Can etang Stamp a Web Brand on China?

The dilemma has faced capitalists for centuries: how to overcome formidable obstacles
and sell to the massive population in China. So can a pair of Chinese natives who met at Harvard Business School
use their Bay State business to stamp an Internet brand on China’s wired generation?


The 9-month-old business is etang, and its founders, Haisong Tang of Shanghai and Dave Chang of Beijing, have
joined a crowded field of start-ups looking to profit from the Chinese technology boom. Explosion evidence is
everywhere: a quadrupling of Internet users last year to 9 million; 43 million cell phone owners; and predictions of
10-fold growth in Net users within three years, making a market of $6.5 billion.


Like business leaders in so many fields before them, Tang and Chang, who met through their Harvard biz school
connection in 1996, started salivating at the opportunities offered by a market of 1.2 billion. After a series of
conversations that began a year ago, they decided to create a Chinese-language Web portal and target it
to the country’s educated, techno-savvy generation of 18- to 35-year-olds, who represent almost 9 in 10 of
China’s Net users.


As Chang describes it, etang, which is based in Concord, Mass., with offices in Shanghai, Beijing and Guangzhou,
was conceived to take advantage of the Internet’s ability to do something practically unprecedented in China:
develop a recognizable, home-grown corporate brand.


“In terms of brand awareness, China is like a blank sheet of paper,” Chang said. “People may know some foreign
brands, but there are almost no well-known Chinese brands. The Internet presents a tremendous opportunity to
reach this generation — young, educated, urban, relatively wealthy and sophisticated — more easily. This is a
business opportunity unparalleled in history.”


Of course, etang is not alone. From e-commerce companies (Alibaba.com, 8848.com, Eachnet.com) to portals
(Netease, chinadotcom (CHINA)) to Internet service providers (more than 300) to infrastructure plays,
start-ups by the score are racing to be first through China’s Internet door.


Duncan Clark, a partner in BDA China Ltd., a Beijing-based Internet consulting firm, likened the Internet to “an
asteroid heading toward Asia.” And he brushed aside the typical concerns raised about developing Net
businesses in China.


“The big obstacles are being overcome,” Clark said, noting that investment capital is flowing in,
telecommunications infrastructure is being built at a furious pace, and phone and ISP charges are dropping.


Clark, along with other members of a panel at a weekend Harvard Business School conference on Asia, was also
sanguine about two other potential Net hurdles in China: e-commerce payment and government regu

lation.


Anthony Chang, an executive with Web startup Runrun.com (and no relation to etang’s Dave Chang), predicted
that a payment system for goods ordered online in China would be developed within a year. While credit card use
is non-existent, Chang and Clark said a melange of methods are already being used: cash-on-delivery, bank
payments, collections by postal agents, even collections at local convenience stores.


The watchful eye of the communist government may pose a stiffer challenge. Just last week, the Chinese
announced a trio of regulations of concern to Net entrepreneurs: the need for approval from three state agencies
when issuing stock; rules governing release of “state secrets” through news services or chat rooms; and the need
to register encryption software with the government, potentially allowing e-mail and e-commerce to be tracked.


Clark described the presence of Chinese regulators as a “cloud on the horizon that will always be with us,” but he
said the government was unlikely to choke off the burgeoning industry.


etang’s Chang agreed, saying that he expects problems ahead, but that “business is way ahead of regulators on this, and it’s natural for the Chinese government to feel it must come to
grips with the Net.”


To stay on the right side of regulators, Chang said, etang would be vigilant about avoiding content linked to
pornography, gambling and politics.


Chang said the company established a U.S. headquarters to maintain access to capital, labor and technical and marketing partnerships. Among etang’s achievements to date: almost $45 million in two rounds of venture funding, with a $40 million
round last month led by J.W. Seligman & Co. and Sycamore Partners.

In addition to partnerships with Western
corporations like Motorola, L’Oreal, DeBeers and brightinfo.com, etang has linked with the second biggest ISP in
China, an educational network that provides free access to students. And the founders’ Harvard and software
business links have helped them attract management and technical talent.


Playing off the heritage of the Red Chinese, the aging generation that grew up with Mao and without capitalism,
Tang and Chang have dubbed etang’s younger market “generation yellow.” Everything the company does, from its
yellow logo to its offline ads to its website, reiterates the attempt to create “an emotional identity” with the younger
set.


Chang added that etang’s yellow icon was meant to represent, among other significances, “optimism and
belief in progress.”


More concretely, the portal’s offerings reflect the generation’s concerns: career advancement (a job site), higher
education (a series of college sites), growing control of wealth (personal finance pages) and social life (a series of
city guides).


Whether the firm can carve a niche to successfully compete against well-funded networks like chinadotcom, which
has a partnership deal with America Online and a post-split stock price around $80 a share, remains to be seen. For now, Tang and Ch

ang exude sunny optimism.

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