There is a war currently being fought in China’s cyberspace. No, it does not involve the Great Firewall of China, nor does it involve Google’s next attempt at market expansion in the Middle Kingdom. On the contrary, this war is being fought between two domestic Internet players: Tencent and Qihoo 360.
Over the past few months the two companies have been in a fierce battle to win users and their corresponding data. Qihoo 360’s actions have forced Tencent to go to extreme measures and issue an ultimatum to Chinese netizens to choose either their software or that of Qihoo 360.
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Guest author Joel Backaler writes The China Observer, an award-winning blog focused on Chinese technology trends and consumer culture. His writing has appeared in and he has been quoted by the Wall Street Journal China Journal, BusinessWeek, and Seeking Alpha. Joel is a Mandarin-speaking former Fulbright Fellow who has worked and lived in Taipei, Beijing and Singapore with Frontier Strategy Group. Follow Joel on Twitter.
Before we examine why this battle is being fought, let’s take a quick look at who the two players are:
Tencent is best known for it’s QQ instant messenger service, and is one of the biggest internet companies in China. In the first half of 2010 alone, the company earned ¥3.7 billion, experiencing 66% growth year-on-year. In addition to IM, Tencent’s reach extends into the realms of online media, mobile and telecom, interactive entertainment and value-added services.
Qihoo 360 is, unlike the Internet conglomerate of Tencent, focusing on its core product 360 Safeguard, an anti-virus software program. While Tencent’s QQ has nearly 1 billion active users, Qihoo 360 has approximately 300 million users.
Why would two companies with non-competing products engage in such a vicious battle?
The truth is Tencent did release a competing product to Qihoo 360. The key to Tencent’s success is in its massive user base acquired through the widespread usage of QQ instant messenger. The moment a business model is proven successful in China’s Internet space, Tencent has the capital and capabilities to make a better copy of the original product, and release its own version to nearly one billion Chinese netizens seemingly overnight. After observing Qihoo 360’s success, Tencent leveraged this strategy by automatically updating all of QQ users’ software with a new tool called QQ Safety Manager, a competing anti-virus tool, this past September.
Needless to say Qihoo 360 was not about to just sit back and watch Tencent’s anti-virus software put them out of business. Qihoo 360 retaliated by releasing a new “Privacy Protector” that informed netizens which data Tencent was supposedly stealing from their computer as they used the QQ IM service.
By mid-October, Tencent took formal legal action, but in the meantime Qihoo 360 launched its second attack on Tencent by prompting users to download a new tool called “KouKou Bodyguard.”
Upon installing the program, KouKou Bodyguard ran an initial virus scan that classified all of QQ’s functionalities as serious threats to the computer system. When users eliminated the “virus threat” KouKou Bodyguard actually deleted all of QQ’s functions – except for one. The one exception was when the user clicked on “QQ Safety Manager” instead of QQ’s safety check opening, KouKou Bodyguard appeared in its place.
Tencent’s Ultimatum
In response, Tencent said they had no choice but to make Chinese netizens decide between their service or Qihoo 360. If Tencent did not act, KouKou Bodyguard would spread rapidly through their user base dismantling the QQ empire. Therefore any computer with Qihoo 360’s software would not be allowed to access QQ going forward. In an open letter to QQ users, Tencent proclaimed that rather than fight a battle on the desktops of its users (like Qihoo 360 did), Tencent would simply give the choice of which software to use to the users themselves.
At this point, Qihoo 360 has discontinued the KouKou Bodyguard tool, and it seems as though through the mediation of China’s Ministry of Industry and Information Technology, the battle between the two Internet firms is subsiding.
What Does This Mean for China’s Internet Industry?
While the dispute between Tencent and Qihoo 360 was not ideal for Chinese Internet users as the event unfolded, they will be better off for it. Just as China’s melamine crisis in 2008 forced Chinese consumers to change their buying behaviors, the Tencent-Qihoo 360 saga will potentially have a similar impact on China’s Internet industry.
It takes extreme situations to invoke a sense of seriousness around a particular issue. Chinese netizens will likely become more vigilant about what they are downloading, where the software comes from, and what data they may be potentially sharing. This type of change will not happen over night; however, this may very well mark the beginning of a safer Chinese Internet.
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