The story of GIGM:
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TAIWAN is no longer just a center for high-tech manufacturing. Its software engineers and entrepreneurs are turning it into a dot-com startup machine. In the forefront of this movement is Jeffrey Koo and his Internet empire. By Neel Chowdhury
As Jeffrey Koo Jr. tells it, he stumbled onto the Web through dumb luck. About three years ago, just before Asia's financial crisis hit, this young heir to Taiwan's venerable conglomerate, the Koos Group, was poised to invest the $430 million in cash he had raised for his new venture capital fund in all sorts of old-economy companies. Luckily for Koo, disaster struck. "A week after our fund closed, Thailand collapsed," recalls Koo. "I couldn't do a single investment for more than six months. My father insisted we just watch."
As Koo scanned Asia's horizons for deals amid the financial carnage, his eye kept wandering to the fortunes being made by Asians in Silicon Valley. "I knew Softbank's Masayoshi Son and Yahoo's Jerry Yang personally, and I was astounded by their success," Koo says.
Today the 35-year-old Koo has become the Internet king of Taiwan. He controls Bex.com, an online company that acts as middleman between Western computer makers, such as IBM and Hewlett-Packard, and their Asian suppliers. He also founded GigaMedia, which delivers broadband services like online karaoke and on-demand movies to PCs (and, in about six months, to televisions and mobile phones as well). "We'd love to be the Chinese AOL Time Warner," he declares.
It's no surprise that Koo has gotten off to such a quick start. After all, Taiwan has been a hotbed for other high-tech businesses, like PC screens and microchips; why should e-commerce be any different? In fact, Taiwan has nourished thousands of new e-company startups over the past two years by offering low corporate taxes, a minimum of red tape, and as much as $3 billion in venture capital raised by more than 100 private funds. That money is chasing a fast-growing market of Internet users. Today nearly two million people use the Net, giving Taiwan the fourth-largest online population in Asia. Goldman Sachs estimates the pool will grow on average 37% annually for the next three years.
Jeffrey Koo was in a great position to capitalize on these trends. He is the scion of a tightly controlled family empire that got its start in the 19th century on the rugged western coast of Taiwan, where Koo ancestors loaded gems and timber onto the ships of passing Dutch and Portuguese traders. Over the years the family grew into a powerhouse, controlling not only trade and banking but media and broadcasting as well. Koo believed he could meld his family's media empire with the Web and create a blockbuster Internet company.
This Wharton MBA says that the idea for his new company was hatched in 1998 after he traveled to the U.S. to meet with Microsoft's Bill Gates and Steve Ballmer. As Koo recalls, "The visit to Microsoft was a turning point. I saw Microsoft's vision for cable in the U.S., and that really opened my eyes." Like Gates, who has spent billions buying cable systems in the U.S. to control the fat pipes that will carry broadband services, Koo is also betting big on cable TV-based and wireless broadband services. But unlike Gates, who must do deals with other cable giants like Time Warner and AT&T to reach a critical mass of customers, the Koos family singlehandedly owns big stakes in Taiwan's cable television system. That made it easy for Koo to persuade local cable operators to carry GigaMedia's broadband service. In less than a year he signed up 100,000 customers out of 3.4 million cable subscribers in Taiwan.
In fact, Microsoft was so impressed with GigaMedia that in mid-1999 it bought 9% of the company for $35 million, a stake now worth upwards of $300 million, thanks to Giga's successful initial public offering on Nasdaq last February. The Koos' 60% stake in GigaMedia, whose stock has more than doubled since the IPO, is now worth more than $2 billion. "We can do a lot of things with this funny money," says Koo, perhaps only partly in jest. Acquiring cool content, though, won't be a big expense. Because the Koos also own Taiwan's most popular television and radio stations, as well as a gaggle of cable-based sports and news channels, they were able to stuff GigaMedia with Chinese-language content almost from the start. Being based in Taiwan, a fountainhead of pop music and movies for the entire Chinese-speaking world (the "Hollywood of the East," as GigaMedia CEO Raymond Chang describes it), also means there's a plethora of relatively cheap content providers nearby.
