NQ Mobile, a Beijing-based mobile Internet services provider in the domains of security, privacy and productivity, was the first of its industry in China to list on the New York Stock Exchange. It debuted on the exchange in May 2011. Its net revenue and net income for 2011 were US$40.7 million and US$10.3 million respectively. Net revenue for the first three quarters of 2012 was US$48.3 million.
NQ Mobile’s roots may be in Beijing, but it positioned itself as a global company from day one. As of end-September 2012, it had around 242 million registered user accounts in over 150 countries. More than half its revenue comes from overseas markets.
Founder and co-CEO Henry Lin Yu is thinking big. He wants the company to become a universal cross-platform, cross-border and cross-carrier operator, and the biggest mobile cloud service provider globally. “We are building the best teams globally and will capture market opportunities faster than our peers,” he says. In an interview with China Knowledge@Wharton, Lin talks about the ups and downs in his entrepreneurial life, the company’s globalization strategy, and the future of the mobile Internet.
An edited transcript of the interview follows.
ChinaKnowledge@Wharton: How did you start NQ Mobile?
Henry Lin Yu: I used to be a young teacher at the Beijing University of Posts and Telecommunications (BUPT). Our research wasn’t really concerned with mobile security, because that was not such an issue then. In 2004, I was working at the State Key Laboratory of Networking and Switching Technology. We had a tie-upwith Nokia and a scientist from the company gave us a talk on the safety concerns of future smart phones. My gut feeling was that this could be an industry for the future.
We set up a team which included Vincent Shi Wen Yong (currently chief operating officer -- COO), who is also from Beijing University, five students and myself. We spent 100,000 yuan (around US$16,000 at today’s rates) to register the company. It was then just a website offering downloads of anti-mobile-virus software.
ChinaKnowledge@Wharton: From that experience, what kind of business do you think a start-up should choose?
Lin: The business has to be based on three premises: first, it doesn’t cost too much; second, the future potential; and, third, the willingness of the start-up team to stay the distance.
ChinaKnowledge@Wharton: What was the most difficult phase?
Lin: The most difficult time was from October 2005 to May 2007 (the registration was completed by October 2005). We were running out of money. There was very little value-added service. Product development had just started. We did everything ourselves and nearly went bankrupt. Our earliest office was in an unused children’s playground near BUPT. We borrowed 1 million yuan in May 2006, and that helped us survive three more months. We were talking to investment bankers everyday and finally found an angel investor who put in 1 million yuan. This lasted until the beginning of 2007. We were then lucky to obtain another 1 million yuan from the venture capital fund of the Ministry of Industry and Information Technology. We nearly died; we struggled; but we survived. In 2007, four venture capital funds invested US$16 million. Another two funds financed us US$31 million in 2011 just before we were listed.
The most important thing during the tough times was that we worked together as a team. Only when the rest of your team shares your goals and dreams and knows it can depend on the whole team can you survive the toughest days.
The first two years of the start-up have personally benefited us tremendously. You may have failed in the past and could fail in the future. But what is failure? It’s not a phenomenon; it’s a mentality. Only when you feel you have failed do you really fail.
I have written a book on the difficult times. I have said that the most important thing for an entrepreneur is to have no regrets. You have taken a decision and should be able to smile no matter what happens.
ChinaKnowledge@Wharton: What was your perception of the mobile Internet industry when you started?
Lin: The basic assumption was that smart phones would become very popular one day and open operating systems would be mainstream. Safety would then become very important.
[In this business] it helps to have more users, more clients, more experience and more capacity. It creates an entry barrier for others. This is our model for long-term business and the reason the first-mover advantage is so important. This is why we are not afraid of PC-safety service providers like Qihoo entering the [mobile Internet] market today.
Our expectations of the industry have been proved right. At that time, everyone was talking about the PC market and comparing it to the continents on the globe. In fact, mobile devices are oceans, much bigger than the PC market. The growth has been explosive.
ChinaKnowledge@Wharton: The mobile phone market is full of unexpected dynamics. Did the decline of Nokia affect your business as NQ Mobile was closely connected with Nokia in its early days?
