Qihoo 360: Another smart hardware giant wannabe going after Xiaomi

Chinese internet company Qihoo 360 announced yesterday it would invest RMB200 million (around $32.1 million) in a joint venture with Netcoretec, a Chinese networking hardware manufacturer founded in 2000. The move is obviously aimed at helping Qihoo 360′s Wi-fi router business.

Last month the company announced a joint venture with Chinese smartphone maker Coolpad. The deals make it obvious the company is revamping its smart hardware plan; this time Qihoo, instead of partnering with hardware manufacturers, is building joint ventures with them.

Qihoo 360 tapped into the hardware business in 2012, partnering with Huawei and a handful of major Chinese smartphone makers to make customized smartphones and sell them on Qikoo, Qihoo’s online hardware store. But the strategy didn’t work out. This time the Qihoo-Coolpad joint venture will produce Coolpad’s new phone pre-loaded with Qihoo’s mobile products, from security services to a mobile app distribution platform.

The company launched its first connected Wi-fi router in 2013, but neither the design nor its sales made management happy, according to a source with direct knowledge of the matter. Xiaomi, the fast-growing Chinese smart hardware and software developer which announced its first connected Wi-fi routers several months after Qihoo’s launch, instead stole the show. Qihoo announced yesterday a new Wi-fi router.

But Qihoo has managed to develop a couple of successful gadgets. The Wi-fi dongle launched several days before Qihoo’s first router is the best-selling gadget of the past year or so. 360 Child Guard, a child-tracking band that launched in 2013, is selling well too. Other hardware products developed by the company include an Android button, a Dropcam-like camera, and a Nest-like smoke detector.

Zhou Hongyi, Qihoo 360’s chief executive, claimed some time ago that he got to understand Xiaomi’s business plans. Xiaomi in fact has never kept its business model secret: it wants to sell hardware to as many users as possible and generate revenue from a customized built-in operating system. Xiaomi said it would bring one hundred connected hardware startups to its family, have them loaded with its software, and sell them on their online store.

According to this strategy known by Xiaomi, Qihoo, and many others, smartphones and Wi-fi routers are the most important products, as the smartphone is where apps accompanying smart hardware products are installed, and the Wi-fi router is the hub to control all of a household’s smart gadgets. This is why Qihoo 360 has established joint ventures with industry leaders in both sectors.

Qihoo’s Zhou has also argued that, to gain as many hardware users as possible, providers should offer hardware products at cost, so as to make money through software. Qihoo has begun doing so. Last year it invested in an Android button competitor and then gave away Android buttons to college students. Xiaomi has adopted a similar pricing strategy. Thanks to the sales of RedMi, the budget Android phone launched in 2013, Xiaomi has seen significant growth in smartphone sales. Mi Key, the Android button by Xiaomi, is priced at RMB4.9 ($0.80).

Qihoo 360 has gained a huge user base in China through free online security and successfully monetized users through advertising, gaming, and search marketing. Recently the company has found it hard to grab a greater share of search marketing revenue from Chinese search giant Baidu, while the leading players in mobile app distribution, including Qihoo, have found hard to grow the pie. It has been said that this is why Qihoo 360 has taken a turn toward hardware. The company, however, hasn’t given up on search yet, having launched a revamped version, renamed Haosou (“easy-to-use”/”good search”) yesterday.

Editing by Mike Cormack (@bucketoftongues)

This story originally appeared on TechNode. Copyright 2015