Tuesday, June 27,
Technology / Page: 1
Dotcom builds on driving
ambition: Chinacars takes the best of both worlds.
Michael Logan, Technology Editor
In advanced economies such as
the United States, internet business is about upsetting the
established order, taking revenue from the bricks-and-mortar
incumbent, or - to call up a phrase seldom used since the
dotcom bust - 'disintermediating the middleman'.
On the mainland, however,
there are few paradigms to overturn. The free market economy
is still young and the internet is growing up alongside it.
For developed markets, the internet has meant upheaval to
old ways of doing business. But for emerging economies, the
Web is a chance to build efficiencies into new industrial
infrastructures from the outset.
This is how Chinacars.com
views the mainland car market. Private car ownership in
China is just 2 per cent of the population. The internet
penetration rate is not much higher at 7.3 per cent.
The business that positions
itself well in both sectors stands to benefit enormously.
'In China, you have to keep in mind that [the car
revolution] is just happening, and it's happening along with
the internet. You have a chance to combine two revolutions
in one and create a real powerhouse,' chief financial
officer Eric Wen said.
Car culture in the US has been
developing since 1908, when the first Model T rolled off
Henry Ford's assembly line. Since then, a number of
businesses have established themselves in that culture, such
as roadside assistance service AAA, magazines Motor Trend
and National Motorist, the Kelley Blue Book of used car
values and, more recently, e-commerce platforms eBay Motors
'Our goal is to duplicate the
automobile information economy that has existed in the
United States,' Mr Wen said.
'We are a Chinese equivalent
of four or five pieces in the US. We are the equivalent of
eBay Motors, plus AAA, plus Motor Trend, plus Progressive
Insurance and plus Yahoo! Map.'
Chinacars has big ambitions
for the sector. It aims to list on the Nasdaq Stock Market
by the second half of next year and wants to raise as much
as US$10 million from venture capitalists in the interim.
It is not the cash that
Chinacars necessarily needs - the company is owned by
Wanxiang Group, the largest car parts maker in China with
US$2 billion in annual sales - but it sees outside foreign
investment as validation of it business model ahead of any
Chinacars believes it can grow
earnings nearly 300 per cent to US$5.87 million by 2007,
pointing to figures from investment house UBS, which
estimated there would be 250 million private sedans on the
mainland by 2025. This figure would give China a car
penetration rate of just 16 per cent, far below the 75 per
cent the US enjoys today.
The company's primary revenue
stream has been content and services delivered to mobile
phones. Photos of women posing next to new cars at
exhibitions such as the Shanghai Auto Show accounted for
about 20 per cent of the company's wireless revenue.
Other business opportunities
include advertising: Chinacars is the No1 car portal on the
mainland and it hopes ad revenue will eventually account for
10 per cent of sales.
Logistics and GPS services for
the commercial sector are important, accounting for 44 per
Mr Wen said, however, that
Chinacars would emphasise two areas going forward. The first
is used car sales via an e-commerce platform.
'There isn't really a second-hand trading market today,' he
now, the second-hand trading car market is you just going
your friends, 'Who wants to buy a car?''
Chinacars plans to
differentiate itself from eBay and Alibaba.com by offering a
car evaluation service similar to the Kelley Blue Book.
The second growth area is an
offline business - the China Car Club - which will provide
roadside assistance and discounts at restaurants and petrol
Offline contact was important
because Chinacars' customers preferred to be behind the
wheels of their cars than at their computers.
'In order to reach the
consumer, we have to provide all touch points ... not only
when they are facing a PC but also when they are in a car,'
Mr Wen said.
Capital, a Shanghai based early stage venture capital fund,
is both financial advisor and investor in Chinacars.
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