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Qihoo and NetQin Crash into Each Other: Who is Cheating?

|Includes: QIHOO 360 Technology Co. Ltd. (QIHU)

http://news.ichinastock.com/a/1300439240484.html
(iChinaStock News) March 17, BEIJING, On Tuesday and Wednesday, the Chinese security software company, Qihoo 360 and NetQin, the mobile security company, disclosed their plans to go public in the US stock exchanges and submitted their prospectuses. From business composition and pattern, Qihoo 360 and NetQin are in close competition with each other in the field of mobile phone security. Qihoo’s main products in this category are 360 Mobile Phone Guard and 360 Mcleaner. NetQin has many mobile phone security products as well. But in the prospectuses each company has released, appear to have contradictory market shares. Qihoo makes reference to data from the online market research company, iResearch, claiming to have a market share of 58.2%, whereas NetQin claims to account for 67.7% of the market. Is there any conflict between the two companies?

1. NetQin’s Prospectus Review

NetQin refers to data released by Frost & Sullivan, an American consulting company.

“According to a January 2011 report prepared by Frost & Sullivan, the third-party market research firm, we were the dominant provider in the mobile security industry in China with a 67.7% market share as of December 31, 2010, as measured by the number of registered user accounts. As of December 31, 2010, the number of registered user accounts for our services reached approximately 72 million in over 100 countries. Our closest competitor accounted for approximately 8.6% of the market. We are also a significant player in the global mobile security market. As of December 31, 2010, we had more than 23 million overseas registered user accounts from over 100 countries.”

(The above chart is released by NetQin and translated by iChinaStock)

NetQin, 360 (including 360 Mobile Phone Guard and 360 Mcleaner), Kinsoft, Kaspersky, Rising, FortiClient, Jiangmin, F-Secure, McAfee, Other

2. Qihoo 360’s Prospectus Review

Qihoo 360 refer to the statistics released by the online market research company, iResearch in January 2011.

“Our core mobile security product is 360 Mobile Safe. Launched in November of 2009, 360 Mobile Safe is a security program for the Google Android, Apple iOS and Nokia Symbian Smartphone operating systems. It scans for malware using our cloud-based security technology, blocks spam text messages, filters incoming phone calls based on user-input blacklists and whitelists, optimizes phone performance and speed and encrypts data for privacy protection in the event that the phone is lost or stolen. In January 2011, according to iResearch, 360 Mobile Safe had the largest market share of 58.2% in China as measured by the number of active users.”

Although 360 does not disclose the full report released by iResearch in January 2011, we did find 2010 Mobile Phone Security Annual Report released by iResearch earlier.

In this report, iResearch claims that, in 2010, 360 Mobile Phone Guard and 360 Mcleaner, NetQin, and Kinsoft Mobile Phone Guard accounted for 61.7%, 8.5%, and 4.8% of the market respectively, sharing a total market share of 75%. See details in the following chart.

(The above chart is translated by iChinaStock.com)

Collected in iResearch’s iClick Community from Nov. 15 to Nov. 25, 2010. Survey data of Chinese mobile phone security user market in 2010.

Note: Computation of market shares consider number of active users, who are currently using the mobile phone security software product.

3. Who is Cheating, Qihoo 360 or NetQin?

Even though the two companies have made reference to data from different third parties, the purported market shares display a surprisingly large eight-times difference. The following are three possible explanations.

a. Products of Qihoo 360 and NetQin coexist in users’ mobile phones. After CCTV exposed that NetQin plotted with Feiliu Download to charge hidden fees, Feiliu Download held an urgent press conference, where the company played video clips showing that “mobile phones with Qihoo 360 installed cannot install Feiliu Download software”. Feiliu Download did not disclose whether other software owned by NetQin was also rejected by Qihoo 360 Mobile Phone Guard.

b. Different standards have been used to compute registered users and active users.iResearch did a study on a number of active users and concluded that Qihoo 360 accounted for 58.2% of the market. Frost & Sullivan looked at the number of registered users and deduced that NetQin had a market share of 67.7%. This explanation will face such a question: Have NetQin’s registered users turned into “zombie” users?

c. Third-party statistical organizations have different statistical methods and standards. For example, they may have difference definitions of “Chinese mobile phone security market”, causing them to employ different statistical methods, standards and sampling different quantities. For example, in iResearch’s 2010 Mobile Phone Security Annual Report, the statistical standard was to consider only “NetQin Mobile Phone Guard” as one of “major products of Chinese mobile phone security software”, excluding 4 other products such as NetQin Mobile Phone Anti-virus, Communication Housekeeper, Text Message Aid and NetQin Helper. Take another example. The American consulting company, Frost & Sullivan take the number of registered users as standard, and this include all registered users of all NetQin’s products.

But even if all of the above three explanations stand, investors will remain skeptical of such a big difference. This probably means that, during the IPO and process of going public later, they will be demanded to provide more evidence to prove that they have not made any exaggerations in the prospectuses

Needless to say, both Qihoo 360 and NetQin have used self-beneficial data and tried to drag the opponent’s market share to the lowest possible level. But, in the future, which of them will run the risk of cheating their investors?

(By Jiangtao Liu, iChinaStock.com)
http://news.ichinastock.com/a/1300439240484.html