Qihoo Polishes Image With Govt Deal 奇虎360与商务部合作 改进形象

Internet security software maker Qihoo 360 (NYSE: QIHU) is in the headlines much more than most companies of its size, sometimes for positive news but equally often for its controversial business tactics that many might consider bordering on the unethical. Against that backdrop, it’s interesting to see that Qihoo has just announced a new government tie-up that looks like an effort to improve its image in the marketplace. That announcement has Qihoo saying it will provide enterprise Internet security solutions to the Commerce Ministry, a major government body. (company announcement)

I’ll be the first to admit that this announcement is a bit vague and could be little more than a public relations exercise, though the deal does appear to be significant. The announcement simply says the Commerce Ministry will install Qihoo’s flagship security software product on all the computers at its Beijing headquarters, which presumably number in the thousands.

Users of Qihoo products will know that the company makes one of China’s most popular Internet security products, largely because its product is free. But what many people don’t realize is that Qihoo often uses its security product as a backdoor to install many unrelated — and often unwanted — functions onto users’ computers.

During my time as a reporter, I personally remember one particular skirmish that broke out when Qihoo modified its security software product to “highjack” and significantly alter the appearance of the popular QQ instant messaging platform run by leading Internet firm Tencent (HKEx: 700). Those kinds of business practices, combined with controversial remarks by talkative company founder Zhou Hongyi, have resulted in a mixed reputation for Qihoo over the years.

But lately Qihoo has moved in an interesting new direction by making a major new campaign into the online search market with its so.com search engine, which it launched over the summer. The engine has quickly gained popularity and now controls about 10 percent of the market, posing the first serious challenge in years to dominant industry leader Baidu (Nasdaq: BIDU).

The rapid rise of so.com has sparked a rally for Qihoo’s US-listed shares, which have doubled since the new search engine’s launch last summer. When Qihoo made its New York IPO nearly 2 years ago, I warned that one of the biggest risks for investors could be the company’s vulnerability to legal action due to some of its controversial business practices. It has continued to engage in some controversial practices in its latest online search campaign, igniting a war of words and other tactics with Baidu. (previous post)

But at the same time, Qihoo’s noise in this latest skirmish with Baidu does seem a bit quieter than in the past as it perhaps tries to show the investors that it can behave like a more responsible company. With all that background in mind, this latest government deal could perhaps mark the start of Qihoo’s efforts to remold its image from corporate renegade to responsible corporate citizen, removing a major downside risk to its stock.

If that’s the case, I would certainly welcome such a transformation, especially as Qihoo’s new search initiative seems to have lots of potential to shake up Baidu’s monopoly over China’s search market. But while announcement of this new government deal may be a good start, the company will need to continue with more similar actions if it really wants to convince the public that it’s a tiger that has truly changed its stripes.

Bottom line: Qihoo’s new announcement of a major government contract could be the start of a new campaign aimed at showing it wants to behave like a more responsible corporate citizen.

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