Three reasons Zhou Hongyi’s Qiku is not going to beat Xiaomi

Earlier this week, just as Xiaomi was hosting an event showcasing its Mi Note Pro model, Qihoo 360 and Coolpad joint venture Qiku held an event to hype up the new company’s upcoming smartphones. At it, Qihoo CEO Zhou Hongyi made some big claims, including that his phones would “easily” sell for US$800, although the company doesn’t actually plan to charge that much. Qiku’s not-so-secret target? Xiaomi. But can the company actually take on China’s reigning homegrown smartphone champ? Although we still have few details about Qiku’s devices or the OS they’ll use, I remain unconvinced. Here’s why:

Lack of experience


Qihoo 360 has tried to do the smartphone thing with a hardware manufacturing partner several times, and each time ended in failure. Granted, this time the company seems to be taking things more seriously, and Qiku is a full-on joint venture between Coolpad and Qihoo, not just a limited partnership. But this time the companies will also be trying to squeeze into an even-more-crowded market with strong domestic and international brands as competitors. When Qihoo first started trying to do smartphones, China’s domestically-made smartphone boom was just taking off. But now it’s in full swing and Qiku will have to deal with entrenched competitors.

Because of that, Qiku’s products are going to have to be pretty great to win consumers over from Xiaomi, Meizu, Apple, LeTV (another new entrant to the smartphone market that has had a strong start), and others. And I just don’t see that happening. Coolpad doesn’t have a history of making great hardware products, and to be frank Qihoo’s reputation with software products isn’t that great either. Just recently, for example, Qihoo was stripped of all its rankings by AV‐Comparatives, AV-TEST and Virus Bulletin after those organizations announced that it had cheated in tests of its antivirus software. Neither company seems a likely candidate to be able to produce a world-beating product on their first try together.

Plus, it doesn’t seem like the companies have been working on the design of either their hardware or software for very long. The joint venture company hasn’t even existed publicly for a full six months yet, and Qihoo’s mobile OS was only announced in late March. Is a few months really enough time to build top-quality handsets and an all-new Android fork for them from the ground up? Almost certainly not. Maybe the companies were working on things in secret before they teamed up, but the timeline still seems short if their goal is to release a product that could beat Xiaomi or “easily” sell at US$800.

Of course none of this means that Qiku couldn’t theoretically make a great handset with an amazing operating system to back it up. But given the players involved and how much time they’ve had to perfect their products, that doesn’t seem like the most likely outcome.

A price war won’t help


Qiku has, thankfully, backed down from Zhou Hongyi’s earlier suggestion that its phones would all cost US$800 – it plans to offer three models at various price points. The cheapest one will be priced at around RMB 1000 (US$1600, according to the China Daily. If that number proves accurate, it would make Qiku’s cheapest phone substantially cheaper than Xiaomi’s Mi4.

But although Xiaomi made its mark in China by offering high-end smartphones at very low prices, price isn’t as important a factor in the Chinese market as it was back then, and Xiaomi is no longer selling just because it’s cheap. Consumer income continues to rise. More Chinese consumers are concerned with UX and willing to pay a little extra to get something better on that front. Beating Xiaomi and other Chinese smartphone makers on price won’t be that helpful to Qiku if it cannot also beat them in terms of the user experience. And as I explained above, I’m highly skeptical Qiku will be able to compete on the UX front.

Too little, too late


Don’t get me wrong, Qiku is going to sell smartphones. Zhou Hongyi has almost made a career out of placing his company in brash opposition to industry giants and thus attracting the consumers who dislike those giants. In the 3Q war, for example, Zhou won fans by making Qihoo the anti-Tencent, so people who disliked Tencent would associate with Qihoo. He did the same thing taking on Baidu in search, and Qiku will do the same thing taking on Xiaomi in mobile. Xiaomi has a lot of fans, which means it also has a lot of haters – and some of those haters will gravitate towards Qiku.

But that almost doesn’t matter. Qiku can grab a section of Xiaomi’s China market share, probably, but Xiaomi is already too far ahead. Even if Qiku could overtake Xiaomi in China, what about Xiaomi’s operations in Southeast Asia and India? What about the foundations it has already laid to launch in the US? Qiku aspires to become a significant brand in China, but Xiaomi is already on its way to becoming a global brand. Qiku, in contrast, is brand no one outside China has ever heard of. Barring some serious missteps on Xiaomi’s part, I suspect the company is too far ahead for Qiku to catch.

Zhou Hongyi knows this, of course, and he’s already explained why he thinks its not too late to enter the smartphone game. But he said similar things about Qihoo entering the Baidu-dominated search engine market prior to the launch of Qihoo’s search engine. Three years later, Baidu still dominates the search engine market. By most accounts, Qihoo’s 360 search is now lagging behind in 3rd or 4th place.

Of course, it may be unwise of me to make predictions before we have any details about the hardware and software Qiku’s actually going to have on offer. Perhaps the company will surprise me – there’s always that hope.

But I’m not holding my breath.

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