APRIL 28, 2000 VOL. 26 NO. 16 | SEARCH ASIAWEEK
Edward Zeng is transforming his pioneering chain of Internet cafés into a business network he hopes will dominate China's e-commerce sector
By RON GLUCKMAN
Phones ring madly, and Edward Zeng hops to the hook. It's spring, mating season in China's dotcom mania, and you can feel the heat of mega-deals brewing. Microsoft, Intel and most of the world's other high-tech giants are in the capital for a series of IT summits in April. Zeng is high on everyone's agenda. The CEO of Sparkice is fired up and full of enthusiasm. He's red-hot. In play. In a working outfit of blue Oxford shirt and green trousers, Zeng chills out between a constant stream of calls, sinking into a padded black chair in his new headquarters at the stylish China World Tower II. The vast offices are almost completely empty. "We've just moved in," Zeng explains. "I don't even have a computer yet."
Not that he needs one. Should Zeng desire to check his e-mail, he need only slip downstairs to his Sparkice Internet Café. It's one of a dozen in China's largest chain. These form the backbone of Zeng's unconventional plan to take the mainland online. Others talk of zipping along the information highway. Zeng plans a thousand pit-stops, Internet centers designed to serve the people of the People's Republic -- peasants, farmers and students alike. "It's like building a ramp to the highway," says Zeng. "We want to bring everyone online."
That might seem a backward approach to forging an Internet empire in a brave new world consumed by faster chip speeds and broadband access. Yet even as China's Internet use doubles every six months or so, Zeng notes, there aren't yet 10 million users. "I'm not interested in a small percentage like 10 million people," he says. "I want to reach half." By that, he means half China's entire population. "Over half a billion people!" he says, beaming.
If the numbers seem overly ambitious, factor in this: 37-year-old Zeng, who is married with two children, not only oversees an entire floor of the most prominent office building in Beijing, he runs a company that claims a valuation of $150 million. Yet, just a few years back, Zeng was hawking homemade T-shirts door to door in Toronto, just another Tiananmen-era refugee looking to make a living overseas. Zeng isn't your everyday economic migrant, however. The son of a doctor and an architect, he earned an MBA in economics from prestigious Qinghua University and was a rising star within the State Planning Commission. But a few days after the tanks rolled into Beijing, Zeng abruptly resigned while on a trip to Japan. He took up a fellowship at the University of Toronto, but it was a tough time, as he likes to recount in a hard-luck story that plays well in the media.
Zeng, who spent six years in Toronto, recalls the hit-and-miss nature of his T-shirt business. One time, he made a bundle printing Blue Jays shirts, gambling correctly that the team would win North America's baseball title. Other efforts weren't as fortuitous. "I sometimes brought home shirts I couldn't sell. They filled the apartment. My wife and I had to sleep on them," he says sadly. The Internet business, he adds, can be much the same. "You start with a blank page, just like those white shirts, completely blank, and you put your design on it. If it's a good idea, you'll make lots of money. If not, you can be wiped out."
Thus far, Zeng has steered Sparkice on the path of success ever since returning to China in 1995. The following year, Sparkice sealed its first and most important deal -- a joint venture with China's Unicom, the nation's second-largest telecom company. The name, he used to say, combined spark and ice, for China's red-hot telecom market and Canada's chilly weather. But the story changes as often as Zeng's business plan. Thus far, he has pioneered such things as online payment systems and Internet cafés for China, started a service provider, a data system and, as of April this year, a comprehensive B2B platform that he says should nab a third of China's estimated $150 million online transactions this year.
All the announcements create a hype about Sparkice, but many are waiting to see results. "The question of course, is what is Sparkice's focus," says Ted Dean, partner at Beijing consultancy BDA. "At this point, Sparkice really needs to focus on its core business." But what is that?
Sparkice was originally established in Canada in 1993. Zeng then specialized in finding funding for Chinese-based companies in reverse takeovers on North American stock exchanges. Now, he says, "Sparkice is spark, for igniting with new ideas, and ICE for information, commerce and education." Others say Sparkice has merely bounced around, following perceived new opportunities, issuing glorious press releases about pie-in-the-sky schemes, then abandoning them like failed T-shirts if they don't develop. "Zeng is a supreme egotist," says one. "He's all talk, no substance." Yet, unlike many mainland Netrepreneurs, Zeng has a solid business background, including stints on the boards of several Canadian companies. Nor is he a Johnny-dotcom-lately. He helped create the Chinese-English Wanwei Network, and two direct-to-home satellite firms that beamed Chinese-language TV to North America.
Perhaps his most valuable experience was helping tired old-world firms, particularly in China, realize the value of their assets in the new world of IPOs and IT. "I've already made a hundred million dollars three times," he boasts, referring to his own Sparkice and two previous posts as a consultant to companies that listed and reached the magic hundred-million mark. Yet, this economist found it quiet in the boardroom. The Internet was where the action was, and Zeng jumped aboard, grabbing the world's attention by opening China's first Internet café in 1996. He now has over a dozen, mainly in Beijing. There are also a couple in Tianjin and Sparkice expands to Shanghai in April. And expect a publicity coup in May, when Zeng will open Tibet's first Net café.
