Kingsoft is back in play as games beat the pirates
Firm's copy-proof anti-virus software also helps in its struggle for survival
Kingsoft, regarded as the mainland's Microsoft before rampant piracy helped to destroy its dominance in the personal computer market, has staged a recovery by relying on online games and anti-virus software - areas where piracy is difficult.
Chairman Kau Pak Kwan founded Beijing-based Kingsoft in 1988, four years after he graduated from the PLA National Defence Science and Technology University with a management information systems degree. The company's word processor, spreadsheet and other office software products quickly came to dominate the mainland market.
'Up until 1995, our office software dominated the market,' said chief financial officer Kevin Wang. 'It was a national pride and by then our vision had always been to be the Microsoft in China.'
The entry of Microsoft in 1995, with its Windows operating system and Office 6.0 package, spelled near doom for the home-grown software king. Yet what came close to killing Kingsoft was not the genuine Microsoft software - at 5,000 yuan for a combined Windows operating system and Office 6.0 package, the product was too expensive for many potential users at a time when 8,000 yuan would buy a computer complete with monitor.
Kingsoft was instead overwhelmed by Microsoft's pirated versions which mainland computer users could obtain for next to nothing by simply making a copy on floppy disks - the standard data transfer medium at the time.
By 1997, the company's dominance was lost. Pirated Microsoft software ruled the PC world there almost overnight and Kingsoft was struggling to survive.
Although the situation has improved, as much as 86 per cent of software on mainland personal computers is still pirated, according to a study last year by Business Software Alliance, a US trade association, and US-based market research firm IDC.
Kingsoft was close to bankruptcy when an investment of an undisclosed amount from Lenovo in 1998 gave it support as it sought to re-invent itself.
'We tried everything innovative in software, even software for dictionaries, translation, DVD players and so on,' said Mr Wang. Eventually, online games and anti-virus software started to bring significant revenue to the company.
The online games are run centrally on the company servers - users play the games by accessing these through the internet, so no piracy is possible.
Users of anti-virus software require frequent updates to counter the latest computer viruses. So, users again cannot get away from paying.
Kingsoft's ability to learn and recover marks it out among its early peers that set up business in Zhongguancun, an area in Beijing full of universities such as Tsinghua University and Beijing University and famed as a hub of the country's technology startups.
'Among first-generation software companies in Zhongguancun, Ufida and us are two of the very few left,' said Mr Wang.
A-share Ufida is the country's largest maker of enterprise resource planning software and also thrives by being in a market where piracy is difficult. The software has to be customised for each company that installs it.
Kingsoft's anti-virus software became one of the 10 most popular in Asia-Pacific excluding Japan in 2005, according to IDC. The company made US$8.4 million from anti-virus software in 2005, up 23.5 per cent from US$6.8 million in 2004, IDC said.
Kingsoft also produced two of the mainland's top 10 online games in 2005, according to Shanghai-based iResearch and 17173, Sohu's website about online games.
Although Kingsoft lags top-tier players such as NetEase, Shanda and The9 and it has yet to produce a blockbuster, it has been producing new games.
'Kingsoft has one of the most experienced game-development teams in China,' said JP Morgan internet analyst Dick Wei. 'Late in 2006, the company developed the Shui Hu Q-style game which we believe has attracted a number of NetEase Fantasy Westward Journey players.'
The company has seven independent studios and more than half of its 1,200 employees are working in the online game division. 'Today we have balanced revenue from both the software and the online game parts of the business and have grown significantly in the past three years. This is why we see ourselves as a double-engine technology company with sustainable growth,' said Mr Wang.
The company is also expanding into overseas markets.
'We are selling our anti-virus and office software in Japan through the internet and we are licensing our online games in Vietnam, Taiwan, Singapore and Malaysia.'
Although its darkest days were over, analysts said, Kingsoft's transformation was far from complete.
'Kingsoft's internal operation is still a mess,' said an analyst who did not want to be named. 'For example, its online game developers are frequently re-assigned to a different team.'
The analyst also criticised Kingsoft's marketing tactics.
'Kingsoft is famous for spending lavishly on marketing its new games when they are first introduced - for example, using expensive TV advertisements. But its efforts are never followed through - marketing dollars stop rapidly.
'This is very different from the major players, such as NetEase and Shanda. They will increase their marketing budgets for their new games gradually and the marketing effort will remain during the lifetime of a game.'
The most popular mainland online game is Fantasy Westward Journey, produced by NetEase, the country's top online game company by revenue with more than one million users playing at the same time at peak hours. It has attracted a strong following among girls with its cute, cartoon style - and the boys have followed.
'We are late on the market,' Mr Wang said. 'When we started developing online games, all the juicy parts of the market had been taken by others.
'We are optimistic we will produce a blockbuster in a year or so.'
Last August, the company received US$72 million in investment from venture capital groups Government of Singapore Investment Corp (GIC), Intel Capital and New Horizon Evergreen.
According to a report, GIC replaced Lenovo as Kingsoft's largest shareholder after the transaction. Before this financing, Lenovo held 35 per cent stake in Kingsoft. The report did not say how the shareholder structure had changed since the investment.
Listing overseas seems the obvious next step. 'We intend to list on a reputable international stock exchange,' said Mr Wang, without giving further details.