have become one of the dominant mainland search engines and give Baidu a run for its money.

For that one decision, he brands himself as the "biggest loser of the internet industry."

Now with Qihoo, Zhou vows to provide a "clean internet environment" to users, expelling spam software and phishing sites in search results, refusing to accept advertisements from dodgy firms. "I'm the one who fights against internet thugs," he says. "I care for the customers and so they come to me."

His business model is to give away free antivirus software that the mainland internet population desperately needs - penetration now is around 90 percent - and monetize the large pool of loyal users thus created.

In addition to advertisements, Qihoo has a number of collaborators who contribute content such as video and games.

The model has been so successful that competitors such as Baidu and Tencent are looking to enter the fray by giving out free antivirus tools, claims Zhou, before adding: "I think they are too late."

The combative entrepreneur has never been short of publicity stunts.

In 2010 he took on instant messaging giant Tencent, with Qihoo launching a plug-in on the latter's QQ service that allegedly interfered with the IM service.

Tencent hit back by suspending QQ accounts installed in any computer that also had Qihoo products. The so-called "Battle of the three Qs (Qihoo and QQ - Tencent's signature software)" ended only after the state stepped in.

Zhou spent much of the two-hour interview repeatedly comparing the attitude to innovation in the mainland with that in the United States.

Explaining why it takes so much effort for a small company to win in the big-name mainland word, he says : "In the US, you are shamed if you copy someone else's idea; in China, people churn out exact copies because they feel safe this way."

The truth is that the mainland internet world is full of "copycats" - Sina Weibo is the Chinese version of microblog site Twitter, Renren the Chinese version of Facebook, and QQ is the Chinese version of the instant messenger ICQ

Twitter and Facebook, incidentally, are banned in the mainland. Zhou also blames poor implementation of antitrust laws. And he feels Hong Kong, dubbed a land of opportunities, is no different.

"If you look at the Forbes Rich List, it's the same people every year. They are all in the real-estate business, and young people can never have to chance to squeeze in. Government policy also seems to lean toward the rich," he says.

"The scope for innovation in Hong Kong, in a sense, could be worse than in the mainland."

It was low valuation that saw him shelve plans to float Qihoo shares in Hong Kong in 2011.

"US capital recognizes innovative start-ups better," he notes. Tencent shares are rising now, he admits, but notes that they had been rather suppressed for a long time. "The high valuation is supported only by real income and profit."

Born in 1970 to a family of technicians, Zhou grew up in an era "when the government assigned everyone to a post in society for the rest of his life."

At school he was particularly good at physics and wanted to be a famous scientist.

But he became obsessed with computers after getting to use the first Apple II and IBM PCs in secondary school.

The resolution to open his own cyber firm came after Zhou read an article about a computer entrepreneur, when the opening-up of the mainland economy was in its very early stages.

"That man detached himself from the bureaucracy, and could do whatever he wanted because you need only yourself to write programs. Then I spoke to my teachers," recalls Zhou.

He set up his first company soon after graduation, but "it was destined to fail" because the environment in the mainland is much more complicated than the United States.

"In China it's just impossible for two kids to build a giant company like Google. Apart from the technology, I needed to learn about product development, guanxi, and marketing."

And so he took a job at the Founder Group, the IT firm created by Peking University.

Credit for keeping Qihoo young and innovative goes to its 3,600 staff, most of whom are in their twenties.

"The internet belongs to the youth," believes Zhou. And he would even hire hackers: "As long as they have passion and a bit of idealism, I would take them."

He is said to have even offered an internship to a student who cracked his mobile phone number with a software that "reads" dialtones.

It is equally important to incentivize employees and Zhou chose shares to do that. His staff hold some 24 percent of the company, more than employees of most mainland internet firms.

"So many of my employees are millionaires now," he said with a smile.


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