Husband and wife make ChinaCache prosper

Husband and wife team Song Wang and Jean Kou are not 'serial entrepreneurs', the term which describes businessmen in the West who specialize in launching start-ups. Rather, the aim is to make CDN (content delivery network)-focused ChinaCache a 100 year old company and as a first step, to guide it towards a Nasdaq-listing.

'We're at the stage where we are building up the company, and for that we need investment in management and technology. There's a long way to go yet," comments Song.

That will require somewhat of a mind shift from the two, since so far they have had to take big bets, think fast and act nimbly to get as far as they have. Like many entrepreneurs before them, the Wangs saw another company making a lot of money for tasks which they thought they could replicate fairly easily.

That crystallizing moment came when they were acting as the China distribution agent of a company named Priority Call Management. PCM was eventually sold to another company called LHS for over $150 million, of which the Wangs did not see a cent.

"Yes, it was a bit of a shock. PCM had worldwide sales of $40 million and we contributed 25% of that. It was clear we had to move up the value chain," comments Song Wang.

At the time, the company had not focused on CDN (a technology which ensures that websites do not crash when exposed to large amounts of traffic), but was still feeling its way forward as agents for a variety of US companies selling into China, including Hughes Networks Systems.

In retrospect, Wang estimates that what helped him most in the early days was his ability to see and grasp an opportunity, and to learn fast enough how to put the plan into effect.

"I didn't have a background in CDN. But it was clear that Internet delivery in China was far too slow. After seeing the technology Hughes was providing for webcasts we got the idea of using satellites to improve internet connections in China," explains Song.

Having seen the huge gap in the market, the couple then had to get to grips with the technology - a much more difficult process than initially envisaged, they concede.

Still, what had looked a promising business idea eventually turned into something more substantial and the company, now headquartered in a bustling Beijing office, is looking for the capital crucial to take it to the next level.

Interestingly, Wang does not come from an entrepreneurial family. His grandfather was a professor at Beijing University and his great-grandfather died in an early uprising against Qing rule at the beginning of the 20th century.

That meant his first forays into business were rather bruising.

At one point he was cheated out of $200,000, for example. The theft came about because Wang, under the forex remittance rules existing at the time, did not have the right to wire the funds from the Chinese client back to the US manufacturer for whom they were acting.

Instead, the funds had to go through an approved import-export agency. This is typical of the existence of a regulatory maze whose primary purpose seems to be to ensure that the private sector cooperates with the government agencies.

Unfortunately, the import-export agency's director diverted the money to his own pocket and disappeared.

"After that, I became very careful about tracking the money and scanning contracts for potential abuse. Since then, we've also got an in-house lawyer and accounting staff to look after us," says Wang.

The funds were never recovered, since China's legal system is poorly equipped to deal with litigation.

Wang says optimistically that the legal system has improved since then.

"For a long time it was like the US Wild West. You yourself had to enforce the law. But we've noticed a great improvement in the past few years," he notes. "Our current clients are reliable and everybody sticks to contracts."

ChinaCache is a descendant of the Beijing Blue IT Technologies, the parent company which was the vehicle used for the early ventures. The couple own the vast majority of the shares and so far there has been no venture capital investment, although on the eve of a trip to visit to investors in the US, the couple hope that will change.

The division of labour between the two seems fairly traditional. Song Wang, who graduated from the prestigious China Foreign Affairs University, is responsible for sales and technology. That is based on his tech background in software and application development and a stint as strategic marketing consultant at Boston Technology.

His wife Jean oversees the company's human resources development and strategic cooperaton. Her background, after graduating from Beijing Jiaotung University, is in sales.

ChinaCache turned a profit in 2003 and serves 50 blue chip clients with 60 employees via 45 server nodes (which accelerate the content delivery to the user) over 30 mainland cities.

Probably most people will never have heard of the company, since its role is essentially back office.

But the company has some important achievements under its belt. Just two years after being set up in 2002, ChinaCache was selected to support the Olympic Games application programme - a matter of enormous interest on the mainland. Then, it provided support to the ministry of health during the devastating SARS outbreak in 2003. Finally, last year, ChinaCache supplied 6.8 GB of bandwith, the highest ever recorded in China, to power the webcast of the CCTV lunar new year evening show, possibly the most watched show on Chinese TV every year.

Those achievements have brought their own rewards. Revenue, says Wang, has doubled over the past two years, and is expected to double again over the next two years. That profitability comes despite the fact the company has high capital expenditure from building out the nation-wide server network.

Most the revenue still comes from portal clients such as Sohu and Netease, however, rather than the dramatic but one-off events such as the football world cup and national emergencies.

However, that is changing.

Apart from supporting the nation's biggest websites, the company is also exploring Chinese e-commerce. The company can play a role in ensuring that online payments systems are secure and able to take heavy traffic during peak period, says Wang.

Although online payments have been plagued by low credit card usage in China, that situation is gradually changing and the company claims that 21% of urban Chinese purchased at least one item online in 2003.

"That can only grow as the domestic payments infrastructure improves," reckons Wang.

Indeed, compared to just five years there has been an explosion in online shopping facilities. Where once e-commerce website we restricted to lists of products you had to go out to buy, now online shoppers can join auctions on the Chinese version of eBay and homegrown rival Taobao.com as well as book plane tickets and hotels on Ctrip.com.

On the back of these changes, the contribution from e-commerce and corporate customers has increased from 11% and 5% to 24% and 9% respectively in one year.

"The share of overall revenue from the portals has dropped, but the absolute amount has remained pretty steady," comments Wang.

For ChinaCache everything seems set for the next round of growth.

Indeed, over Christmas, the management flew to the US to initiate talks with venture capitalist.

"We encountered a lot of interest. But the general response was that we still needed to grow the scale of the company before they were willing to invest," comments Wang Song.

The Nasdaq listing is thus still some way off. Before they get there, it is clear the husband and wife team will need to will answer the question of whether Song and Jean are as successful at running a company, as they were at seeing the niche for one to flourish.