China's Evolution Toward Freedom.

by Natalie Pace.

A candid interview with one of the most respected CEOs in mainland China, Dr. Charles Zhang, Chairman and CEO, Sohu.com.



Dr. Charles Zhang Ringing the Opening Bell at NASDAQ © Copyright 2006, The Nasdaq Stock Market, Inc. Reprinted with permission

Sohu.com is one of the most trafficked sites in the world, and Dr. Charles Zhang, as the Chairman and CEO of the publicly traded company, is as respected and influential in Asia as Dr. Eric Schmidt (Google's CEO) is here in the U.S. As with many Internet CEOs, Dr. Zhang has lofty ideas about how his company will innovate and leave the competition in the dust, attract more visitors, and perhaps license the patented technology, as a result. Unlike most other Internet entrepreneurs, Dr. Zhang consistently delivers up results. So, what innovation is going to blow the world out of the water in June 2007? Read on to find out.

Under the aegis of Dr. Zhang, Sohu.com was listed on the NASDAQ in the U.S. back in 2000, became the official website of the 2008 Beijing Olympics, and is now preparing to become a major Internet-based broadcasting company, with streaming video, ala YouTube. As China ramps up to show its best face to the world in 2008, Sohu.com will surely play a big role in Chinese speaking communities around the globe. The company continues to post steady growth, and is on track to ring up 30% higher full-year revenues over last year. By as early as June 2007, the site is poised to become a major broadcaster in China, according to Dr. Zhang.

On December 5, 2006, I spoke with Dr. Zhang, discussing streaming media video, why grey hairs don't belong in the Internet company's boardroom, the new "Confucius" economy in China and more. Dr. Zhang's candid insights on the amazing transformation of the Chinese economy and what inspired the shift toward a more open market in the minds of former Communist officials, allays fears of a "conspiracy" and reveals instead the honest birthing of a nation evolving toward greater freedom. Discover what Dr. Zhang believes to be the most important contributions to the evolving mindset of government officials below.



Natalie Pace: Please describe the main areas that your company makes money these days for our readers?

Dr. Charles Zhang: Sohu.com is a portal. The portal provides news -- political, real estate, entertainment, sports - with a wide range of content every day. We have become the main source of news in China. We are also like Yahoo and Google, with search, email, participating in message boards and clubs and communities. Recently blogs have become very popular, and with broadband, there is video content. Sohu.com has become a multi-media platform and an interactive community platform.

So, you're looking to be the Chinese portal for social networking and video content - ala YouTube and MySpace - in addition to being a news provider and the official website of the 2008 Beijing Olympics?

Yes, eventually. It's the future of News Corp, Time Warner, YouTube, Yahoo and Sohu.

And yet the technology is very expensive. Myspace and YouTube are two of the fastest growing businesses in the United States. Getting them to turn a profit, when there is so much cost associated with the technology of running these media-rich sites, is the trick.

Yes, but in China, there is streaming media technology, which is leading the world. We haven't allowed individuals to upload in China yet, so there was more incentive to develop the streaming technology.

Are you concerned that another Chinese website or a startup might beat Sohu to the punch, like YouTube jumped into the market and beat all of the major US portals in under 18 months of doing business?

In China, the startups have all kinds of challenges because of language problems. In the U.S., with YouTube and MySpace, there is no language problem. With experienced persons on the board and management of these startups in the US, you can quickly rise up to dominance, and it is very hard for the traditional company, like Yahoo, to catch up. In China, the new startups have a high fatality rate because of the language issue, access to capital, investor relations and board management.

What are the new "policy changes" with the mobile providers and how will that affect Sohu revenue going forward?

The most important application of the mobile phone is really point-to-point -- sending messages. We have nothing to do with that. That is provided by the operators. We make money on the value added services - like ring tones and jokes. I think until there is more wealth, a bargain-basement mobile network is widely established, and advertising or other value-added services emerge, the wireless revenue will stay flat, or decline for a while. It is a less important part of our business, and only a quarter of our revenue now. Our business continues to be centered around the personal computer, with wireless and brand advertising. There are so many people here, so we are able to sell advertising. The mobile screen is too small for advertising.