Already, the idea of the world's highest Internet café has raised questions about restriction of freedom of information in a land not known for its Internet welcome mat. The online edition of this magazine, for instance, is blocked in China, along with that of CNN and some other sites in the Time-Warner group. Yet Zeng sidesteps political controversy almost as adeptly as he moves in the media spotlight. It's old hat for him. He talks nonchalantly about meeting Bill -- that's U.S. President Clinton -- and Hillary. Clinton has met Zeng twice in China, ushering in a media flood. He's been featured in so many magazines, one local reporter called him "The Poster Boy for the Internet in China." Indeed, in a landmark 1998 article, "China Gets Wired," Time put Zeng at the top of the list of "Five Comrades Who Matter."
Such honors matter little, insists Zeng, who prefers tests of performance. "Doing is what matters," he says. Besides, the real issue isn't politics, but globalization, adds Zeng, who, like another famous Bill -- Microsoft's Gates -- is also a best-selling writer on theory in the computer age. Zeng's latest book just came out, Globalization: E-Commerce Theory and Practice in China. Filled with charts and diagrams, it details Zeng's plan to nurture his network of Internet cafés into a behemoth of an e-commerce business.
Zeng took the same pie charts and graphs to Internet World China, the second of a series of mega-IT conferences in Beijing, in April. Using slides projected on the wall during a talk in Chinese, Zeng detailed the enormous business sure to flow to China, once the mainland is wired. "Global business on the Internet will rise to $1.3 trillion by 2003," he says. And that figure should double again in 2004, according to GartnerGroup, which estimates that B2B transactions will explode from this year's $237 billion to $2.8 trillion by 2004. "What we want to do is control the supply side of that business," Zeng says.
By Zeng's reckoning, China already makes much of the world's toys, textiles and consumer products. "But the Chinese don't have computers. They don't speak English, which is the language of the Internet." Enter his café strategy. He plans to expand to full-service centers offering everything from novice needs like help with English and e-mail advice, to Web-page hosting, scanning and virtual showroom design. "By the year 2003, I plan to have 100 Internet cafés, all over China," he says. "Right now the Internet reaches only 1% of the people in China. But e-commerce could involve everyone from the students to the farmers. Everyone wants to make money. We will link them, and control the business."
It makes sense, conceptually, at least, but nobody has taken supply-side theory to such a stretch before. Nobody bothered. After all, technology firms focus on supplying hardware, systems or data to the dominant players. Others find a role creating and servicing the infrastructure that facilitates the business flow. Many naturally wonder, where's the money connecting cabbage growers with buyers? Others question the entire scope of Zeng's projections. "He makes a lot of noise, and gets a lot of attention, especially in the Western press, but his real skill is self-promotion," says one Beijing-based critic. "He really hasn't done anything yet." While Zeng claims China's largest Internet café network, it's only a tiny fraction of an estimated 1,000 Net cafés scattered around the country. "Besides," the analyst adds, "how much money can you make selling coffee and renting computer time for $4 an hour?"
Zeng counters that the cafés have always been profitable. "Two to three years ago, they brought in 80% of my business. Now, they contribute only 20% of revenues, even though they have been doubling or tripling each year. "The reason," he says, "is e-commerce. It's booming in China." Zeng says the Net cafes are just storefronts to his full-featured Internet vision. "They are like the fishing pole for the entire business," he says. "I bring them in, let them try the Internet and hook them." Zeng nets bigger fish with the other businesses, which now contribute the majority of Sparkice revenues. These include his ChinaRep division, offering Web hosting and design, and Dragon Pulse, which is probably the greatest revenue-spinner, selling China business data.
Credit his background as an economist -- and connections in official circles. Others, from Beijing officials to frustrated media magnates, have long been perplexed about how to meld China's inherent sense of caution with the freewheeling spirit of the Internet. This entrepreneur saw only opportunity in the apparent paradox. Information, or content, after all, is what the Internet is all about. China data are hard to find, and so are valuable, especially to foreign firms mulling mainland ventures. Drawing on connections from his stint with the State Planning Commission, Zeng gathers and provides that information. For a price.
Dragon Pulse claims to have one million mainland firms catalogued in a subscriber database. Subscribers pay about $50 per search, or an annual fee. As a result, Sparkice is growing by leaps and bounds. Zeng says revenues soared from $300,000 in 1998 to $1.6 million last year. He expects revenues to reach $8.5 million this year, and nearly double again in 2001. The company has tripled its staff from last year's 100 employees. "Two years ago, there were only 30," Zeng says, "and four years ago, it was just me." It's all part of being a full-service company, says Zeng, who pauses yet again to answer another ringing phone. They have never stopped. Each time, he hops from the chair to his desk, then returns to the conversation. "This might be the one," he says with a smile. He chats for a few minutes, then says: "False alarm."
A few days later, the deals started pouring in. Zeng announced a partnership with leading German retailer Metro AG, and a series of pacts with the Bank of China and mainland-based shipping conglomerate COSCO to form what he calls, "the B2B Dream Team." Fanciful notions? Perhaps, but as one Beijing observer notes: "Zeng has been around for a long time and he's still around. If nothing else, you have to credit him that." Indeed, Zeng may someday be out-muscled by other mainlanders as China's Internet king. His e-commerce dreams could be worth billions or nothing more than a bundle of misprinted T-shirts. But it's a safe bet that no matter which way mainland IT develops, this economist turned T-shirt vendor turned Internet tycoon will keep adapting to the opportunities to keep Sparkice in the fray.
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