Lin: We provide cross-platform service and don’t limit our service by mobile phone types. Our service supports Android, Windows, iOS and Symbian systems, and we have constructed an open “cooperative” system. In the early days, some companies did very well on the Symbian system but faced problems when transferring their service to the iOS platform. However, companies have to be daring; they have to innovate and upgrade constantly. They have to adjust themselves to market demands. They must do all this if they want to be a market leader.
We provide a cloud service. We have to respond quickly to collect new viruses and offer protection to users. We need to do some work to cater to different operating systems; that’s 20% to 30% of our work. Our service has nothing to do with different brands of phones. In some ways it is like QQ Chat from Tencent (the biggest online instant communication company in China). Its core competence is getting billions of users to stay online simultaneously. It is less relevant what device they use to log on.
ChinaKnowledge@Wharton: How do you see the future of the mobile Internet? What will be the role of NQ Mobile?
Lin: In the future, smart phone will be the center of this mobile life. All home electronics like smart TVs, smart cars, and even medical devices will be integrated into this mobile Internet. This will not only change the way we live, work and entertain, but also change the business model of finance, insurance, education and other industries.
This market has just started. Sales of smart phones globally stood at 500 million in 2012. This may reach 1.5 billion in three years, which will exceed today’s PC market. The other home devices integrated into the mobile Internet will be more than 10 billion.
We will offer security in the mobile life of global users. In the past six-seven years, we have been mainly offering anti-virus services. But we are continuously expanding our range. Safety itself has broadened over the years -- from anti-virus to anti-harassment, privacy protection and data safety. The safety market has just started and mobile smart services have also just started. We will launch a new service every year and track demands from users. The Internet business is customer-centric, rather than function-centric.
ChinaKnowledge@Wharton: The major difference between NQ Mobile and other online giants in China is that you are already a global company. Why did you globalize so early?
Lin: We have made it clear from day one that the demand for mobile phone safety is global. Anybody can lose a phone. Everyone is concerned about virus infestation and privacy disclosures. The first version of our anti-virus software in October 2005 had both English and Chinese language environments. After six months, one-third of the 100,000 users who downloaded our products were from more than 30 countries, which bore out our expectations.
In Silicon Valley, many companies position themselves as global from the very first day with products made for the global market. The Internet is eliminating country borders; even medium-size companies can become global companies. It was natural for us to go global. When we found that our users came from so many foreign countries, we set up a business unit to serve overseas markets.
Our globalization process was deepened step by step. First was the globalization of products. Then the services and operations teams went global. After that, we looked for overseas partners to expand foreign channels. Today, NQ Mobile has headquarters in both Beijing and Dallas in the U.S. We have set up offices in Hong Kong, Taipei, Silicon Valley and Switzerland.
In January 2012, we invited ex-Samsung Mobile executive Omar Khan, who is known as the Father of Samsung Galaxy, to join our company and be our co-CEO to take care of the overseas business.
The key strategic timeframe for the global mobile Internet market is the next two-three years. We have to aggressively develop our business and market share. There are not many strong incumbents right now. But in the next two years, there will be. It will be too late if we take action then. So we are actively working on building the best teams around the world and aim to capture the market opportunity faster than peers.
ChinaKnowledge@Wharton: What is your income model?
Lin: There are two business models followed by most Internet companies. First is to offer advertisements based on the large user base. The other is to charge users for premium service. Different companies develop different models based on their offerings. Some have both models.
NQ Mobile has a model of free basic service plus premium paid service. Why don’t we take ads? I think the format of ads on mobile phones is not mature yet. Furthermore, there is a fundamental conflict between our safety service, by its very nature, and the advertising model. If you want to target ads accurately, there will be privacy issues.
Most Internet companies in China offer free service. But many people in Europe and the U.S. have started to realize that there is nothing like a free service. There is always a hidden price such as your privacy. Therefore, people really concerned about their privacy prefer to pay for professional and high-quality service.
ChinaKnowledge@Wharton: NQ Mobile has launched a real-connection-based mobile social network NiceDay from the beginning of 2012. How is that doing and will you turn the business into a community service?
Lin: NiceDay currently has more than one million users. It’s a lifestyle information aggregator offering dining and entertainment information, and comments from your real-life friends in your address book. Contrary to search engines today, which recommend links based on commercial interest, all the recommendation and comments on NiceDay are made by your friends. In the next five years, technology will become smarter and we will launch more mobile services. NiceDay will be one of them.
