Shanghai Whiz-kid: Bo Knows Auctions

By STEVEN SCHWANKERT

(Virtual China News -- Mar. 6) Eachnet's new offices on Shanghai's bustling Nanjing Road are organized for growth. Some corners of the company's workspace look empty. But if Eachnet's boy wonder Shao Yibo has any say, those areas will be filled with desks, computers and bright, young Internet auctioneers before too long.

Shao might even source the supplies -- and maybe someday the employees themselves -- through the very Web site he created.

Following the portal blitz that brought Internet pioneers like Sohu.com and Sina.com into the arena in 1997-1998, one of the favorite models to emerge from China's increasingly vertical market is the auction. While Shao (known sometimes by his abbreviated English handle, Bo) and others, like Steven Xi, the CEO of Santa Clara, California-based ClubCiti, do cite EBay's model and success as an inspiration, auctions just click with Chinese users. Shao acknowledges, for instance, that his business model is far from unique and that ClubCiti was operating its Hong Kong site for a year before Eachnet even launched.

Unlike North American shoppers, for whom bidding and bargaining is reserved for the flea market and the occasional charity event, Chinese consumers establish price through negotiation in an almost daily routine. Vegetables and meat, cell phones and real estate, are just some of the items that are bought and sold through variable pricing. Auction sites in China are moving this Chinese consumer habit online. Besides Eachnet and ClubCiti other sites with auctions include Netease/163.com, Coolbid.com, and lalasho.com.

Shao doesn't believe online auctions in China can count on more than one pot of gold at the end of the rainbow.

"In this market, this is winner take all," he said, quite calmly for someone involved in such a high stakes gamble. But then again, Eachnet currently claims approximately half of the current auction market. Indeed, the 26-year-old Shanghai native doesn't seem surprised by much.

Boy wonder in Boston

Sohu's Charles Zhang maybe the Internet's Chinese poster boy, but Shao is definitely its whiz kid. A national math champion at 13, Shao skipped his final year of high school in a country where college students wishing to change majors are generally stonewalled. He entered Harvard College, where he earned degrees in physics and electrical engineering, graduating summa cum laude. One of Shao's classmates at Harvard was Tony Hsieh, co-founder of LinkExchange, who at the tender age of 25 sold the company to Microsoft for an estimated $250 million in stock, and now heads up the Silicon Valley venture capital firm Venture Frogs .

Shao went on to work for Goldman Sachs and the Boston Consulting Group (BCG), which paid for him to attend Harvard Business School, where he received an MBA. He and 10 of his Chinese classmates, including Eachnet COO Tan Haiyin, authored a best-selling book about their experiences and education.

"We sold the first copy on Eachnet," Shao said, garnering a final sale price of almost $200. More than half of them, including Shao and Tan, are working for or founding Internet start-ups in China.

By the time of his graduation, in May, 1999, Shao joined the increasing stream of his comrades moving back to China to make their fortunes. It was an easy decision.

"I flew back the next day," he said, choosing not to linger in Boston. "In China, the e-commerce space is wide open," he said. For the former math champion, it was all about numbers.

"Shanghai's absolute numbers for [Internet] penetration are bigger than Boston's," Shao said, citing the fact that Boston proper has fewer Net surfers than central Shanghai. Shao had no second thoughts about leaving Boston.

"Shanghai is the e-commerce center of China," he said. True, the city by the sea has been named the pilot city for e-commerce in China by the central government, but Shao chose it for other reasons.

Honest dealings

"People in Shanghai have a business mentality," he added, echoing the sentiments of many Chinese and the increasing number of foreign firms who are setting up shop in Shanghai to escape the bureaucracy of Beijing.

Given his achievements, Shao is not rattled when it comes to playing in the high-stakes game of business-to-consumer and consumer-to-consumer e-commerce in China. During an interview over noodles he'd brought from home in a resealable container, he rarely raises his voice and is highly affable.

But Shao's calm demeanor changed to downright mean in the eyes of some of the guests attending a recent e-commerce conference in Shanghai. During a promotional spot his company earned as a conference sponsor, Shao posted a list of his competitors, highlighting their relative strengths and weaknesses. He described his chart and referred indirectly to the practices of "another company introduced at the conference yesterday" -- ClubCiti, also a conference sponsor. Shao detailed how one vendor on the site had posted listings for over 300 rings all in the same second, and how only a handful of the jewelry had received any bid. When he stepped down from the podium, several conference attendees criticized Shao for being unprofessional and even angry.

"I want honesty," Shao responded to one, stating he believes that Eachnet's competitors are doctoring their sales and user figures to make them appear more like his company.

Eachnet launched officially on September 10, 1999. By the end of last year, the company claimed 100,000 registered users, a number which has since more than doubled. The site currently facilitates transactions of RMB 20-30 million per month, with that number doubling every two to three months.

