Technology Aug 09

The story of Kingsoft, a ‘Chinese Microsoft’

Has a growing presence in online gaming; its word processing system controlled 90% of China's market at its peak; cloud and Software-as-a-Service are the group's new directions

The story of Kingsoft, a ‘Chinese Microsoft’
Kingsoft family mobile apps (part). Image: EqualOcean

In the early years, the software industry’s prosperity relied on the penetration rate of personal computers (PCs). While Apple started to sell PCs in the United States during the 1970s, PCs only appeared almost a decade later in China. Prior to the 1980s, there was no software development for PCs in mainland China.

Though PCs were as expensive as one Chinese household’s annual earnings in the late 1980s, the presence of the devices precipitated the birth of the software industry there. In 1988, Kingsoft was founded in Shenzhen.

As one of the oldest software companies in China, Kingsoft (03888:HKEX) plays a key role in software development in the PRC. The company made its name known to the public through the office software Word Processing System 1.0 (WPS 1.0), developed by the founder Qiu Bojun (求伯君) in 1989.

After 30 years, Kingsoft has grown to a giant family composed of different types of software companies: Cheetah Mobile (CMCM:NYSE), Kingsoft Office (688111:SH), Seasun Entertainment and Kingsoft Cloud (KC:NASDAQ).

Below, we describe key phases of the company’s development, touching on its corporate strategy shift.

Qiu’s time, WPS’ era: 1989 – 1998

Crowned the Chinese No.1 Programmer, Qiu Bojun is the father of WPS 1.0, which upgraded to WPS Office (Word, Presentation, Spreadsheet). There is a legendary story saying that he coded the whole of WPS 1.0 in a Shenzhen hotel within a year ­– a well-known anecdote in the Chinese IT world.

Undeniably, he set a solid foundation for Kingsoft in China. Qiu served as CEO at Kingsoft for the first 10 years of the company.

The company was originally an echo of Hong Kong Kingsun company in mainland China. Kingsun was a PC manufacturing company owned by Zhang Xuanlong, namely the Godfather of Zhongguancun.

While Hong Kong Kingsun was merged with Founder Group (00418:HKEX) in 1994, Kingsoft became independent and set up its headquarters in Beijing, which is a Hong Kong-listed entity.

Before Microsoft Office (MSO) broke into China’s market, Kingsoft-developed WPS (Word Processing System) had swallowed 90% of the market share in China during the early 1990s.

Prior to WPS, China’s virtual world development had lagged behind the West and document processing software in the Chinese language was a blank. WPS filled the empty space and made Kingsoft a great success.

Hit by Microsoft Office and software piracy

As the software market grew rapidly in the '90s, the importance of protecting intellectual properties failed to catch up with the industry's development. Software piracy had nearly crushed the budding software industry in China when floppy disks and CDs made the piracy market available. This piracy caused great losses to software developers and urged them to speed up development to run ahead of pirated products. Plus, with Microsoft Office’s presence in China, WPS’ market share dropped sharply, and revenue during the mid-1990s slumped.

Lei Jun, who was later the CEO and is currently the chairman of Kingsoft Software and Xiaomi Group (01810:HKEX), joined Kingsoft in 1992 and he led most Kingsoft projects at the time. Shortly after his joining, MSO bundled with Windows 95 started to take over the text processing market and Kingsoft and other China’s software companies were forced to compete with Microsoft face-to-face.

Overshadowed by the aggressive competitor, Kingsoft bet on its Pango Office kit heavily and released the product in 1996 to fight against MSO. However, the product failed to meet the target – Kingsoft fell in a muddy puddle and struggled towards what seemed to be a last breath.

In three years of development, millions of yuan were burned (at the time, 200,000 yuan could buy a 2B1B apartment in Beijing); the massive input dragged Kingsoft to the edge of bankruptcy – Pango sold fewer than 10,000 kits. In Lei’s biography, he described that dark period: “In a year, I lost my dreams.”

To improve the situation, Kingsoft successively developed a series of products, from tool software to PC games: dictionary product iciba, antivirus software Kingsoft Antivirus, the game Sword Heroes Fate series and so on.

Meanwhile, WPS as a flagship product was upgraded to WPS 97. However, the product gained some market share – but it was far from its peak. Adding to damage from pirated software, the product release failed to bring the company back to its former heights.

At the same time, Qiu had gradually eased away from the role of Kingsoft manager during the late 1990s, and Lei Jun stepped up to be general manager.

Lei’s time, product matrix formed: Post-1998

In 1998, Lenovo invested $4.5 million in Kingsoft. At the same time, Lei Jun was assigned as general manager, and Qiu intended to leave the power centre. Lei transitted from a software development engineer to a corporate management role and started his service until Kingsoft’s IPO in Hong King Exchange. Qiu set WPS as the foundation of Kingsoft’s business and Lei diversified the tone of the foundation – office software, gaming and cloud services.

In 1999, Lei launched the Red Genuine Storm (RGS) strategy, advocating for using genuine software product, and created joyo.com, one of the earliest e-commerce marketplaces in China.

