A Man From Shantou in 1999 Beijing, Where the Internet Entrepreneurs Who Longed for Freedom Had Gathered | 1999 Memoirs, Part 2

We interviewed several of the earliest chroniclers of the Chinese internet, hoping to reconstruct that era through them.

No one would have guessed it, but the shape of Chinese business today was set largely by companies founded 20 years ago.

Sohu, founded August 1996.

NetEase, founded June 1997.

Tencent, founded November 11, 1998.

Sina, founded November 30, 1998.

Alibaba, founded April 1999.

Trip.com Group, founded May 1999.

Dangdang, founded November 1999.

Shanda, founded November 1999

...

On a partial map of internet startups in 1999, we can find these companies that still carry weight today:

NetEase was the most-visited site of the moment, its email and personal-homepage services booming. Ding Lei, 28, hurried from Guangzhou to Beijing to collect an award; four years later he would top the Hurun Rich List.

Zhang Chaoyang, fresh out of MIT, came back to Beijing and became the most famous internet entrepreneur of the era. He renamed his company "Sohu," a name that echoed the internet legend "Yahoo" in more ways than one.

Wang Zhidong was named president and CEO of Sina. His biggest achievement until then had been building a Chinese-language platform for Windows and founding Stone Rich Sight, a software company. Now he was turning to the internet business, less than a year before Sina listed on Nasdaq.

Tencent released an instant-messaging program called OICQ, later renamed QQ. It was not the only product on the market with a name like that — they all copied ICQ, made by an Israeli company. At first OICQ lagged badly. Two years later, in an office in Shenzhen's Huaqiangbei, Pony Ma was struggling to raise money.

Jack Ma went back from Beijing to Hangzhou. Alibaba's business was still undefined, but the next year he made the cover of Forbes. What people remembered about him most was that he spoke good English.

Trip.com Group was founded in Shanghai; among its co-founders was Shen Nanpeng, a master of capital markets.

Dangdang copied Amazon and started selling books online. That same November, Shanda Networking was founded. The following year, Kingsoft — where Lei Jun was general manager — turned Joyo.com's main business into an online bookstore too.

Two years after Shanda was founded, the Korean online game The Legend of Mir, which Shanda held the exclusive rights to distribute, would redefine both popularity and addiction.

Behind these companies stand all kinds of peers and rivals who disappeared and were forgotten. Some had their moment and then went quiet; some rewrote the rules of the game only to be overturned by the next wave of innovators...

We interviewed several of the earliest chroniclers of the Chinese internet, hoping to reconstruct that era through them.

Some of them compare it to Woodstock; some remember a freedom, an absence of limits, they had never known before; some praise the entirely new way of accumulating wealth that it opened up.

"Courage" and "persistence" are the words that come up most, even more often than "ideals." And, of course, "luck."

But some also think that what looks unbelievable now felt perfectly ordinary at the time; the people who later became entrepreneurial heroes and models of wealth were just the ordinary people around you — back then you could not have picked them out at a glance.

We will publish these chroniclers' oral accounts and their own stories one by one. This is the second.

Zhang Zhenyang is a rare thing: an internet commentator who started a company himself. He describes the difference between himself and the other commentators this way: "They were flying through the sky; I was rolling around on the ground."

Zhang Zhenyang is from Shantou. In the 1980s, this city in eastern Guangdong was one of China's four special economic zones, always "a step ahead." But by the mid-to-late 1990s Shantou was just an ordinary small city. Zhang left the Bank of Communications in 1994 and opened a company providing systems-integration services, with clients including the local tax bureau, banks and schools. In Shantou this was a profitable business: few people understood systems integration, "everything was new," while "the computer science curriculum of the day was hopelessly outdated."

Because of the internet, Zhang became a sharp, fashionable young man in a small city. In 1996 he registered an account on ICQ, the instant-messaging software then sweeping the world. A six-digit number proved that he was, at least within China, ahead of the curve. On ICQ, Zhang "chatted around the clock" — at first with foreigners to "practice English," and later he stopped bothering with the practice and just chatted with Chinese students studying abroad.

