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Although Mark Zhang didn’t found his company from his parents’ garage, there are echoes of the foundation stories of all the big US internet start-ups.
In 2008, Zhang and his university classmate Kang Jia had just watched the 1999 documentary Pirates of Silicon Valley. The film charts the rivalry between Steve Jobs and Bill Gates that ultimately led to the development of the personal computer.
“We were so impressed,” says Zhang Xuhao, who also goes by the English name Mark, as he retells the story in his office on the outskirts of Shanghai. “We started talking about how we could use technology and the internet to change the world. We were talking for so long we got hungry, so we had the idea of where to start.”
The online food delivery business Zhang and Kang set up after that marathon brainstorming session is now valued at an estimated $US4.5 billion ($6.1 billion), making it a strong contender in the search for China’s next Alibaba (which, incidentally, is one of its backers).
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Alibaba, the online marketplace founded by Jack Ma, has grown into the world’s biggest retail platform and is China’s most recognised technology success story. However, the likes of Tencent, which operates popular messaging service WeChat, and e-commerce rival JD.com are fast catching up.
The success of Alibaba and the companies that have followed in its wake show that even though China might have embraced the internet later than the US, it has arguably done so with more gusto. China is now the largest mobile payments market in the world and has more than 700 million smartphone users.
Such scale has allowed Zhang and his company Ele.me, which means “Are you hungry?” in Mandarin, to connect customers to about 1 million restaurants and shops in 1400 cities and towns in China. But in the early days, scale was a key challenge for the company.
Start small
The initial problem they faced was many of the restaurants and cafes around Shanghai’s Jiao Tong University didn’t even have computers, let alone online ordering systems, so they spent the next two to three years setting them up with the right equipment and teaching them how to use it.
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They started with about 40 small restaurants, doing the delivery themselves on motorbikes. (Zhang’s first delivery bike is on display in the company’s reception area.) Now they have an army of tens of thousands of bike-riding couriers, who ferry food, as well as groceries and flowers, nationwide. On their best day the company received more than 9 million orders.
“Our goal is that everything can be delivered within 30 minutes,” explains Zhang. “Half of the orders are delivered by our riders and the rest by the restaurants themselves.
“Our development will be similar to Amazon,” he says. “At the beginning they only sold books online, then they developed a logistics system, then they expanded their product offering. We will follow that.”
Ele.me has been locked in a battle for control of the food delivery business with two of the country’s internet giants, Meituan and Baidu, which set up competing services. Ele.me claims to have the biggest share of the market at almost 35 per cent in 2016, just ahead of Meituan.
At this stage, Zhang is focused on mainland China, although he is looking at expanding into Singapore, Hong Kong and Taiwan. Europe and the US are less appealing, he says, explaining it all comes down to the number of potential customers.
China has more than 100 cities of over 1 million people, while the US has just 10.
“The China market is huge,” he says. “In cities with a population over 1 million, the delivery business works very, very well.”
While there are no specific plans for an initial public offering, Zhang says he would like it to happen some time in 2018 because it will be a “milestone year”, the company’s 10th in operation.
Golden year
Unlike Mark Zhang, Jane Sun didn’t found Ctrip, the company she is running. But she has been integral to the rapid growth of the world’s second-biggest online travel agency by market value as a senior executive for the past 12 years. Last November, after holding the roles of chief financial officer and co-president, Sun was entrusted by Ctrip’s founders to steer the group through its next leg of expansion.
When she started with the company in 2005, 100 per cent of its bookings were for Chinese domestic travel. It had listed a couple of years before with a valuation of about $US300 million. These days, up to a third of its bookings are Chinese people looking to travel overseas, and the group is now worth closer to $US30 billion. The average age of its 33,000 employees is just 29. Sun believes the company’s best results are ahead.
“The golden year for international travel is yet to come,” she told the Shanghai Foreign Correspondents Club in April.
One of Ctrip’s recent promotions was a high-end package for three months’ travel around the world at a total cost of $US200,000. Sun wasn’t sure it would sell because she believed the people with that much money to spend might not have the time. But the 22 places sold in just 17 seconds. “The buying power in China is rising,” she says.
