From 3721 to Yahoo China to 360 — Old China Tech 3
In the previous post, we learned that Hao123 was a major way for Chinese internet users to find websites around the year 2000, when search engine was not good enough to use. In fact, there was a search-engine-like thing that helped Chinese internet users find business websites. This thing was 3721.
3721 is 3 x 7 = 21, meaning “regardless of” in Chinese idiom. It was an IE plugin / toolbar that initially did something similar to “I’m feeling lucky” of Google: you typed in a Chinese keyword, and it redirected you to a specific website. For example, you type in “微软” (Microsoft’s Chinese brand name) in 3721, and you’ll go to microsoft.com. Later, 3721 allowed businesses to buy non-brand-name keywords (e.g., flower, lunch…), similar to Google AdWords on the UI level.
Why did Chinese people need to use something like 3721? Well, how can you expect an average Chinese internet user who don’t speak English to remember “microsoft.com” or “chinadaily.com”? 3721 to the rescue! You type in a Chinese keyword, and you go to a website or a few websites who paid 3721 for that keyword.
In 1998, a 28-year-old young programmer Zhou Hongyi quit his job from Founder Group (like Xerox of China). He started 3721 to help Chinese internet users use web.
3721 charged businesses ¥500 (~$62 in USD) per year per Chinese keyword, while the client side software (IE plugin) was free to use for end users. 3721 built a huge sales partners network all over China. Their sales partners were on the ground, selling cigarettes, wines, shoes, and Chinese keywords of 3721!
At peak, 80 million Chinese internet users were using 3721 and 600k businesses bought those keywords (mostly their brand names). How did 3721 get so many users? Well, 3271 was like the grandfather of malware in China — very easy to accidentally install, while very hard to uninstall (it reinstalls itself after uninstalled…).
In 2001, 3721 was already profitable. In 2003, Yahoo wanted to buy a search engine company in China. Baidu asked for $150m, while 3721 asked for $120m. Finally, Yahoo chose the cheaper one 3721 — well, Baidu actually wanted to go IPO itself and it did. This was a huge deal back then. $120 million was almost like the peak valuation a Chinese internet company can dream of around that time. After the acquisition, 3721 founder & CEO Zhou Hongyi was in charge of Yahoo China.
Zhou Hongyi had very strong personality. He is kind of like Travis Kalanick — all he does is to win at all cost. Zhou is very direct, very outspoken. He is on TV a lot. If you want to see how this Chinese multi-billionaire looks like and how he speaks, just go to YouTube and search his name 周鸿祎.
Zhou Hongyi wanted Yahoo China to focus on email and search engine, while Yahoo HQ insisted to focus on the web portal. He didn’t get much support from the bureaucratic and extremely slow Yahoo HQ. But still, he managed to bring $10m profit for Yahoo from the Chinese market — a big part of profit was from his 3721.
In 2005, tired of fighting with Yahoo HQ, Zhou Hongyi left Yahoo China after less than 2 years there. Yahoo then invested Alibaba (40% equity!) and made Jack Ma take over Yahoo China. It was a ridiculous period of time for Yahoo China (or Yahoo as a whole company..). Yahoo China’s homepage yahoo.com.cn flip-floped multiple times between Google-like-search-bar-only homepage and the traditional busy web portal homepage. Go visit yahoo.com.cn to see it yourself.
Meanwhile, Yahoo China rebranded 3721 as Yahoo Assistant, bundling a bunch of features (e.g., popup ad blocker) into that small IE plugin / toolbar.
Meanwhile, on the other side of Pacific Ocean, a young Google product manager Sundar Pichai was leading Google Toolbar (browser plugin)… This young man is doing very well nowadays :)
After leaving Yahoo China, Zhou Hongyi took one year off to do angel investing. Then Zhou joined a company Qihoo360 as CEO, which was initially invested by him. Similar to the story of Tony Hsieh + Zappos, Travis Kalanick + Uber…
Initially, Qihoo360 was building a search engine for online communities. After all, it was the peak of web 2.0, around 2005/2006. Soon, they paused the search engine project and pivoted to do anti-virus / anti-malware software, because of 3721, Zhou Hongyi’s baby…
3721’s user acquisition strategy was so successful that almost all Chinese internet companies built malware-like software… A common tactic was like this: you paid freeware developers to bundle your own software together. When users install those freeware, they typically hit ENTER all the way, and accidentally install your software. You are basically installing a trojan horse on users’ computers that you can do a lot of interesting things (e.g., collect user data, push ads…) and users can’t figure out how to uninstall :)
Clearly, there was a strong demand for a no non-sense anti-malware software. The cost was that you instantly become the enemy of all the other internet companies in China who made malware-like software…
Anyways, Qihoo360 launched free anti-virus / anti-malware software and grew its user base to 400 million in a few years. Back then, providing free anti-virus software was unheard of. Before Qihoo360, those established anti-virus software companies could easily make over $100m annual revenue in China.
Qihoo360 leveraged its huge user base of anti-virus software and launched tons of software/hardware/online products, including web browser, search engine, portable wifi devices, smart phone… This strategy actually works in China…
In 2010, Tencent started a war with Qihoo360… Basically, software of both companies couldn’t coexist on the same computer — one would block the other from starting… Chinese internet users were forced to take side… Eventually, the war was ended after government intervention.
Qihoo360 went public on NYSE in 2011 and took private in 2016 and went public again in China in 2018… At peak, Qihoo360’s market cap was more than $60B, but it’s around $25B right now… vs Uber’s market cap today: $56B.
Qihoo 360 owns 360.com. They bought this domain in 2016 for $17M (unconfirmed).
An IE toolbar for $120m acquisition (3721), and free anti-virus software + tons of interesting products for a multi-$10B IPO (Qihoo360). Not bad :)
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