In 1998, Zhang wrote an email to several of ICQ's Israeli founders. In it he pitched himself, hoping to become ICQ's operator in the Chinese market — for free. The proposal went nowhere. Foreign internet companies had not foreseen the potential of the Chinese market or the speed at which its online population would grow. Mirabilis, the Israeli company, wrote back that ICQ had no strategy for entering China. Zhang's first attempt to get into the internet industry had failed.

There was, in fact, another way in. Before long, many ICQ-like products appeared on the market, all with similar names — QICQ, PICQ, CICQ... Large-scale promotion went on for more than half a year, and then they all vanished. The only one to survive was OICQ, which would grow into QQ, with more than 800 million monthly active users.

In Shantou, Zhang also tried to build a secondhand-goods trading site, an idea he took from Amazon and eBay. No business bestseller had yet packaged up and sold the success stories of the two companies, but among early internet users Amazon was already a well-known site. Bandwidth limits made his site crude, but that did not matter. Zhang bought a disc of The Red Violin on Amazon — "It was really amazing. It arrived in about half a month."

There were almost no e-commerce sites in China at the time, so a secondhand-trading site was plainly ahead of its moment. Zhang was on good terms with the local post and telecommunications company, and had its data department run a dedicated line into his home — the equivalent of having a server. He registered a company, wrote the program himself, and named the site B21, or "Closet" in Chinese, the idea being that the spare things in your closet could be sold. Zhang promoted it on all the big forums and BBSes, and it never got a single user.

In that period Zhang had no full-time job. Apart from the occasional idea he tried out, he spent most of his time writing columns about the internet. In 1997, on the "Personal Homepage" service NetEase had just launched, he used the pen name "Benli" — roughly "clumsy raccoon dog" — for the first time. All of those columns vanished from the internet when NetEase shut the service down. Fortunately an interview with Zhang in Southern Weekly survives, in which he laid out what he then expected the internet to bring: flat-rate phone and data fees, wireless network service everywhere, cheap online libraries, online schools, cross-regional online courts, electronic wallets, and a completely free environment for personal speech.

1

Zhang left Guangdong for Beijing at the end of 1999. Nowhere in 1999 was livelier than Beijing. This time the observer had decided to join the startup wave himself. "Back then almost every internet company was in Beijing, and so was almost all the venture money." Hong Bo, another internet writer, remembers that the commentary Zhang wrote as "Benli" carried real weight at the time, and that some investors had noticed.

Traveling to Beijing with Zhang was an online friend, Mai Guangwei, who would become his technical director. They lived in Yayuncun, not far from Zhongguancun and close to Yabao, an early e-commerce company, and waited for an opportunity.

That January, Ding Lei also hurried from Guangzhou to Beijing, because NetEase had been named the site with the highest annual traffic by CNNIC, the China Internet Network Information Center, then only two years old, and he was going to collect the award. Zhang and Ding talked on the phone often in those days; NetEase was the company Zhang was most bullish on, mainly because of Ding. "[Ding Lei] was a technical person himself, but with none of the introverted stiffness you would expect from one — he felt like a very good businessman. Having both qualities at once is rare."

Most of the people he had known online over the years were in Beijing, and by 1999 quite a few of them had started their own companies. Wang Juntao, known online as "Laorong" (Old Banyan), founded the website 8848. That September, 8848 had just "sponsored" a sensational "72-Hour Internet Survival Experiment," and its user numbers jumped. This online-supermarket-like site would be named "China's hottest e-commerce site" by Time magazine in 2000. When Zhang got to Beijing, 8848's technical team was arguing over whether the site's shopping cart should differ from Amazon's one-click purchase. Another online friend, Zhou Hongyi, founded 3721 and took investment from IDG.

After visiting "a few representative companies," Zhang decided to make mobile web games. "It looked like it had more of a future, and relatively less competition." The representative companies were all making PC web pages, which made sense: Zhang remembers that in 1999 only one phone, the Nokia 7110, could open web pages in a browser, and by May 2000 there were still only three models. But a few small companies making mobile web games had already appeared. If one of them turned into a game company the size of Shanda someday, then everything they were doing now would count as having seized the first move.

