Qihoo CEO leaks two secrets about his new smartphone, and now I’m convinced it will fail

Since its massive investment into Coolpad late last year, it has been clear: Qihoo is planning to get back into the smartphone game. And with US$400 million behind the venture, this could just be the phone that finally succeeds where the company’s previous handset efforts have failed.

But after reading about Qihoo CEO Zhou Hongyi’s remarks at a company Spring Festival celebration, I have to admit I’m much less optimistic than I was about the upcoming handset’s prospects. During the event Zhou dropped a couple of hints about what we can expect when the phone comes out sometime next year, and a couple of them don’t necessarily bode well.

The first secret Zhou leaked? That the new phone will cost at least RMB 5,000 (US$800).

To me, that spells trouble, because as I wrote earlier this month, very few Chinese-made smartphones have had any success in the Chinese market at price points above RMB 3,000 (about US$480). The reason is that beyond that point, your purchase becomes less about function – any $500 smartphone is going to be capable of everything most users want – and more about brand.

People will pay $800 for an iPhone because Apple has an extremely strong global brand. It’s a luxury item, and a status symbol of sorts. They’ll pay $800 for a Samsung Galaxy for the same reason. But why would Chinese consumers be willing to shell out that kind of cash for an as-yet-unknown brand that comes from Qihoo 360 and Coolpad? Neither company has a reputation for making high-end goods on its own, and neither brand is associated with luxury. With less than a year before the phone’s planned release – Zhou promised he’d be giving them out at next year’s Spring Festival party – it would take quite a marketing coup for those two companies to create a new brand so desirable that it will inspire Chinese consumers to buck the trend and pay $800 for a domestically-designed handset.

The other secret is just something that Zhou hinted at, so take it with a grain of salt, but at a couple points in his talk he seemed to suggest that Qihoo 360 is working on its own Android ROM. That’s not in and of itself a bad plan, and it was probably inevitable given Qihoo’s roots as a software developer for PC, and later for mobile. But launching a phone with all-new hardware and all-new software and expecting that to sell at $800 right out of the gate? That seems, to put it nicely, ambitious.

Even Xiaomi – which, keep in mind, sells its phones for much cheaper – had its MIUI Android ROM out in the wild for over a year, building buzz and optimizing based on user feedback before the company released its first handset. Given the price of the phone, I imagine Qihoo plans to ship it with its new mobile OS preinstalled. But since that’s meant to happen within the year and the ROM Zhou is hinting at isn’t even in beta yet, there’s no way Qihoo is going to get as much user data and feedback as Xiaomi got in its year-plus with MIUI out in the wild. Nor will it have much time to build up the new OS’s buzz and brand name.

I hope that I’m wrong, but I worry that all this is pointing to the release of a potentially buggy, overpriced smartphone coming from a brand that nobody in China has heard of. And if that happens, it’s not going to end well. I still think that the Qihoo-Coolpad partnership is a great idea, but the companies need to stick to what they’re best at. Neither Coolpad nor Qihoo has any cachet as a luxury brand, and if they rush a handset to market in the hopes of beating Apple and Samsung on their own turf, the results are sure to be disappointing.