KEEPING COOL UNDER FIRE
The founder of Tudou.com talks about his life-changing experience
From CHINA INTERNATIONAL BUSINESS July 1, 2009 Print & Web Edition
By Mina Choi
Marc van der Chijs, the co-founder of Tudou.com, one of China’s most popular video-sharing platforms, dates his life-changing experience to 1987, when, at the age of 15, he was sent to the United States as an exchange student for a year.
A young and unassuming boy from Holland, van der Chijs found himself thrust into a dysfunctional family in Valdosta, Georgia, who peppered their conversation liberally with four letter words. Furthermore, “the father was an alcoholic and none of the children came from the same mother and father,” adds van der Chijs.
Everything changed when one of the eldest children in the family invited him to go on a crack cocaine-deal expedition, which van der Chijs politely declined. The next day the same young man showed up at school with a loaded gun, and suddenly van der Chijs found himself being snuck out through the back door by the school principal. As a young Dutch student, this real-life introduction to America didn’t seem unusual because, as he explains, he didn’t know any different: “At the time, it all seemed normal to me.”
If this weren’t enough, van der Chijs still had months remaining of his year abroad, and found himself placed with a fundamentalist Church of Christ family, who had him baptized — with full underwater immersion — before sending him back to Holland, but not before extracting a promise from van der Chijs that he would proselytize for their church.
On his experiences in America, van der Chijs remains surprisingly sanguine: “My experience in the US had a profound effect on me. It taught me not to be judgmental, and to respect different opinions,” he says. “I also learned that most people’s ideas are formed by what parents put in their heads, and that normalcy is relative.”
This ability to remain unflappable has helped van der Chijs’ transition from a mid-level corporate employee at Daimler in Beijing, to a successful entrepreneur dealing in everything from sunflower kernels to reality television programs – a journey that has finally led him to his latest challenges, Tudou and Spil Games Asia.
Van der Chijs first arrived in China back in 1999, after earning a master’s degree in business economics from Maastricht University, Holland. As the financial controller for DaimlerChrysler Northeast Asia, the 27-year old van der Chijs found himself with a cushy housing package of USD 6,000 a month, with a car and driver to boot. But after a few years in Beijing, van der Chijs found his dissatisfaction with his job growing. “I knew I could do a lot more than flying around in business class and writing up reports.” So he took the big leap and went solo, enrolling in Beijing Foreign Language University and downgrading himself to an RMB 3,000-a-month apartment.
Business opportunities began to appear, and van der Chijs found that he could make money trading sunflower seeds. Soon other deals materialized and he had to break off his studies to travel with clients. “I was the number one student, but the school administrators didn’t care that I had the top grades. They wanted me in class,” he says.
It wasn’t easy during those first few years, but van der Chijs had something to prove: “I wanted to show that I could make it on my own, and that I could do better than Mercedes-Benz.”
From 2002 to 2004, van der Chijs supported himself as a consultant, helping foreign companies set up representative offices in China, and then dabbled in whatever opportunities came along. One of those turned out to be Tudou.
GROWING A BUSINESS
The origins of Tudou, can be found in a chance meeting between van der Chijs and co-founder Gary Wang at China’s first Formula One event back in 2004. Discussions would continue shortly after, over a round of golf, with the two future partners exchanging ideas about their views on the future of podcasting and broadband.
Work on Tudou began in October 2004, and by December Wang had resigned from his job at Bertelsmann to work full-time on the project. In the beginning the team consisted of little more than six people squeezed into a small apartment in Shanghai, with an initial investment of USD 100,000 pooled together from Wang and van der Chijs’ life savings. The site was officially launched as an audio podcasting site in early 2005 but was soon relaunched, integrating the video podcasting elements that have since become its core business.
Wang and van der Chijs wanted Tudou to be a platform for China’s creativity and it immediately resonated with its Chinese audience. “Tudou was successful from day one,” van der Chijs says. Soon venture capitalists saw the potential of its popularity and started knocking on the door: In December 2005, USD 500,000 was raised from VCs; in April 2006, USD 8.5 million; and another USD 19 million in 2007, before USD 57 million was injected in April 2008. Tudou now has seven different global VC partners, including IDG China, Granite Global Ventures, JAFCO and General Catalyst Partners.