Zhang mailed a business plan to every VC address he could collect. He thought VCs in 1999 were "starving," unable to find projects, which was why they went out of their way to spread their contact details around. Foreign investors, unfamiliar with China and not especially interested in it, still hired a local and opened a China office. Industry conferences and forums were everywhere; say a few words on stage and several investors would hand you their cards as you stepped down. IDG was the most fanatical of them, "investing in dozens of deals at a time." They had already tasted success: IDG partner Wang Gongquan had invested in AsiaInfo, founded by Tian Suning, which listed on Nasdaq in 2000.

The mass-mailed business plan drew a few replies. One investor called Zhang directly and arranged to meet him at a café in a hotel in Zhongguancun. Not many people talked about startups in cafés back then. After three or four conversations — down to specifics like "what resources can be brought in" and "how to expand" — a company called Zhangshangtong was founded in March 2000.

Venture capital firms were everywhere, but entrepreneurs at the time had little idea what taking money actually meant. When Zhang Chaoyang founded Sohu, he got angel funding from Nicholas Negroponte, his professor at MIT, who even came to China to appear alongside him in public — an extremely rare case. Zhang Zhenyang remembers that the standard practice then was for investors to build the company on a traditional structure: "Founders held equity for their technology and took a smaller share — say the whole team got 20% — while the investors who actually put up the money took 80%. Plenty of companies worked this way." "Equity for technology" was a term that came up in the 1980s; at first, technology contributed as equity was usually valued at no more than 20% of a company's registered capital.

As an entrepreneur, Zhang Zhenyang's poor grasp of venture capital would leave him bitterly frustrated a year later. He later found that many small companies ran into the same problem: the founders' equity was diluted until they were pushed out. It happened at the biggest and most representative companies too. The most famous case is Sina founder Wang Zhidong: in June 2001, the now-public Sina announced from its North American headquarters that Wang was resigning as chief executive, president and director "for personal reasons." Some believe the same thing happened to Wang Juntao, who had to leave 8848 and start another e-commerce company, also named with a number, though this time he never found investors.

"Later everyone got clear about this — when capital comes in, it should not become the controlling shareholder. Under that rule of the game, founders rarely get pushed out."

But at the start of 2000 Zhang became the company's CEO and a minority shareholder, and his urgent task was getting the product live. The early products included a WAP site that could display Chinese characters, a site for reading news on a phone (the news was scraped from elsewhere), mobile email, and web games like Gomoku and Whac-A-Mole.

At first the team had five people, borrowed office space from 8848, and interviewed candidates constantly. Two months later Zhangshangtong rented an office of its own, in a building packed with small companies behind the Zhongguancun Contemporary Mall. As Zhang remembers it, a lot of companies moved into new offices in that period. And at almost the same moment, the Nasdaq index rose to 5,408.6 and began to fall.

The company's meeting room was often used to receive a steady stream of potential investors, though Zhang rarely sat in on those conversations. In August 2000 he realized something had changed. Visitors had stopped coming to the meeting room, and the investors told him the company was going to pivot, because the Series A round had run into trouble.

Zhang had thought things were going smoothly. In May, Guangdong Mobile had proposed the Monternet plan (China Mobile formally launched Monternet nationwide that December), and at the time he felt "very sure of it" — Monternet's two main lines of business were text messaging and WAP mobile internet access. But because "the VCs suddenly disappeared," that signal stopped mattering.

"Every startup that year faced this panic — all the money in the market was suddenly gone, the VCs suddenly disappeared." The lively period was short.

"That feeling was nothing like the 'capital winter' people have talked about the past couple of years. Now everyone is used to it: the whole industry rises and falls. Once you've seen enough of it you understand that the ups and downs are the big picture, that there are windy stretches and windless ones. If it's a winter now, fine, I'll wait for the wind — I have that patience. Back then we hadn't been through it, so we had no patience, no idea when the wind would come, and we thought it would go on like that forever."

Zhangshangtong's investors and controlling shareholders wanted to change direction and build a travel site for phones. Hotel bookings could generate cash flow: that was one reason. The other important calculation was that the investors hoped to sell the company to Trip.com Group.

