Tao Li of APUS: Why has “going overseas” become the newest trend for Chinese companies...

From Xiaomi’s expansion in India and Southeast Asia; to the expansion of Qihoo 360 in emerging markets; to WeChat’s strategic use of local celebrities and representatives in Southeast Asia to promote its product; to Cheetah Mobile and Go Launcher’s localization efforts in North America. Within the past two to three years, an increasing number of top Chinese Internet companies have begun to focus their energies on overseas markets. Why is this?

Furthermore, a Beijing-based company that is fully focused on markets outside of China was recently founded. Its founder is Tao Li, the former Vice President of Qihoo 360. Tao Li was the originator of the “360 Security” mobile line, as well as a founder of the entire wireless division of Qihoo 360. His new startup team launched their product, a desktop launcher called APUS Launcher, on July 2 of this year. Less than three months later, the app had accrued 30 million users, the majority of whom were based internationally outside of China, clustered in emerging markets and regions.

How did Tao Li decide on this method? A few days ago, I spoke with Li on the logic of the “going overseas” strategy favored recently by Chinese companies:

The Fourth Wave: O2O and Internationalization

Li Tao believes that China’s Internet market has experienced three distinct phases of ups and downs; now, the “Fourth Wave” has begun. More specifically, the first wave witnessed the rise and eventual drop to mediocrity of Sina, Sohu, and Netease; the second wave saw the rise of companies such as Tencent, Baidu, and Alibaba; and, in the third wave, companies such as Qihoo 360 and Cheetah Mobile, with smaller and more nimble services, saw their market capitalizations and valuations shoot to billions and even tens of billions of USD. The “Fourth Wave” of China’s Internet is defined by local market perspectives and the “connecting and driving of online and offline traffic” through O2O (online-to-offline) models, all viewed from a global perspective. Indeed, this wave represents the internationalization of China’s Internet.

The “Fourth Wave” of Chinese Internet is defined primarily by the two trends of “Online-to-Offline” and “Internationalization.” A major reason for this is that China’s Internet is overcrowded: several hundreds of thousands of companies compete for 800 million domestic users. Indeed, the entire industry has reached an intense level of saturation.

Over the past two years, the competition that Chinese Internet companies have faced in the application distribution and O2O spaces already help to confirm Tao Li’s judgment. Previously, although the business lines of companies such as Baidu, Tencent, Alibaba, and Qihoo 360 would clash/compete with each other, the chances that any of these giants would choose to enter the same space was relatively small. However, beginning in 2013, whenever these major players saw an opportunity, they would instantaneously enter the same space and compete. Regardless of whether the opportunity was in application distribution, or the current method of connecting businesses and users through “O2O services,” the same scramble would occur.

Thus, for strategic reasons, “going overseas” has become an almost inevitable choice. In fact, Tao is not alone in his long-term plans for APUS: Fu Sheng and his company, Cheetah Mobile, have tackled international markets in a similar manner.

Outside of China and the United States: dozens of countries and regions are underserved markets in need of more Internet services

In 2013, as Vice President in charge of international expansion, Tao Li visited dozens of countries. He saw that, in regions outside of China and the United States, the technology space, and especially the mobile Internet space, offered great opportunity.

These “overseas markets” boast a total of 2.5 billion users, and the vast majority of the markets lag behind that of China by about two to five years. However, the market capacity of these regions is about three times greater than that of China. As compared to China, the number of competitors is not one order of magnitude-- but three to four orders of magnitude-- less than that of China. In fact, in places like Brazil, India, and Indonesia, the rankings of top Internet services are all U.S. companies. Despite the vast sizes of these markets, no one has stepped in to develop localized applications and services-- and what U.S. companies have provided to these countries is far from enough.

So, after these Chinese Internet companies decide to “go international,” how are they are able to compete with established, globally-known Internet companies, such as Google, Facebook, Yahoo, and more? In Tao Li’s view, the United States’ aggressive culture is in fact their downfall when it comes to homegrown American Internet companies going abroad. As long as Chinese companies are willing to do a good job localizing their products overseas, then in the battle for international users, the probability that U.S. companies will win out is not necessarily greater than that of Chinese companies.

Thus, given these conditions: a vast number of overseas Internet users; less competition; the fact that Internet companies local to these countries have yet to become established; the fact that the U.S.’s culture is too aggressive, and their attitude is arrogant—when Chinese companies choose to go overseas and are able to first take over three to five different urban regions, and slowly expand from there, their success then becomes a matter of course.

Global Internet patterns are consistent with the global economic situation, and China certainly occupies a global position

In Tao Li’s view, in the upcoming three to five years, the development of the Internet will be similar to that of the global economy. Economically, the United States possesses a strong brand and undeniable creativity; China enters the global market after having built on these traits. In the Internet space, the United States possesses intellectual and technological innovation; afterward, China adds to these concepts by engaging in deep processing-- that is, by localizing and then providing services to customers all around the world. The essences of these two processes are similar. Based on this situation, Li believes that the world’s Internet is comprised of only three silos: the Internet of the United States, the Internet of China, and the Internet of “other countries and regions.”

Of course, prior to reading about Tao Li’s thoughts on China’s Internet as well as the global Internet landscape, many users were likely not familiar with APUS Launcher. Actually, the way that Tao Li has designed his product methodology is very interesting— indeed, similar strategies previously allowed him to build the user base of 360 mobile guard up to 600 million users from scratch. So, is APUS Launcher a tool or a platform? Has APUS created a launcher, or an entry point? Will the profit model of APUS really be that of an application delivery? In our next piece, we will discuss the answers to these questions.

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