The Fall of Pangu: Lei Jun's Multi-Million Dollar Waterloo

Prologue: The "Red Hope" of Zhongguancun

In the spring of 1994, Beijing's Zhongguancun was a place of dust and opportunity. A 24-year-old Lei Jun's eyes shone with light. He had just been appointed the General Manager of Kingsoft Beijing by his idol, Qiu Bojun, with full responsibility for a top-secret project codenamed "Pangu."

At that time, Kingsoft stood at a crossroads. With WPS, single-handedly written by Qiu Bojun, Kingsoft had almost achieved legendary status in the DOS era, becoming a flagship of national software. Yet, everyone felt a chill in the air. A blue wave from across the ocean—Microsoft Windows 3.2—was quietly landing in China, and its bundled Word and Excel were like elegant, cold-blooded assassins, silently reaping the market.

A complex emotion of pride and anxiety permeated Kingsoft. A life-or-death battle was imminent.

"Pangu Office Suite" was Kingsoft's "ultimate weapon," into which it had poured all its resources. This was not a simple product upgrade but an ambitious gamble. It was meant to be an office suite that included word processing, spreadsheets, a dictionary, and all other functions, with one goal: to fully match and surpass Microsoft Office in one fell swoop.

At the project launch, Qiu Bojun flew in from Zhuhai to preside. All of Kingsoft's most elite and proudest programmers gathered in Beijing. On the office wall hung a huge banner: "Pangu Creates the World, WPS Creates Glory Again." A beautifully designed sample of the red packaging box was enshrined in the most prominent place in the conference room, like a sacred icon. It was the "Red Hope" of all Kingsoft employees.

Lei Jun, as the head of this project that carried the fate of the entire company, felt his blood race. It was an excitement mixed with immense pressure and supreme honor. He firmly believed that with Kingsoft's unparalleled technical strength and deep understanding of the Chinese market, this battle would be won.

Act I: Forging a Dragon-Slaying Sword in a Vacuum

The "Pangu" project team was considered the "national team" of Chinese software development at the time. Lei Jun and his team were among the top intellectual elites of their era, with an almost religious and obsessive pursuit of technology.

They disdained being imitators; they wanted to create a groundbreaking work, a "perfect" product that could solve all office problems in one go.

"Our idea at the time was simple: to pour everything we had into creating a technical masterpiece," Lei Jun later recalled.

To achieve this goal, the team entered a three-year period of isolated, closed-door development. They cut off almost all contact with the outside world and plunged into the ocean of code. Lei Jun even made the office his home, with a cot set up next to his desk. He worked more than 15 hours a day, sleeping in his clothes when tired and continuing to program upon waking. The entire team was immersed in a tragic and heroic sense of creating history.

However, while they were buried in the "vacuum" of code, the world outside was undergoing a earth-shattering, irreversible chemical reaction.

In 1995, Microsoft released the revolutionary Windows 95 operating system. Its friendly graphical interface and powerful multitasking capabilities, like a flood, quickly washed away all the dams of the DOS era and unified the PC market. And the deeply bundled Office 95 became the "standard configuration" for every new computer.

The market, in a place they couldn't see or hear, had already iterated.

In 1996, the "Pangu Office Suite" was finally released to great anticipation. Technically, it was worthy of three years of hard work—powerful and even superior to the contemporary Office in many aspects. But its price of several thousand yuan was like a stone thrown into the sea, creating no ripple in the market.

The market gave these proud engineers a resounding slap in the face. Sales were so dismal they were negligible.

Why? Lei Jun and his team were baffled. They rushed out of the office to the computer malls in Zhongguancun for research, and the results were chilling. Users told them they could find almost no reason not to use Office. First, it came pre-installed on their computers. Second, even if it wasn't pre-installed, pirated CDs were everywhere, costing almost nothing. Third, and most fatally, the document format standard for the entire world had quietly become Word's .doc format. If you used WPS, others couldn't even open the files you sent them.