However, with phones becoming handheld computers, advertising and other revenue has got to be just around the corner.

The sheer size of the mobile usage is enormous. The number of mobile handsets is at half a billion. Most of the exposure to the mobile phone is 12 hours a day. You're probably by your PC only two hours a day. The PC has a more rich application, but we are experimenting with how to integrate it seamlessly to your phone. Reading, writing your blogsÉ The PC is like the aircraft carrier in the war, and then you have the F-16. The mobile phone is like the F-16. When you leave the ship, you are still communicating with the ship, and all of the activity that you set up there.

What is your traffic like?

We have 250 million page downloads per day. It includes Sohu.com, and six other websites.

What new products are you launching?

We are launching a new version of the search engine, Sogou, version 3.0, which is more powerful than the existing one. We'll retrieve 10 billion pages, and also a much more relevant and intelligent search than the existing one by the Google search engine. This is not just stand-alone search. It will also power Sohu, so that the text communities and the search engine will help to create multi level text and improve the reading experience.

Hmmm. A new search engine sounds interesting, but slightly 2004. What about social networking and video?

Blogs are our MySpace strategy. Young people will use their blog as their own space. They will do their search and see their music, everything, on their blogs. We have this seamlessly integrated platform on a person's blog.

When do you plan to launch videos?

By June next year, we will create a good YouTube experience. For the last three years, we have become a technology driven company. Our focus on technology will demonstrate its strength and power. It's almost like a submarine that will emerge from the ocean in June of next year.

That's a very strong statement. So you've been navigating under the radar, so to speak, but may actually blow the competitors out of the water in June?

In the early years, we were good at marketing and brand building. We introduced China to the US, but we were weak on the Internet technology. Over the past few years, we've hired the best minds in China. This program will show our strength in June.

Will the U.S. companies be impressed enough with your streaming video technology to license it?

We are leading in China in video streaming. This technology is leading the world, and could be used by U.S. companies. YouTube costs so much because of bandwidth, storage and capacity. This would be eliminated by video streaming.

YouTube is free and doesn't have any advertising on the site. How will video streaming generate revenue for Sohu?

The streaming technology gives us the opportunity to be the PC driven, telecom and broadcasting platform that will replace the television. Because of the relatively less competitive nature of Chinese TV, which is state-owed, that gives us the opportunity to become a major broadcasting company.

Will video streaming and Sohu as the "major broadcasting company" be up and running for the 2008 Beijing Olympics? (Editor's note: Sohu.com is the official website for the Beijing Olympics.)

Definitely we will broadcast web casts of the Beijing Olympics on the website. Besides that, we'll have the function to generate maps, and offer hotel reservations and registrations around the world. 2007 will be a year with many Olympic related events, and the whole of China is really excited. Our cameras will be broadcasting many important events. One of the events is the passing of the torch. We'll report this all of the way, including many exciting, important places, and the selection of the runners. We'll report the sports events through three means: one is text-based media -- articles; secondly through interactivity, with blogs and communities; and third is the broadcasting. Our camera will film and capture all of these athletes talking and everything behind the scenes.

What has been your greatest challenge or disappointment and/or what would you have done differently?

We went public in the US in 2000. I think the biggest problem for an Internet company from China listed on the NASDAQ is that the traditional school of thought management to an Internet company doesn't apply, in terms of management, what kind of management is important, and what kind of background and training management should have. The costs, quarterly earnings, business model -- all of these traditional management styles apply to the Internet. But I don't think it should be like that. I think, especially across cultures, the NASDAQ and public companies' requirements and the investors' opinions, here in China are regarded as holy and serious. The people don't ask why, they just do it. People just do those things in hiring, in corporate environment. Everyone is trying to learn from U.S. companies, and hire people with grey hair and people who talk business and time span, but these go against the Internet company. This is missing the point. You are spending time on things that are secondary. What are most important are product and the user experience. When you have a product that is 10% better than the competition, that will affect the user base and you will become 10 times more popular than the other one.