Trip.com Group, founded in 1999, was at its peak. In early 2000 it acquired several small travel sites. Its own website was not complicated; most of the business was going to hotels to negotiate bookings. But "everyone was very bullish on it." "The founders' ability to work the capital markets was just too strong. They had barely started and already had a huge amount of money coming in; from the beginning they went on an aggressive acquisition spree. The media loved talking about this at the time. And they weren't in Beijing, they were in Shanghai — practically Shanghai's first internet company."

The plan to sell to Trip.com Group did not work out, and the mobile travel site did not produce the cash flow it was supposed to. Investors they eventually tracked down replied that the whole picture was unclear now. "They did point out a few small things about the company, but I don't think those mattered — they were all fixable." "Mobile games, mobile travel: both ideas were ahead of their time, but ahead of their time or not, you couldn't find money that year." Meanwhile the internal disagreements kept growing, and Zhang found his own stake diluted further and further, with less and less say.

When Zhang left Beijing before the Spring Festival in 2001, he did not see anyone. "I did work hard — slept only a few hours a night — and to end up with this result really did leave me feeling adrift." Plenty of people left Beijing that year.

2

Shenzhen's Huaqiangbei was not yet a giant hardware bazaar back then; before the Nanshan science park rose, it was where IT startups clustered. In 2001 Tencent had a few hundred people, and Pony Ma worried about money and servers in Huaqiangbei. Tencent's office was in the building next door to Longyin Digital, the new company Zhang had founded.

Zhang went back to Shenzhen and kept making mobile games. China Mobile charged the players and the company took a cut. "I didn't take a break, I got right back to it, and that was based on my read of the trend. When Monternet started we talked a lot with the people at Guangdong Mobile; the ones in the mobile data department were genuinely invested in this and wanted to expand the business as fast as they could. So I felt there was no reason it couldn't take off. There was also a big shift in the phone industry — by then basically every phone model supported getting online."

Pony Ma was from the Chaoshan region too, and he would drop by now and then to chat. The two rarely talked one on one; most of the time it was a group of people together. Ma had not yet shown any interest in games: "he was just holding onto QQ." QQ had just been through a wave of explosive user growth, partly because online-literature sites like the "Huajian Alliance" kept multiplying, and in online novels every romance happened over QQ. Readers of that fiction became QQ's newly registered users.

Users surged, but QQ's servers could not carry them, which made QQ very slow for those two years. Beyond that, "nobody knew what its business model was. Ask him where his bottleneck was and he didn't know either. His biggest bottleneck was that he had no money to buy servers."

In June 2001, after Tencent took an investment from South Africa's MIH, it moved out of Huaqiangbei to Nanshan.

Most of what happened after that Zhang heard secondhand. The money seems to have gone into new servers, and Tencent soon fixed QQ's lag. Its ancestor, ICQ, had gone downhill ever since being sold to AOL in 1998, and Zhang had all but abandoned ICQ for QQ; by now he has forgotten that six-digit number. Comparing the two, he says: "QQ went the other way — the more it changed, the more character of its own it had."

In those years Tencent's business model included not only charging users to register new numbers but also ring-back tones and audiotext hotlines. "They'd go where kids gathered and tell them, call this number and you can hear stories. The kids went home and called, with no idea it cost two yuan a minute. That business let them build up money fast."

After NetEase listed on Nasdaq on June 30, 2000, its share price dove along with the Nasdaq index. Zhang heard that "the stock once fell below a dollar, and for those two weeks Ding Lei drank every day; in meetings at the office he had to hold a wastebasket, throwing up while the meeting went on." A more inspirational version, recorded in a book, has Ding asking Duan Yongping, founder of BBK, whether he could sell the company and start another one, and Duan replying: you already have a company, so why not make it good?

In 2003 Ding Lei became the richest man on the Hurun Rich List. He was 32 that year. Part of the reason was that four years earlier NetEase had turned down outside investment — CFO He Haiwen instead applied to an overseas fund for a US$2 million bridge loan — so that by the Nasdaq listing Ding still held 70% of NetEase's shares.

By this point 8848 was unrecognizable. After the 1999 "72-Hour Internet Survival Test," founder Wang Juntao told the press that the test had proved that on online shopping alone "surviving is no problem, but living well is a bit hard." Taobao was founded in 2003.

