Next Net Thing.

Far From the Westside, a Local Group Is Going After a Key Internet Niche

BALDWIN Park is a long way from fashionable dot-com clusters like Santa Monica or Pasadena, but it may represent the next great growth opportunity for the Net.

It is here, in an array of companies spread out among a nondescript San Gabriel Valley office park, that the digital bridge to the Net's greatest potential market is being constructed. That market lies where most of humanity lives: Asia

Until now, the Net has been largely an American phenomenon, with some strong side pockets in culturally sympatico places like Australia, the United Kingdom, Finland and Israel. Yet in the coming years, the next great wave of Internet customers will come from Asia -- where the online population is expected to grow from 35 million last year to more than 114 million by 2005.

With the growth of that market will come, as well, a rapid expansion of business activity. Business on the Net is expected to grow from $166 million last year to over $3 billion in 2004. Asia has all the basic demographics necessary for Web growth -- a large computer-literate population, spending power and a vital entrepreneurial culture.

Slowly, the Net is losing its English-only character. Soon, half the users will be using some other language. In the process, the assumption that what happens here will dominate the medium has to be reassessed. By 2003, according to International Data Corp., nearly half of all business-to-business and e-commerce transactions will be taking place in languages other than English.

A hidden opportunity

For Internet firms, most particularly here in Los Angeles, this expansion abroad represents a unique opportunity that many firms are now too self-absorbed to see. Yet if you work in places like the San Gabriel Valley, with its huge Asian and Latino populations, the overseas e-business opportunities seem plain as vanilla.

That's why perhaps the most interesting consortium of Net firms targeting Asia -- and increasingly looking at markets such as Latin America -- is huddled together not by the beach or cutesy Old Pasadena, but at the Crossroads office park along the unaesthetic intersection of the 10 and 605 freeways.

The shape of this new global e-business consortium is typically Asian in organization, an archipelago of small, highly specialized firms all financed, in large part, by a single corporate entity. The central firm, called Gus.com, was founded in 1994 by four Chinese engineers from Caltech who, two years later, got an infusion of cash from AC/DC Memory, a locally owned but obscure billion-dollar memory board company.

Unlike many Net companies, which are launched by people with "soft" creative and content skills, Gus.com's core business was technology, providing networking services and a small ISP targeted at the Asian community here and Asian markets abroad. Most of the early growth has been in Taiwan, an increasingly Net-savvy country with a small but highly sophisticated market for such services. Gus.com President Jerry Wang's strategy was not the usual idea of bulldozing into a large, established market with massive P.R. and advertising. His was a quiet, service-oriented approach aimed at under-served markets, including large pushes into the Latin American and African markets. "We didn't come into business to fight over established markets," he said.

Increasingly, Gus.com's emphasis lies in developing very specialized e-commerce solutions in specialized markets, such as a firm called Med123, which provides medical information from the United States to Chinese-language consumers here and abroad. Vincent Dial a former journalist and now president of the company, points to demographic trends -- such as the higher-than-average Web usage and education levels among Asian Americans, as well as an aging population and growing Net markets in east Asia -- as keys to his company's growth.

Other companies associated with the mini-conglomerate include a firm marketing memory boards on the Net, an image-processing service, a software design company and Amigo.net, which targets the growing Internet market for Spanish speakers both within and outside the United States.

A no-frills model

Down the road, Gus.com executives also see potential income in managing a reverse flow from Asia and Latin America to America. At Med123, for example, this might mean becoming a conduit for information and links to the world of Chinese medicine, which is gaining adherents within the white and Latino communities.

The company also follows a frugal lifestyle typical of many Asian, particularly Chinese, firms. Little is spent on frills. The offices are dour, even depressingly low-end suburban. There are no neat restaurants within walking distance, no promenades for the under-30 crowd to enjoy. But the space is about half the cost, or less, of prime coastal property and the lifestyles of the top executives are somewhat less splashy.

"We manage our money carefully," notes Erik Wendt, the firm's non-Chinese chief financial officer. "I go to San Jose and see 23-year-olds driving Porsches and startups spending money on Super Bowl ads. It's kind of scary."

Yet over time, as the Internet moves from its high-gloss period into an era of bloody competition, Wendt thinks such highly focused, disciplined firms have a distinct advantage over the more erudite, free-spending hotshots who have dominated the headlines.

Having seen Asian-style capitalism take control of everything from consumer electronics to memory boards, I would not bet against their eventual success moving into the digital space as well.

Business Journal Columnist Joel Kotkin is a senior fellow with the Pepperdine Institute for Public Policy and a research fellow at the Reason Public Policy Institute.