Chinese internet company Qihoo 360 announced yesterday it would invest RMB200 million in a joint venture with Netcoretec, a Chinese networking hardware manufacturer founded in 2000. The move is obvious aimed at helping Qihoo 360’s WiFi 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 WiFi router in mid-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 WiFi routers several months after Qihoo’s launch, instead stole the show. Qihoo announced yesterday a new WiFi router.

The Best-selling Qihoo 360 Hardware Products

The Best-selling Qihoo 360 Hardware Products

However, Qihoo has managed to develop a couple of successful gadgets. The WiFi dongle launched several days before Qihoo’s first router is the best-selling gadget of the past year or so. 360 Child Guard, a children tracking band launched in September 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 CEO, 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 its hardware products to as many users as possible and then generate more revenue from their customized built in operating system. Xiaomi said they’d 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 WiFi routers are the most important products, for the smartphone is where apps accompanying smart hardware products are installed, and the WiFi 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 CEO Mr. 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 based in China through free online security and successfully monetized its users through advertising, gaming and search marketing. Recently the company has found it hard to grab a greater share of search marketing revenue from China 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 towards 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)