More from our conversation with Zhang Zhenyang:

Q: You started writing columns under the name "Benli" in 1997. What made you want to write back then?

The moment did. I got online fairly early, and at the start there was not much of a domestic internet, so you had to go to American sites. The place we first hung around didn't even have a browser; the newsgroups we frequented were plain text and communicating was a hassle, but we were curious about that stuff back then, so we poured our enthusiasm into it.

By 1997 a batch of domestic internet companies had just come up, and NetEase had launched its "Personal Homepage" service, where anyone could make their own channel, their own page. To maintain a page you needed content, so I put my hobby of writing there. I no longer remember what company or topic my first "Personal Homepage" article under the name "Benli" was about. NetEase later stopped offering the service and all of that disappeared too. All that's left now are the articles that ran in print.

Some people also offered software downloads on NetEase's "Personal Homepage." The software was pirated, but that really was the hottest thing back then. You could also go find American ads to run and earn money per click, and we were good at cheating, so faking ad clicks was a pretty profitable business at the time.

Q: What state were the "Big Three" portals in then?

Everyone said "portal," but Sohu was actually still doing search. Sina was a sports community. NetEase was all kinds of homepages. They were really doing different things. By 2000, when the US came up with the concept of the portal, all three companies were influenced by it and turned themselves into portal sites. But it was still very crude — basically no editorial arrangement, and the articles were all grabbed and pasted in by hand by editors.

Once NetEase built its email service I was very bullish on it. Before 163 Mail, the only email we could use was the carriers', and the carrier suffixes were too long and the domains inconvenient, so before 163 came along we used overseas mailboxes. Very early on I used maillist.net. It's probably gone by now.

Ding Lei was shrewd. After he first sold the email system to the Guangzhou Posts and Telecommunications Bureau, he also maintained it for them — he collected not just the first payment but a monthly maintenance fee. That business model was rare back then. But Ding had worked in telecom, so he took a page from the telecom equipment vendors: I sell you the equipment, and since you don't know how to use it, you still need me to maintain it. The Guangzhou Posts and Telecommunications Bureau initially wanted to grow the product into an independent company, but in the end the internal pressure was apparently too much, so they sold it to tom.com. After that NetEase had nothing more to do with that business. Right after selling it to tom.com, NetEase immediately built its own 163 Mail.

Q: What did you make of the other "representative companies" at the time?

What I remember most about Jack Ma is that the man's English was really good. There was footage on TV back then of foreign reporters interviewing him. Beyond that I had no sense of him.

I wasn't bullish on OICQ, because the experience was too bad then — it lagged terribly.

Sina's portal wasn't built by Sina — it bought an American company, and that's how it got into the portal business. By the time that business was working, the internal fight had already broken out; the two co-CEOs disagreed. The disagreement was probably about content, not the profit model — nobody had a profit model that year, there was only advertising. My guess is there wasn't much ad money then either. Merchants had no sense of how well online advertising worked. I remember foreign car brands were the first to advertise on websites — big brands like Audi and BMW, just banner ads, very plain.

Q: In 1999, did more established software and hardware companies want to come in and get a piece of it?

Lenovo's FM365. Though later they even lost the domain name, because they forgot to renew it.

But at the time Lenovo was the most aggressive about it. They hired a consulting firm and set an ambitious plan to overtake Sina within six months. They believed their biggest advantage was that they could preinstall the site on every computer they sold. With that guaranteed floor of traffic, however wrong they got things, it couldn't go too far wrong. That was their calculation.

The pity is that they put people who didn't understand the internet in charge of running it. If you don't understand it, the honest thing is to do what the other sites do. Given their marketing power, their promotional reach and their genuinely guaranteed hardware distribution, they had far more advantage than anyone else. Instead Lenovo spent all its energy working out how to tie the site into the computer. So the interface ended up different from everyone else's, out of step with how internet users were used to clicking, and nobody knew how to use it. Their advantage turned into their weakness.

That is not the way to do the internet, that's the way to do hardware. They treated the internet as a feature of the hardware, an add-on, and that was wrong.