Here's the real clincher, though. Because the Koos-owned Chinatrust bank is one of the biggest banks and credit card issuers in Taiwan, Koo has managed to integrate his e-commerce billing systems with his customers' bank accounts almost seamlessly, a feat that has eluded most Web ventures in Asia. Says GigaMedia's Chang: "Chinatrust has played a very important role in the growth of GigaMedia. To make e-commerce safe over our network, we needed a strong financial institution like them behind us."
There's just one tiny problem for Koo. He lives in Hong Kong, and his name is Richard Li. Since Li's audacious acquisition of Cable & Wireless Hong Kong Telecom (a $35 billion bauble, purchased largely with stock from his company, Pacific Century Cyberworks), Li's business model is beginning to mirror Koo's.
Both men are betting big on broadband. And both realize that to create killer content is not enough. Both must also possess the cable and telecom infrastructure that will carry the content. The question is, though: As both Koo and Li venture out of their home turf and try to grab the Greater China market, an ambition neither has been shy about, who will walk away with the big prize of China?
By 2003, China will be the third-largest e-commerce market in Asia, according to International Data Corp., with annual e-commerce sales exceeding $3.8 billion. More significant, analysts predict that most of that coming e-commerce traffic in China will be conducted over broadband devices like mobile phones and televisions. Why? Partly out of a cultural affinity for high-tech gadgets and partly because PCs are still a novelty item in most Chinese households, whereas mobile phones and televisions are not. (There are 50 million mobile-phone users and 450 million television sets in China, vs. only 20 million PCs, estimates Credit Suisse First Boston.) If Koo and Li can grab a big chunk of broadband e-commerce in China--and so far their Chinese-language content has made them the most powerful players in this market--both could walk away with a fortune.
When it comes to attacking the Chinese market--not to mention the rest of Asia-- Koo has an extra arrow in his quiver. Koo's Bex.com, headquartered in Singapore, is positioning itself as an indispensable middleman between Asia and the rest of the world. The company, with revenues in 1999 of just under $30 million (the company is private and won't release profits), handles online what can be an arduous billing and payment process between Asian suppliers and Western multinationals.
The company hopes to capitalize on the red-hot computer and electronics market. Of Singapore's $100 billion in exports last year, for example, 66% was in electronic goods. Even in Indonesia, Asia's economic laggard, a tenth of all exports are electronics-related. For Asian economies, hugely dependent on a constant two-way flow of cash and components, middleman services are vital. "America is the biggest buyer of electronic goods in the world, and Asia is the biggest seller," Koo says. "Bex is where they will meet."
Here's why he thinks so. Take, for example, Tatung, a diversified Taiwanese electronics supplier. Recently it got an order for color monitors from IBM. Because Big Blue needed those monitors quickly to graft them onto its laptops before expensive inventory piled up, Tatung turned to Bex, which has devised an Internet-based payment system allowing Tatung to bypass time-consuming letters of credit and invoicing hassles. According to Bex CEO Yong Voon Fee, Bex's Internet service will eventually replace the older electronic data interchange (EDI) systems that now largely control supply-chain management in Asia. If Bex fulfills that promise (a Nasdaq listing is in the cards before the end of this year), it could be the leader in a critical niche of Asian B2B e-commerce. So far the odds look good. Says Pratik Gupta, a Singapore-based Asian Internet analyst for Salomon Smith Barney: "Bex is in the same league as Ariba and Commerce One in the U.S."
One thing the story of Jeffrey Koo suggests is that Taiwan is no longer just a maker of chips and PCs. Today the island is brimming with talented software engineers and entrepreneurs who are likely to transform the place into a global Internet player. And Koo wouldn't have it any other way. |