Though Ctrip offers the lowest airfares and hotel prices on its site, Sun insists the company doesn’t brand itself that way. “The key is not a price war,” she explains. “Whichever company is the most efficient will win.”
Sun was born in Shanghai and went to Peking University in Beijing just a few years before the 1989 Tiananmen Square protests. She moved to the US amid the chaos after winning a scholarship to the University of Florida, and then went on to work for accounting firm KPMG in Silicon Valley.
After an eight-year stint as a senior executive at an American semiconductor equipment maker, she relocated back to China with her husband, John Wu (who held significant roles at Yahoo early on and then Alibaba before moving into finance), and joined Ctrip.
The travel company is on its own internal hunt for the next Jack Ma. The company runs what it calls a baby tiger program. It has 30 business units that are treated by the group as separately listed companies, with virtual shares that go up and down in value based on revenue and profit. Each of these units has its own chief executive, chief financial officer and chief technology officer.
This incubation of businesses allows Ctrip to stay competitive in the marketplace, says Sun. “Every year, there are many newcomers. Many come and many fail. Our staff are well trained to see these newcomers and use our strengths to push them down.”
Extraordinary coup
One early employee of Ctrip was Amalisia Zhang, but she left after a few years to start her own company, an online agency focused on business travellers. She sold that after a short time and moved on. Zhang’s latest venture is the ASX-listed 99 Wuxian, which creates platforms for clients, allowing their customers to buy goods or services via an app.
What makes the 43-year-old fintech entrepreneur and her company stand out is that in just a few years she has managed to sign up nine of China’s top 10 banks as clients, along with most of the big insurance groups.
While this was helped along by good connections, or guanxi (her father was vice mayor of major commercial city Shenzhen for 10 years and a top executive at the Bank of China), it is still an extraordinary coup for a private sector start-up. “I don’t think the guanxi matters a lot like in the old days, but I won’t deny it helped me to knock on doors at the beginning,” she says. “People use your services not because you have good guanxi but because you can deliver on what you promise.”
Zhang demonstrates what 99 Wuxian does by clicking into the Agricultural Bank of China app on her phone. In a few swift moves she is in the lifestyle and shopping section and shows me how a bank customer can top up their petrol card, pay their phone bill or buy a pair of shoes.
99 Wuxian is making all of that happen by signing up merchants and service providers and designing a user-friendly interface. The company’s commerce platform is then embedded into the client’s app.
“There are not many companies like us in Australia or even in Europe or the US. It’s unique in China right now. We are a white-label m-commerce platform but we embed the platform into the apps of our clients, allowing the customer to purchase goods and services.
“In China, customer behaviour is shifting so quickly,” explains Zhang. “As long as you provide convenient solutions for your customer, you can do well.
“A few years ago, when we listed in Australia, we were the third-biggest player in mobile payments. But if you look at the market right now, there are so many new players.”
That’s why Zhang has started to focus on customer loyalty and employee reward programs. Here, she believes her company can be the biggest player, not just one of the top 10.
Zhang explains that at the mid-autumn festival, which takes place in October, employers throughout China traditionally give their staff moon cakes, a special type of sweet. However, in recent years staff have preferred to receive reward points which they can use to pay their utility bills or top up either their phone credit or petrol cards.
A potentially more lucrative market is loyalty programs. Every time bank customers use a credit card or buy a related product, they receive points. “In 2015, China Construction Bank’s credit card rewards point redemption was sitting at around 1.5 billion yuan. That’s only one bank. It’s a big amount and the pool of money is growing every year.”
Although the potential is there, Zhang says investors need to be patient. She plans to build the company’s scalability during the next two years and then focus on growing profits in the three years after that.
“You have to be patient with a technology company like us,” she says. “We are not a traditional one. The whole company has only been established since 2013.
“Any of these businesses, if you look at the successful ones, either Ctrip or Alibaba or even Tencent, their success comes after they have been established for eight or 10 years.”
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