Infrastructure Firm ChinaCache Hopes to Tap the Growth Potential of the Internet on the Mainland
South China Morning Post
2004-12-14

Newcomers Emerge from Shadows

A new crop of firms is emerging from behind the China internet industry scene to help power the internet in China.

While they may not be as well-known as the more famous portals - brands such as Sina.com, Sohu.com and NetEase.com which have seen their share prices soar in recent years - these companies hope their role in China's rapidly growing internet industry will be enough to attract investor attention.

One such company is ChinaCache, also known as Beijing Blue IT Technologies.

ChinaCache holds the sole licence to run a nationwide content distribution network, and has enlisted the help of Hong Kong-based venture-capital consultants Latitude Capital Group to raise US$10 million to capture the full potential of the mainland market.

"Without the big boom of internet growth, we feel that our business would be in danger, but everybody knows that China is one of the fastest internet growth areas in the world, and this gives us a lot of confidence," ChinaCache chief financial officer Larry Zhou said.

There are 106 million internet users in China at present.

Mr Zhou believes these numbers favour ChinaCache. Internet users in China are expected to outnumber those in the United States by 2006.

In addition, research firm Gartner estimates worldwide revenue from content distribution networks will reach US$814 million by 2007.

"Conservatively, we will see ChinaCache take five to 10 per cent [of that]," Mr Zhou said.

There is also enormous potential as internet adoption rates pick up in China.

The penetration rate is just 6 per cent of the population at present, compared with more than 50 per cent in advanced markets such as the United States.

Content distribution networks had their 15 minutes of fame following terrorist attacks on the World Trade Centre in 2001.

Swamped by the number of users logging on to read the latest updates, news sites such as MSNBC.com turned to content distribution networks such as Akamai to relieve the pressure on their sites.

The service providers work by storing a client's website content - especially bandwidth-hogs such as images and streaming video - on their own networks of dispersed caching servers on the edges of the internet. This brings content closer to users, and speeds up content delivery.

ChinaCache has 45 server nodes across China. Its customers include high-profile blue-chip companies such as Sina, Sohu, Sony and Nokia.

The company recently won government contracts after offering free services to the website of China's Centre for Disease Control during the Sars crisis.

"During that time their website was visited enormously, and they came under tremendous pressure from the [number of] visits, because their hardware was not designed to process that much," Mr Zhou said. "The free ChinaCache service enabled them to survive the Sars period."

The company's government clients now include the State Council, eight major media outlets such as Xinhua and the Ministry of Commerce.

The next stage for ChinaCache is to deploy service nodes outside China - not to compete with overseas giants such as Akamai, but to service the global ambitions of its mainland clients.

"Right now we can only say that our network covers the whole of China, but to expand our business we need to expand our reach," Mr Zhou said.

"We have received requests from many customers, including Xinhua and the People's Daily, to deliver their content worldwide. The Chinese government wants their voice to be heard worldwide by overseas Chinese."

ChinaCache is looking to invest in overseas branding to attract multinationals operating in China, and to double the size of its research and development team. It also hopes to capture as much market share as possible before the Ministry of Information allows another content distribution network into the market.

By Stuart Biggs