Q: Many people believe Monternet saved the Chinese internet industry after the bubble burst in 2000. Why do they say that? Why was Monternet launched when it was?

It's true. Companies couldn't get money, but they had popularity, they had users, so through Monternet they turned traffic into cash.

The Monternet plan was proposed in June 2000. By 2001 there were already ring-back tones and MMS. All three portals made money on ring-back tones.

China Mobile's original aim was to push its own text-messaging business, because hardly anyone used text messages in those days. Once WAP came along they also wanted to push their own data services, and that's how this platform came about. Monternet was not actually China Mobile's own invention — Japan's carrier DoCoMo had built something similar first. People from Guangdong Mobile's data department went to Japan to look at it, came back and put together a plan, sent it to headquarters, and once the group approved it, it became a nationwide business.

Monternet's own rules were not especially well designed, and the developers later started thinking: if there's easy money to be made, why make it so complicated? Almost every participant started cheating. It even dragged officials in. On the Baibaoxiang ("Treasure Box") platform, people openly proposed things like 500,000 yuan for a single game. In the end nobody could play the game anymore. That shift happened fast — I'd say the collapse came in 2008.

Regulation came after that too. Once a lot of officials tied to Monternet were arrested in 2008, the government understood there was serious money in it. And with that much money at stake, why wouldn't they step in? Back then the government understood none of this, and they don't regulate what they don't understand. The main thing was that there was no money in it early on, and where there's no money, there's no room for power to step in.

Q: Did the quick accumulation of wealth through IPOs give young people at the time a strong push?

I don't think it was necessarily a good push, because it drove too many people into starting companies.

That's especially true of the recent wave of startups — it wasted a lot of social resources and derailed a lot of people's futures. Because this wave wasn't driven only by that push; it also had encouragement from the government, "mass entrepreneurship." In Shenzhen, for instance, a huge number of people went into smart-hardware startups, and now almost nobody does.

Back then the government neither encouraged it nor suppressed it. It was a natural state, and I think that was the best state to be in. You didn't even need to get an internet ICP license — you just built a site, put it in a server room and got to work.

Q: Some people think the internet put China in sync with the world for the first time — whether in the sense of information arriving at the same time, or in the way the "new economy" differed from the traditional economy and put everyone at roughly the same starting line. What do you think?

Back in the '90s the shock to me was severe. We used to build databases for banks, and the database was IBM's, and hiring IBM to maintain it was very expensive. But IBM already had free automatic FTP updates; the banks just didn't know, so we would download them for them and get paid. All we were really earning was an information gap — if they had known, they could have downloaded them themselves.

But from the industry's point of view, we were always behind the Americans. We copy first, and once we can build on it, we localize it. That's basically been the model the whole way through: the first product is always copied, and what survives is basically what you managed to improve yourself. On the other side, we did mobile internet better than the Americans. But only mobile internet — on PC internet we still couldn't match them. In the early days there was no way you could feel you were at the same starting line as the Americans.

That includes the ideas, the whole way of thinking about the internet — that also came from the US, and it shaped entrepreneurs here. Writing commentary back then, I sometimes wondered whether we could come up with something more abstract of our own. I wanted to try to draw out something from our own culture, our own patterns, something we could put up against the Americans. But I realized that at the root it was all copied, so what abstraction was there to draw out?

Q: What exactly were these internet ideas that came from the US?

You could call it a virtualized life — broadly, you gained an extra, virtualized experience of living.

There was also the equality of information: would it bring a change in social structure? It really did, in some ways. And back then we truly weren't constrained by anything, so inside it we genuinely felt a kind of virtualized democracy, virtualized freedom. Virtualized. That's why we used to put so much of ourselves into BBSes and Fido — because only there could we feel a virtual freedom, with no controls at all. For our generation especially, once we'd had that stark a contrast, we truly longed for it.

Zhang Zhenyang

Also known as "Benli." Got online in 1994; in 1997, under the pen name "Benli," began publishing internet commentary on NetEase's "Personal Homepage." Founder of Zhangshangtong and Longyin Digital. Helped found the internet tech media outlet Leiphone in 2011. Still writing internet commentary today.

Cover image from Marcus Loke, Markus Spiske on Unsplash