The USD 85 million injected over two years fueled Tudou’s exponential growth, but there’s still one major hurdle that Tudou hasn’t cleared: it is yet to reach profitability. For co-founder Wang, who is now the CEO, managing Tudou’s growth and income has become a delicate balancing act. Either spend more money to make the pipeline bigger, giving users a better experience, or generate more ad revenue before expanding.
Van der Chijs says he doesn’t want Tudou to grow too fast — “bandwidth costs money” — but nonetheless, he says that Tudou has the cheapest bandwidth in China. When pressed for the reason why, he explains that Tudou has no external suppliers and manages its own servers and unique technology.
Growing from a site with 50 visitors a day in 2005 to 100 million unique visitors a month in 2009 has meant a lot of quick, on-your-feet thinking from the pair.
The revenue model has changed dramatically since the company’s inception. When Tudou launched, it had no advertising; now ads are its biggest focus, with all videos featuring a 5-second ad play. The homepage displays several different advertising revenue models, including videos and banners. Clickable advertisements are also visible around the video as it plays.
With 40,000 new videos uploaded every day, Tudou’s momentum seems to be unstoppable. “We’ve become a TV station. Advertisers also see us as one,” says van der Chijs. “Tudou offers unique content from television, including over 10,000 episodes on our HD (High-Definition) channel.”
The design of the homepage has also changed over the years, modified to a more user-friendly page. “Our homepage is our primary real estate” says Van der Chijs, who attributes much of the company’s success to their chief editor, “the most important person at Tudou.”
However, the real strength of Tudou seems to be that the site is incredibly ‘sticky,’ with the average user spending nearly an hour there at a time.
Regarding Tudou’s policy on unlicensed and pirated material, van der Chijs is forced to be ultra-practical: “We don’t want to be the biggest pirated company in China,” he says. “When the first company challenged us about their content uploaded to our site, we offered them revenue-share.” They have continued with this policy.
How long can Tudou ignore profitability and focus on growth? With over 300 staff members in five cities and hard-to-avoid spending on bandwidth, Tudou’s operating costs have ballooned in the last few years. Van der Chijs remains nonplussed about this. “If you don’t believe in the business model, then you can’t do it,” he maintains. “Tudou is able to target our user-demographic directly and accurately and this is very valuable for our advertisers.” He also claims that profitability is not too far off: “We do have a target profitability date and we’re currently operating above target.” He declined to give the exact date.
Since 2005, Van der Chijs has let Wang run the show. “I’m the ideas person,” he says, “[Wang] understands the digital technology.” Anyway, van der Chijs is already occupying himself with another venture: Spil Games Asia, a Flash and web game design company.
Founded in Holland back in 2001, Spil Group was operating out of a garage with eight people when they approached van der Chijs for help in 2005. “They were smart and they had a good idea,” he says, “so I started working with them on a part-time basis.” He eventually agreed to set up the Asian online branch of Spil Games, based in Shanghai, called Spil Games Asia. On top of his duties at Tudou, as the CEO of Spil Games Asia, van der Chijs now oversees 80 employees, while the company has grown to 200 employees globally.
The business model for Spil Games, according to van der Chijs, is “something of a Trojan horse. We make the games and we give them away for free.” The profits once again come from advertising. “What happens is that all of our games carry a logo saying ‘game.com.cn’ and that sends all the players back to our home site.”
The strategy has worked so far: Spil Games currently boast 35 million unique users a month.
With both Tudou and Spil Games operating solely on the advertising revenue model, relying on millions of unique visitors to its site to attract advertising returns can be an uncertain business model.
Recently Youtube became inaccessible in China, and one of Tudou’s biggest competitors, 56.com, was shut down in 2008. According to van der Chijs, “we don’t know why it got closed down. Nobody knows.” Tudou screens all uploaded material to filter out illegal content, so, according to van der Chijs, they are not concerned about meeting the same fate.
While advertising revenues were down in 2008, van der Chijs suggests both companies are looking at new ways to generate advertising revenue, and Spil Games Asia is now working at a break-even point.
For now, business is good, but that might not always be the case. In the long run, it just might be van der Chijs’ ability to stay cool — sometimes literally under the gun — in the toughest circumstances, that could be one of Tudou and Spil Games Asia’s greatest assets.
For a complete list of Business Articles by Mina Choi click HERE