Wow. You're right. You've just described the success of MySpace.com and their hip, young executive team.

If you care for this quarter and the next, and the other company creates just a better product, they will become ten times bigger! This is the biggest challenge for an Internet company in China, and in the US. I don't know much of what is going on with Yahoo, but I think Yahoo has a problem with its technology. If you look at China and the most competitive companies now and what they were doing five years ago, you have all these mistakes that were made and corrected. We are still in existence. Many companies make short-term mistakes and are just all gone. The Internet company is a different animal simply because of this exponential networking fact, and it should be managed differently.

What quality do you possess that has most lead to your success?

I'm a good person. I treat people fair. I have a team who really work hard for me and are very loyal. Second of all, I think through things very deeply. I try to understand things in a very broad framework -- from social phenomena, society, people behavior -- and I also try to understand myself. That enables me to identify and to understand why we were successful in becoming very famous and such a powerful brand. It gives me the ability to meditate and to change. It's why I want to change the company into a Technology-driven company. I have to make sure the [other] influence gets gradually erased -- the influence of the short-term talkers -- including restructuring the board and hiring the right people who understand this philosophy. Am I spending time meeting reporters and clients, or our engineers and our users to understand the product better?

You were one of the first mainland Chinese companies to become listed on the NASDAQ. Clearly, you are on the leading edge of the political and social change occurring in China. What prompted China to open up to a market economy?

The Internet demands China's freedom so much beyond people's imagination. This advancement basically means that everyone has access to information. This gradual education and change of habits happened everywhere, not only in the private sector, but with government officials, too. The government has a rule that if you are 60 years old, you have to retire, so the government leaders are very young. The officials are the same age as we are. They are very open-minded and they are trying to learn.

You've called the new focus of the Chinese government "Confucius." How does a Confucius government differ from Communism and Capitalism?

In China, everything works in harmony. We have moral obligations to the country, and it's like a big family. The market economy and Capitalism are really the common assets of humankind. Confucius is more of a philosophical approach -- how this person benefits versus society versus the collective group -- whereas the West is based on individualism. Even Communism was imported from the West. In the 1920s, when the Communist party was established in China, it was Mao and a group of Chinese intellectuals trying to save China. They just jumped onto the Communist Theory. Even then, it was still a Confucius government, where the individual is still considered as part of a collective nation.

How does this cultural ethos affect your management style and the productivity of the average worker?

In terms of commitment, first of all, the people are so diligent and are working so hard. The Confucius culture is one that you have to work hard to be recognized by your parents, ancestors, country and the Emperor. Confucius people are very driven. You don't persuade them to work hard; they automatically work hard. There is less individualism, and more self-sacrificing. But you have to understand that you don't solve things in a black and white way. You have to be delicate and subtle and care for people's feelings and try to solve things given a very important time frame. Deng Xiaoping did not argue that this government was Communism or Capitalism. He just did it and let time tell. It's like Eastern medicine: you look at the whole body. You try to see the whole system and let time work things out.

While the markets are opening up, there is still criticism about human rights and the freedom of the press in China. You are providing so much news. Do you worry about censorship and/or being arrested for publishing the wrong thing?

I'm not concerned about so-called freedom of the press. The freedom we enjoy is so much more than it was ten years ago. Now it is too much. We should ask the Internet companies to have a social responsibility. There is too much violence.



Other articles of interest:
China Surpasses U.S. Internet Usage. Sohu.com Weaves the Most Promising Asian Worldwide Web. By Natalie Pace, NataliePace.com CEO and founder. from volume 3, issue 4 NataliePace.com archived ezine.

Sohu: You can Do Better Than Baidu With Other Google Acquisition Targets. Article and Stock Report Card by Natalie Pace. from volume 4, issue 1 NataliePace.com archived ezine. from volume 2, issue 9 NataliePace.com archived ezine.