New and Improved Asia Online Remade Itself With Outside Help

By H. ASHER BOLANDE
Staff Reporter of THE WALL STREET JOURNAL

Yu Ming Chin, the Philippines country manager for Asia Online, spends much of his time these days trying to convince small and medium-sized businesses that his company should handle all the details of their leap onto the Internet.

But as recently as 1998, he was selling Asia Online as something else: a content giant that would provide home Internet users with everything from news to entertainment.

In just two years' time, the massive Hong Kong Internet firm has become, in almost all respects, a different business. Yet all the while, it retained its name, the bulk of its staff and hardware. Jarring business model changes like these, almost unheard of in the Old Economy, are a common sight nowadays among Asia's Internet start-ups. When initial strategies don't bear fruit -- or don't bear fruit quickly enough -- some dot-coms are simply reinventing themselves.

This ability to dramatically switch courses is a testament to the flexibility of an industry based on knowledge, not fixed assets. "You need to test out different business models, and that is healthy," says Jay Chang, an Internet analyst with Credit Suisse First Boston. But he says too many firms leap to this option without thinking it through. Many simply stampede toward the hot-button business plan of the moment -- from portals to e-commerce, and now e-solution providers.

Renren.com (www.renren.com), for example, launched 17 months ago as a Chinese-language horizontal portal, so named because of its vast array of information on a wide range of topics. It has since repackaged itself as a provider of marketing solutions for businesses. Likewise, 8848.com (www.8848.com) made a name for itself as China's answer to Amazon.com. It is now primarily a matchmaker for buyers and suppliers of industrial goods, like toys and electronic components.

In the case of Asia Online, the turnaround was both one of the earliest in the region and one of the more systematic. The company changed its management team, who proceeded to tear up the original mission statement. This dramatic restructuring allowed Asia Online to rethink its new strategy from the beginning. Now, it appears on track to make that pay off.

Begun in Hong Kong in 1995, the company was a high-profile early mover in the Asian Internet. Its founder, Dion Wiggins, envisioned a pan-regional service like America Online, which would combine Internet access and a full range of content, from search engines to e-commerce.

But internal bickering and frequent changes in strategy by management sent the company into a tailspin. High-level managers went through the company like a revolving door, and by mid-1997, Mr. Wiggins and most of the other founders had left in frustration.

Then in April 1998, lead investor Softbank Technology Ventures gave up and called in Kevin Randolph, a veteran consultant from San Francisco who specializes in takeovers and turnarounds for information-technology companies. A complete novice to Asia, he was given an unambiguous task: "Fix it up and sell it," he says.

Some $20 million had been invested by that point, but undisciplined leadership had allowed the company to balloon into a collection of 22 different firms, leaving "essentially dead operations throughout the region," Mr. Randolph recalls. Amid the mess, though, he spotted a market opportunity -- and building blocks for a totally different type of company.

Asia's teeming masses of smaller companies would need a full-service provider for their looming shift onto the Internet, Mr. Randolph predicted. In addition to their connection, they would need help wiring their offices, designing their Web sites and finding the facilities to host those sites. (Mr. Randolph's decision proved prescient. Today, the business-services market is one of the few revenue generators in the otherwise profit-starved Internet sector.)

Old Tools, New Task

Asia Online already possessed many of the tools it needed for its new task. It knew about Internet infrastructure from its days in access business, and its Manila-based team that was packaging news and information services could switch to developing Web pages for businesses without much of a hitch. More importantly, it had a network that could be expanded to provide small clients with the type of advanced communications that multinationals use, such as videoconferencing.

Instead of selling off a repackaged Asia Online to the highest bidder, Mr. Randolph went back to investors and persuaded them to back a new company. Since then, he has successfully pitched his vision to financiers, pulling in $143 million in private-equity investment, including $100 million from a BNP Paribas-led consortium in March. He used the funds to, for example, beef up the company's presence in markets it had previously ignored, such as Australia and New Zealand.

The changes appear to be winning customers. Revenues rose to $14.4 million in the first half of this year from just $1.8 million in the same period in 1999, according to unaudited figures submitted to the U.S. Securities Exchange Commission. The firm aims to raise even more capital to establish an on-the-ground presence in all Asia's big cities before local competitors emerge. This ongoing spending campaign, says Mr. Randolph, is the main reason it is still operating at a loss.

Profound Changes

Asia Online filed for an initial public offering on Nasdaq in August but chose to withdraw it, citing hostile market conditions for technology firms. Company officials say it will refile when the market recovers its appetite for tech stocks, possibly in the first quarter of 2001.

Jasmine Koh, an Internet analyst with securities house UBS Warburg Asia, calls Asia Online "a healthy company," adding: "They still have very strong backers and a good set of clients."

So profound was its turnaround that Mr. Randolph prefers to call the new Asia Online a start-up. Company marketing materials completely omit the early history, saying he founded the firm in December 1998 -- technically true, because the current holding company, Asia Online Ltd., was only formed then.

Though other companies have also attempted drastic turnarounds, Asia Online remains one of the few that landed on its feet.

Many dot-com repositioning strategies are hastily slapped together attempts to find fast money rather than sustainable business propositions. "Everybody's going for low-hanging fruit." says Mr. Chang, the analyst.

Sparkice, for example, started out as a Beijing Internet cafe and access provider, changed into an online retailer when e-commerce became the rage. Now it has repositioned itself as a global business-to-business trading Web site. "Every time you go there, they've got a different plan going on," says International Data Corp. analyst Matthew McGarvey.

For Asia Online, the difference may simply have been that the plan was hatched by an executive brought in from the outside, rather than a founder with a personal stake in whether the start-up survived. Mr. Randolph, describes it as a straight business decision. "At that point, it was still a mercenary interest ... purely commercial. I saw a huge opportunity to make a lot of money."

Write to H. Ahser Bolande at hyam.bolande@awsj.com