Late 1990s: Red Genuine Storm (RGS)

The RGS served the purpose of striking at the software piracy market. In 1998, the PC penetration rate in China was 8.9 per 1,000 people, while in the US the number was over 568. Given such a low PC penetration rate, the prevalence of pirated software severely crashed China’s software companies’ profitability. In an interview, Lei revealed that there were over 5 million iciba dictionary users but the company had sold only 60,000 genuine copies in the 1990s.

Using RGS as a promotion, Kingsoft lowered its software price by more than 80% and the marketing event brought the company a sales record. Nevertheless, software piracy and MSO’s presence continuously squeezed Kingsoft’s market share.

1999 – 2004: Joyo.com

Spun off from Kingsoft, Joyo.com was the most successful e-commerce platform in China before Taobao’s rise. Joyo.com started by mimicking Amazon: limited varieties of Stock Keeping Units but best sellers with a price advantage featured. The strategy succeeded initially but it was easy for followers to copy. At the time, China’s other e-commerce companies like 8848 and Dangdang (DANG:NY) swiftly adopted a similar strategy and the competition turned white-hot. In the early days, China’s Internet scalers were money-eating machines: if you want to scale, burn cash.

The money burning game did not last long. Joyo.com became an M&A target of Amazon when the American e-commerce giant touched down in the Chinese market in 2004. The site was acquired by Amazon at $75 million for 80% of shares in 2004, one year prior to the release of Kingsoft’s flagship product WPS 2005.

Flagship product: WPS

WPS has been upgraded four times; WPS 2005 was an early milestone in its development. Lei led the re-launch of WPS and WPS 2005 was selected in China’s National 863 Program (see FT’s coverage on the program). The new version of WPS has a similar user interface to MSO, which lowers the conversion cost for users to switch between WPS and MSO. Instead of targeting the individual market, WPS initially eyed enterprises, government and overseas clients and then extended its reach to consumer markets.

In the same year WPS 2005 was released, Kingsoft established the overseas joint venture Kingsoft Japan and started to promote WPS’ Japanese version. Comparing MSO’s price, WPS was in an advantageous position, since it could satisfy document processing needs. Along with the publication of free versions for individual users, WPS started to regain its Chinese market share and the scale yielded a foundation for Kingsoft Office (688111:SH) to spin off and go public in 2019.

New pillar: Gaming

Meanwhile, the iconic gaming series Sword Heroes Fate (SHF) series has contributed significantly to Kingsoft’s revenue. Created in 1995, SHF series has been upgraded from a standalone RPG (role play game) to an online MMORPG (massively multiplayer online role-playing game) and mobile game. If the launch of War of Warcraft represents a watershed moment for MMOPRG and the Western gaming world, JX Online 3 (the latest online PC game of SHF series) tells the best Chinese MMOPRG wuxia story.

The first online version of SHF was launched in 2003 and the popularity brought its footprint to Southeast Asia, where Kingsoft set up its Malaysian arm in 2008. SHF for Chinese resembles Final Fantasy to Americans, and the game series even fostered a subculture of its own. The game’s massive fan foundation led to good-looking financials for Seasun, the owner of SHF, and for the parent company Kingsoft.

In 2018, the gaming industry in China was impacted by the ‘Green Channel’ regulation, as the regulator halted new game approvals and the pre-existing games’ situation was exacerbated as well. The gaming segment of Kingsoft, Seasun’s revenue declined immediately to CNY 2.6 billion in 2018 from its peak of CNY 3.1 billion in 2017 and recovered slightly in the following year. But 2017 is still the best year of Seasun.

Post-IPO: More IPOs

After serving as the company's CEO for nine years, Fu Sheng (傅盛), the successor of Lei took his role and opened up the mobile world for Kingsoft.

Fu Sheng led the establishment of Cheetah Mobile in 2010. As the name suggests, Cheetah Mobile targeted the mobile-phone application market. It has developed a matrix of products, mostly for Android users: Clean Masters, Security Masters, CM Launcher and so on. In 2014, Cheetah Mobile was listed on the New York exchange and, two years later, Kingsoft stopped consolidating Cheetah Mobile’s financials.

Lei returned to Kingsoft in 2011 while chairing the newly established Xiaomi Group. In subsequent years, Kingsoft started to yield more power to its subsidiaries and joint ventures as well as promoting young blood. Kingsoft produced Kingsoft Office in 2011, which went public on Shanghai’s Star Market in 2019. Seasun was spun off in 2012 and its Gen-Y CEO Guo Weiwei now serves as senior vice-president of Kingsoft, while Kingsoft Cloud was set up in 2012 and it is currently listed on Nasdaq.

The recent ‘Kingsoft family’ companies’ IPOs in regard to cloud services and Software-as-a-Service seem to be the new directions for the ‘Chinese Microsoft.’

However, compared to Microsoft, Kingsoft has a larger presence in some promising areas of its business map. For one, Kingsoft’s Seasun, which many call the ‘Chinese Blizzard,’ has lately been boosting its capabilities in online gaming, stealing users from the likes of Tencent and NetEase.

“Unlike Tencent’s one-story-centric games, Seasun’s products provide a dive into the Chinese Kungfu universe,” a frequent mobile-game user from Beijing told EqualOcean. “I’m feeling fully engaged.”

This story by Yingwei Fu , first appeared on EqualOcean