A Wily Fox Puts China Online

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During a visit to mainland China in 1995, Charles Zhang was struck by the enormous potential of information technology. At that time, the country had practically no Internet connections and phone lines were in such short supply that people had to wait several months to have them installed at home. "It was a virtual void," he recalls. So Zhang, who had lived for more than nine years in the U. S., left his comfortable career as a consultant to the president of the Massachusetts Institute of Technology to go home and start an Internet business. Three years and lots of market research and venture capital requests later, he is chief executive officer of Sohu.com, one of the most popular Chinese-language Internet search engines on the mainland. "We're a typical Silicon Valley story except that it happened in China," Zhang says.

Sohu is a user-friendly search engine designed specifically to locate and catalogue Chinese-language information on the World Wide Web. In Chinese, "Sohu means 'search fox,' " Zhang explains, because "a fox is a smart, cunning animal and that's what a search engine should be." These same qualities of intelligence and cunning helped Zhang get his business off the ground. In 1997, he persuaded the director of M.I.T.'s Media Laboratory, Nicholas Negroponte, and a group of colleagues to put together $225,000 in seed money to set up Internet Technologies China, the precursor to Sohu. A year later, big names like Intel, Dow Jones, the Hang Lung Group and International Data Group were impressed enough to invest $2.2 million to launch the Sohu search engine. Since going live in February of 1998, Sohu--which now employs over 100 people--has averaged nearly 120,000 hits and 600,000 page views a day. The service has attracted advertising from multinationals like Microsoft, Ericsson and Nokia as well as domestic Chinese computer firms, travel agencies and consumer products makers. Zhang expects to bring in over $1 million in revenues this year.

While Beijing technocrats view the rise of the Internet--and the popularity of services like Sohu--as an essential tool for economic growth, the country's authoritarian government sees it as a threat. Zhang is working patiently with the Chinese authorities to ensure that he gets the commercial and editorial freedom he needs to make his fledgling business a success. "The transition to a market-driven system takes time," he says. Despite official opprobrium, Zhang has become a celebrity, lionized as a role model for young people. Such a high public profile has helped him generate business confidence and capital in a country where the potential market is huge. At the end of last year, mainland China had 2.1 million Internet users, up from 670,000 a year earlier and almost zero in 1995. Zhang predicts the total will rise to over 4 million by the end of this year.

Zhang hopes Sohu's breakthrough will inspire more start-up ventures. "A few success stories can inspire college graduates," he says. "For the industry to snowball, you need a core." To make sure Sohu remains part of that core, Zhang plans to add more servers and expand bandwidth to accommodate ever-increasing traffic. "With better infrastructure," Zhang says, "Sohu will be able to offer more content and provide the best platform for multinationals seeking to reach a very select Chinese market." To achieve that goal, Zhang will need to be as smart and cunning as a fox.