Lush Café in the university district of Beijing is not the most convenient place to interview two Chinese entrepreneurs. A long ride from downtown, surrounded by the dust of the numerous building sites that dot the area and full of leisurely students, the café is not a place where one would imagine the discussion of issues vital to modern business taking place.
Still, the cafe does have some upside. For one, it is close to the home of the private equity specialist who set up the meeting. For another, although tensions are running high in the city following the recent anti-Japanese demonstrations, the good food and quiet atmosphere permit rational discussion of this most sensitive of topics with the young founders of [email protected], executive director Li Yan and Feng Jun, president.
The issue has a special reverberation for the two, since they are both north-easterners, from that cluster of three provinces invaded by the Japanese in 1937, and which until the capitalist policies of Deng Xiaoping were at the vanguard of the Chinese economy. Capital and skill intensive to a degree unparalleled in other parts of China, the last decade has nevertheless seen the area shattered by the closure of countless small and medium state-owned enterprises.
Anti-Japanese feeling runs strong in these two entrepreneurs, giving the lie to the idea that material success and a top-level education would lead to a repeat of the famous incident at Oxford University in the 1930s. At that time, the debating society voted in favour of the motion that it was better to betray your country than your friends. In these two businessmen's eyes, pride and patriotism are clearly not the discredited concepts they are in many European countries.
It is with something akin to relief that we finish talking about the demonstrations and turn to the rather more straightforward topic of their company.
[email protected] SoftcomTechnology Ltd focuses on bridging the gap between mobile phones and the Internet. This would appear a promising business to be in, as more and more customers become impatient with the separation between lap top and mobile phone.
The company bills itself as a B2M (business to mobile) communications services provider and essentially supplies short messaging services to business users.
This is actually quite a radical departure for the mobile phone. If you look at the wireless technology companies that have listed in the US such as Linktone and Kongzhong, it is noticeable that they generate revenue essentially from using the mobile phone as a toy.
But this model may not be as sustainable as [email protected]'s business model for using a mobile.
"Using one's mobile phone for fun is not a matter of survival for users. They will browse many service providers for entertainment. It's not an especially 'sticky' business model," argues Li Yan.
In contrast, once you tie in a business customer, he will find it difficult to change. The need not to disrupt his own customers will be a disincentive, as will his investment in the new services.
In China, this idea is especially clever because so many companies cannot afford laptops or expensive personal digital assistants, which can receive company email. The private sector is bursting with emerging companies, locked in vicious competition with each other and trying every possible angle to cut costs.
It is not surprising mobile phones outnumber PC users. On the other hand, mobile phones even outnumber China's fixed line users, making the mobile phone potentially the most ubiquitous business tool in the country.
"Mobility, Internet accessibility, multi media features and abundant band width make the mobile phone an increasingly sophisticated business tool," notes Feng Jun, adding that the advent of 3G communications in China will simply accelerate the trend of using mobile phones for business.
Using mobile phones, a fraction of the cost of personal computers, is an excellent method for companies to stay in constant touch with staff and customers.
"One of our customers is a giant enterprise selling textiles and shoes, with around 30,000 sales channels, many of them quite small, and dotted all over the country. Most these sales channels are small shops with rudimentary or non-existent IT equipment. That used to mean a blizzard of faxes and everybody knows how problematic sending, receiving and transcribing these to a data base is," says Li Yan.
"Under the SMS system that we set up for them and going via the specially configured server we installed at the headquarter company, these outlets can now send an SMS back to the company every day. Updating the database now takes 20 minutes at the end of the day, instead of having to spend three hours on the process four times per week", chimes in his partner.
It is not just low tech companies that are turning to the service. The after-sales division of HP (China) is using Emay's middleware platform for its after-sales service platform HPMediator, itself part of HP's CRM (Customer Relationship Management) platform. HP (China) can thus communicate with clients directly via SMS. The service is compatible with China Mobile's GSM and China Unicom's CDMA networks, and will eventually be compatible with whichever 3G network China decides to roll out.
The backbone of the system is the software programme and communication platform developed by [email protected] The client's software sits on the enterprise server and connects the enterprise CRM and open access databases. The software enables the business user to send multiple short messages to [email protected]'s communication platform, which then transfers the messages to the mobile operators' SMS gateway.
[email protected] has so far amassed about 30,000 business users - up from 5000 in the previous year, which use the company's software and communication platform to send and receive millions of short messages per day. That could be for mobile marketing, customer service, customer relationship management or even enterprise resources planning.
[email protected] is not a telecom company, and therefore it works closely with all the main telecom suppliers. These, including China Mobile, China Unicom and China Telecom, sell [email protected] SMS capacity in bulk, which [email protected] then sells on to its customers. HP for example, pays Rmb 0.10 per SMS.
As with credit cards, which give banks issuing them access to masses of valuable customer information, the company aims to leverage on the rapidly growing database of contact information it has built up.
As the idea of using mobile phones for services previously restricted to PCs increases, the founders believe that the search their function will become a revenue earner as well.
Each company which uses [email protected]'s SMS service has a unique number assigned to it. As people being to search for companies companies could be willing to pay for their SMS ID (translated into the company's real name by [email protected]) associated with terms which best reflect the company's activities. That is a similar model to the Internet model, where companies pay the Internet portals such as Yahoo! for their company to appear high on the list of options generated by a search term.
Although the partners say that their technology is by no means unique, they claim that barriers to entry to the business do exist.
"A company such as ours needs a license from the Ministry of Information Industry," points out Li Yan," and only some 300 companies have them."
The type of license [email protected] was granted is unusual in the sense that it enables them to merge software activities with telecoms activities. Pure software companies do not have a telecoms license, while the telecoms companies do not have the specialized software that [email protected] has patented - and in any case prefer to focus on network management, says Feng Jun.
Internet Service Providers could also be a threat, but they do not have the license and they lack the client server communications software developed by [email protected]
Given the promise of the sector, it's not surprising that venture capitalists have been sniffing around. IDG, perhaps the biggest and most secretive VC investor in China, took a stake in the company in 2003, and threw another $10 million into the pot in April this year.
Turnover is small but growing rapidly. Last year, turnover amounted to Rmb 10 million ($1.2 million) and the partner predict it will rise to Rmb 30 million this year.
The founders may have discovered a real winner. The elegant simplicity of the business model is enticing, as it clearly was to IDG.
However, any further discussion, which in any case has been lengthy, is rendered impossible. Two long-haired student musicians go on stage and start to menacing moves with their guitars and the microphone. It's time for the two businessmen and the journalist to leave the bar to its original members.