Internet companies are customer-oriented. We offer new platforms and services based on what users want. So big Internet companies are stepping into each other’s domains. Tencent, for example, is offering multiple services that are major products of other companies. However, each company has a core capability. Google and Baidu are related to search. Therefore, their services relevant to search have to be very strong. A company has to prioritize and place the best resources on its core business. For NQ Mobile, we will develop our services based on the notion of building a safe and reliable mobile life.
ChinaKnowledge@Wharton: In the past two years, there have been many questions on China-related stocks listed on the U.S. markets. NQ Mobile too was shorted in 2012. How do you view this episode?
Lin: The concerns of the market over Chinese companies relate to two issues. One is the VIE [variable interest entity] structure; the Alipay share transfer controversy made this a headline topic. But the more important thing is that the financial performance of many listed companies has greatly deviated from investors’original expectation.
In general, the U.S. capital market is pretty fair. If you consistently reach your financial forecast, the stock price will go up. But if you fail to meet the target several times, your credibility will be questioned.
I did not pay too much attention when our stock price dropped 10% after U.S. market research company FJE Research published their doubts. For their questions on our user base, our response is, first, it is not unusual for companies in capital markets to short Chinese companies for their own benefit; second, a different sample collection approach, research method and sample scale will lead to different conclusions. The FJE data did not include many of our important promotion channels. In fact, we obtain our users from three major channels --pre-installation by chip and phone makers, digital promotion channels, and word of mouth. The third-party application stores mentioned by FJE Research are only one part of our digital promotion channel. There are other important channels like online ads.
ChinaKnowledge@Wharton: How do you work with your value chain partners and build your eco-system?
Lin: In the past, we have focused on building a global eco-system and cooperation with the whole mobile value chain is the most valuable part of it. The top 10 mobile phone makers globally are our partners. In China, as of end-October 2012, our safety products have been pre-installed in 55 million smart phones, covering phone makers like Huawei, ZTE, Coolpad, Hisense, Gionee, and international phone makers like Nokia and Motorola. The top five carriers globally are our partners as well.
ChinaKnowledge@Wharton: Before you started this company, you were a faculty member on communication technology. What changes have you experienced, and how has your background contributed to your management role today?
Lin: There is a saying: “What matters to a person is not what he can do, but what he wants to do.” The reason I left academic life to start a business was the environment at Chinese universities. Young faculty members find it very difficult to get resources. Also, Internet technology is more practical than theoretical. I wanted to try out some of my ideas.
The CEO of a company needs to understand almost everything about management. I had never been a salesman before. Nor did I know product management, handling human resources, and finance. Starting up a company requires you to quickly learn all this. And you need to continue learning.
I may not be an outstanding sales and marketing person. But the character of a CEO has also something to do with the business itself. For example, Alibaba is an e-commerce company, so its CEO needs to be strong on sales. But online service companies like Baidu or Tencent are more focused on products and both of their CEOs have technical backgrounds. I think of myself as being from a technology background too. I am inclined to be more rational and systematic. I am relatively strong on products and operations. The founders of Google, Apple and Microsoft are all technical people, as the fundamental driving force for this industry is to serve user demand through better technology.
ChinaKnowledge@Wharton: NQ Mobile has two founders -- you and Vincent Shi, who is now COO. How did you work together in the years of building the company?
Lin: Everyone faces pressures running a business. Everyone looks at the same thing from a different angle, so you will get different perceptions. To reach an agreement requires a process of communication and integration.
In my view, any decision is made by two elements. First is the information. Do both of you get full information? Do you interpret it the same way? Second is the criterion for the decision. Do both have the same criterion? Is it based on long-term or short-term interest? In most cases, if you have the same information and the same criterion, you will reach the same conclusion. So the most important thing is communication. We need to communicate all this to ensure that we get the same information, we have to adjust our criterion, and finally reach consensus.
Google has two cofounders, Microsoft has two and Yahoo has two founders as well. I think that most successful technology companies are founded by two-three classmates. Why? Because they have a relationship prior to the business relationship, and their trust is above commercial interests. This is very important. Such a partnership does not result in disagreements on fundamental issues. Even when they do, it’s easier to solve because there is trust.