Shao believes that there is more to auctions - and more, specifically, to Eachnet -- than just copying EBay.

"Whoever figures [the auction market] out first...will be both EBay and Amazon," he said. As for his site's model, so far he's on track. While people wishing to sell their house, car, or cell phone can list their goods on the site and seek bids, part of Eachnet's attraction to both merchants and consumers is making the company's platform available to businesses as a meeting place. It's attractive to vendors who connect with savvy buyers without having to build their own Web sites or learn the technology; and buyers like Eachnet because it means a greater variety of products, giving them a choice between new goods and second-hand ones.

"Small problems become no problem"

Shao thinks Chinese consumers' lack of experience with mail-order buying is no barrier to e-commerce, but actually an opening.

"Local trading is not as big in the U.S.," Shao said. By allowing consumers to complete the transaction themselves offline, Eachnet creates trust by giving buyers and sellers a positive shopping experience. Focusing on local transactions also helps shoppers sift through offerings by eliminating those not in their region. Eachnet currently directs its services at China's major cities, especially Beijing, Shanghai, and Guangzhou, but is also reaching second tier cities like Chengdu, Nanjing, and Wuhan.

When a deal goes sour, such as when a seller refuses an agreed upon price or a buyer reneges on a purchase, Eachnet's 35-person telephone service center steps in to handle disputes. However, Shao said that such problems are rare and that most calls are questions regarding the site's offerings and functions.

"If you serve people, small problems become no problem," Shao said. Eachnet has already opened one service center in Shanghai's southeastern Xujiahui district, and plans more both in that city and in Beijing and Guangzhou.

Within its first six months of operation, Eachnet has produced some memorable sales, including the RMB 300,000 (US$37,500) house sold in Chengdu and the jeep that sold in Beijing just a few weeks ago. More practically, the site currently offers 2,000 cellular phones. So far there have been no offers of kidneys, weapons, or pornography, although "there was one person trying to sell her virginity." When notice of the sale was discovered by Eachnet staff, which Shao says monitors the site on a 24-hour basis, it was promptly deleted. The posting is believed to have been the work of a vengeful ex-boyfriend, but still the story makes Shao chuckle.

In his detached way, Shao talks about using Eachnet as if he were just one of the site's enthusiastic users and not its founder. He was tempted to bid on one of the 12 chefs that the site put on the block to cook Chinese New Year's Eve dinner at the winner's home. Most went for the low price of RMB 300 (US$36). Shao sold a watch that he bought offline for his girlfriend--she didn't like it and gave it back to him. He's even purchased Sichuan hotpot sauce. Try finding that on EBay.

At present Eachnet is not charging "most consumers," Shao said, declining to comment on who exactly pays to use the site but implying that Eachnet receives a service fee for larger items such as a house or car. Services such as online payment and offline delivery are due to start later this month. As Eachnet's services increase, customers will begin paying service charges for various functions. Short-term revenue comes from the businesses that use Eachnet's platform.

Not just any money

Having raised US$7 million so far from brand-name backers including AsiaTech Ventures, Orchid Asia, and JH Whitney, Eachnet is seeking another $30-40 million for its second round. Shao is not interested in taking just anyone's money.

"We're picking and choosing right now," he said. Investors must be "people who can help us," providing Eachnet with significant strategic value either through partnerships or other means. "I don't think we could have gotten here today without [the investors'] guidance and advice," Shao said, adding that he speaks to the investment firms weekly, some even daily.

The second round will be used for marketing, technology, and human resources, "in that order," Shao said. He also expects that Eachnet will make some acquisitions of "related businesses."

It's been so far, so good for Eachnet, but Shao knows that even if he does a perfect job, there are significant obstacles to overcome. Problems with e-commerce in China can't be narrowed to just one he said, citing distribution, payment, consumer trust, and service as the major issues facing online merchants. At least technology and a lack of products are no longer the problems they were six months ago.

Last week Beijing Youth Daily reported that 20 or more Chinese Internet companies would list on foreign stock exchanges this year. Eachnet was among them. Shao doesn't deny the intention, but downplays the importance of an IPO to the company.

"An IPO is a kind of gas station," he said, adding that building a business is all about the journey. "No one gets in their car just to drive to a gas station. The goal is to build a business. We seldom talk about an IPO." Still, lessons learned at Goldman Sachs and BCG are not lost on him. "An IPO provides a competitive advantage, it makes up for some mistakes," Shao said. However, he added that companies try to cover for too many errors with an IPO, and believes that the cash and publicity that a listing provides should not be wasted.

IPO or no IPO, Eachnet isn't waiting around for its coffers to overflow before pushing its own envelope. This week, the company plans to unveil a comprehensive list of partnerships with "big players" at a press conference in Beijing. In the meantime, users and industry watchers alike stand by and wait for Eachnet to raise the ante in China's auction market.

To reach Steven Schwankert: steven@virtualchina.com