Kingsoft had spent three years and all its resources meticulously forging a peerless dragon-slaying sword in a vacuum, only to emerge and find that the rules of the world had changed, and there were no more dragons.

Act II: A Multi-Million Dollar Post-Mortem

The failure of "Pangu" was a domino that triggered a full-blown crisis at Kingsoft. The company's cash flow quickly dried up, making even payroll a problem. The best programmers, seeing no hope, began to leave for foreign companies in droves. Qiu Bojun, exhausted and demoralized, once considered giving up software and switching to the health supplement business.

At the company's darkest hour, Lei Jun stepped up. He gathered everyone who was left for a profound and even brutal post-mortem meeting. He demanded that everyone speak the truth and mercilessly dissect the root causes of the failure.

The conference room was filled with arguments and complaints. Some blamed Microsoft's unfair competition, some blamed rampant piracy, and others blamed the marketing department's incompetence.

In his final summary, Lei Jun, almost trembling, said a few words that would completely change him and countless Chinese product managers.

First, "Do not use tactical diligence to mask strategic laziness." His voice was not loud, but each word struck everyone's heart like a hammer. "For the past three years, every one of us has worked as hard as an ox, but we have been strategically lazy to the extreme! We buried our heads in the code, thinking we were creating the world, but not a single person was willing to look up out the window to see if the sky had already changed!"

Second, "Follow the trend; never go against it." He deeply reflected that the success of WPS was due to following the "trend" of PC popularization and localization needs, while the failure of "Pangu" was due to going against the "trend" of Windows' domination. "When the operating system and office software are bundled together, this war was actually lost the moment we decided to develop it. We were using a rifle to fight an aircraft carrier fleet."

Third, "The user's needs are always more important than our self-satisfaction." He said, "We always wanted to make a 'perfect' product, a product that could show off how great our technology was. But we forgot to ask the users what they really needed. They didn't need software with 10% more features; they needed compatibility, to be in sync with the world, to be able to open the files their colleagues sent them."

This post-mortem was the "coming-of-age ceremony" of Lei Jun's career. He was transformed from a pure believer in technology, a proud top programmer, into a product manager who had to respect the market and the user, smashed into shape by cruel reality.

Epilogue: Learning to Compromise on the Ruins

The failure of "Pangu" not only cost Lei Jun all his savings but also nearly cost Kingsoft its future. But he was not defeated. On the ruins, something new grew.

In 1998, he was appointed General Manager of Kingsoft in a time of crisis. The first thing he did was to lead the team to develop WPS 97 on the ruins of "Pangu."

This time, he completely let go of all the pride and self-esteem of a technician. The core strategy of WPS 97 was one thing only: to be fully, completely, and pixel-perfectly compatible with Word. From the interface to the operation, from the file format to the shortcut keys, everything was modeled after the rival they once hated the most.

This strategy of seemingly "copying" and "surrendering" miraculously saved WPS. It survived by adopting a very low profile, like a blade of grass painstakingly growing through a crack in the rock of Microsoft, finding a sliver of sunlight.

The fall of "Pangu" was Lei Jun's Waterloo, but it also became his most valuable asset. He spent tens of millions of yuan and years of his youth on a lesson about strategy, trends, and users. The lesson was so profound that it completely reshaped his business worldview and ultimately bore entirely different fruit when he founded Xiaomi.

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Key Takeaways

1. Following the trend is more important than pure technical leadership: Kingsoft had a top-tier technical team but failed miserably because it didn't see the massive trend of Windows replacing DOS. Technology must be combined with market trends to realize its full value.
2. Perfectionism is poison for a product manager: The team spent three years building a "perfect" product with all the features, in isolation, but missed the entire market shift. Responding quickly to market changes and iterating is far more important than a big, all-inclusive launch.
3. Failure is the best teacher: Lei Jun did not shy away from failure but organized a deep post-mortem, reflecting thoroughly on strategy, market, users, and more. This ability to face failure head-on and learn from it is one of the most valuable traits of an entrepreneur.