Mar 1, 1998 12:00 PM

China, Big Time

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By Christopher Jones

| NEW ECONOMY

| China, Big Time

Canadian High Tech Tax Dodge

Watching the Predictors

Esther Dyson in Poland

High Tech Embraces "Offshore" Employees

The Wired Interactive Technology Fund (TWIT$)

Mass Murder Bad for Business

Name-Your-Price Airline Tickets

<h4>#### Xia's ChinaBiG appears to have an advantage any monopoly would envy: the government's blessing. But some see this blessing as decidedly mixed.</h4 Oirst pass, ChinaBiG (<a hchinabig.com/</a>ces the same huge expectations and slim chances of any online start-up. Sure, the Hong Kong-based company boasts an impressive 2 million business listings in its Yellow Pages-style directory, and, true, they're bilingual (Chinese and English), offering Chinese businesses access to foreign markets, and vice versa. But ChinaBiG relies on typical Web revenue streams such as advertising and site hosting, and as the 91 online directories that failed in the fourth quarter of 1997 can tell you, these streams aren't flowing like they should.

Ayet, for a start-up, ChinaBiG appears to have an advantage even Bill Gates might envy: a monopoly, the blessing of the Chinese government, and its own infrastructure. The venture is one of the first new media companies launched by China Unicom. In the early '90s, a combination of state and private funding led to the creation of Unicom, which the 35-year-old CEO of ChinaBiG, Don Xia, claims has the lead in building the next generation of long distance backbone networks – via fiber optics, microwave, and satellites – that will transmit the Internet telephony, faxes, and wireless communications essential to doing business overseas.

"on't see many disadvantages to our ties with the government," Xia says. "But the advantages are many." Among them, a shared monopoly with the Ministry of Posts and Telecommunications on the government's business listings, which include the updated phone, fax, and street addresses of all Chinese businesses.

"how well organized and accurate and rapidly updated is that information? Have you ever dealt with a Chinese bureaucracy?" asks Milton Mueller, author of a in the Information Age,</em stresses the "vicious" competition between state-sponsored enterprises like Unicom, the MPT (which claims 98 percent of China's telephone market), and the news agency Xinhua. Says Mueller, "The state connection is as much a curse as it is an advantage."

Xhowever, is optimistic, owing in part to how much he's already accomplished and in part to the potential for growth. Xia first got hands-on experience with the Yellow Pages when he delivered the hefty books in the Los Angeles area, a part-time job during graduate school at USC. He later founded and played primary roles in several Chinese telecom companies. Today, Xia points out, China has more than a billion consumers but less than 10,000 active Web sites. "Unlike in the States, where you have to become very specialized and fast," Xia says. "We see online business as a wide-open opportunity."

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Resids of Quebec recently learned that some of their local restaurateurs are on the tax-evasion vanguard. Someone hacked a Gamma MicroSystems software program most Canadian hotels and restaurants use to tally and report sales tax, allowing the restaurant owners to underreport their earnings and deny the government millions. Revenue Canada, the govern-ment's tax-collecting arm, has responded with a tech-enhanced investigation. As government spokesperson Michel Cleroux told Toronto's Globd Mail, "We computers, too."

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| Whileknow that ecommerce keeps growing, by how much is anyone's guess. And analysts don't make matters any easier. Their estimates for United States online sales in 2000 differ by as much as US$61 billion, and not only that, their estimates of actual ecommerce revenues in 1996 don't mesh, either. (See chart at right.) | Ecommerc

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e vast parity? For starters, there's little consensus about what ecommerce measures. And each company uses a slightly different model to make its forecasts. Most conduct a survey: IDC talks to 40,000 Net users, Dataquest interviews 5,000 online shoppers, and Jupiter and Forrester question Web merchants. Revenues are then derived using a variety of methods that include guesstimating growth based on assessments of current Web-user behavior (IDC), contrasting numbers with secondary ecommerce research from ACNielsen and CommerceNet (Dataquest), comparing estimates with hard numbers gathered from major online retailers (Forrester), or projecting ecommerce growth as a portion of total online audience (Jupiter). The good

sll four research companies report underestimating their 1996 figures. The bad news: none have developed a way to forecast without resorting to old over-the-counter sales models, even though ecommerce obviously eliminates the counter. By P

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entureldings chair Esther Dyson has made her mark stateside as a consummate networker and author, her reputation precedes her in Central Europe, where she's helped fledgling entrepreneurs become market leaders. What's not yet clear, however, is whether Dyson can apply her magic to her own Central European businesses. Though she o

amanages minor investments in Hungary and the Czech Republic, Dyson has invested most heavily in Poland, which she finds "the most appealing" because in this country of 40 million, business is growing fast and" they all need better systems." In 1994 she

50,000 to help launch an Internet service provider, Poland OnLine (aka Polska OnLine). By mid-1997 it had 50 employees and 2,200 subscribers, including 500 businesses. The 1996 revenue, however, was a meager $165,000. She raised more money for Polska throughout '96, securing a capital infusion from Dan Lynch at CyberCash, among others. (The total cap, she says, is nearing $800,000.) She also emphasized custom software development, merging Polska with Buk BT. "The goal is

end rapidly, but carefully," Dyson asserts. "We have strong programmers, and we want to become an important force in the software-development market." Ask around i

land it's plain that Dyson is held in high regard, owing in large measure to the annual East-West High-Tech Forum, held first in Budapest in 1990. "Her role was tremendous," says Bogdan Wisniewski, vice president of Warsaw-based ComputerLand. "Esther helped us know the future and accommodate to that." Today, as a ComputerLand board member, "she is on the telephone, listening." In contrast, Wisniewski says, US partners previously "came to us, tried to show us how to do business, but didn't listen. Esther was different. She was trying first to understand what the rules were here, what were the differences." Though obvio

reciative of her efforts, Wisniewski hesitates to say whether Dyson's companies will prosper. Polska Online executive Slawomir Kulagowski is convinced that they will. While Polish business chiefs sweat this year's IT demands, Kulagowski says, "Esther's horizons start after five years." <h4>Contrary to

s of Congress, presidential hopefuls, and Ross Perot's Reform Party, Silicon Valley sees offshore programming as a win-win strategy. Here's why. By David Case</h4>

Despite a f rips, like the time his motherboard crashed and he had to drive 600 miles to Moscow for a replacement that failed too, software programmer Alexander Polusko's career illustrates how almost anyone anywhere with a computer and the right programming languages can tap into the network economy. From his hom

tant Tolyatti, Russia, Polusko makes a handsome living punching code for Access Softek, a Berkeley, California, firm with clients such as Microsoft and Adobe. And Access CEO Chris Doner couldn't be happier with Polusko and his peers, pointing out how easy it was for Access to establish overseas operations. There were no huge capital investments, no shipping nightmares, and none of the usual bureaucratic tangles that encumber traditional foreign ventures. Plus his Russian programmers often get by without an office. Sound encour

got to Russell Verney, chair of the Dallas-based Reform Party. To Verney, Polusko represents "a threat to the American lifestyle." According to Verney, "Engineers in the US can't compete with programmers in countries like Bangladesh, who work for a minimum of 60 percent less pay." And it's not only Ross Perot's cronies who fret over giant sucking sounds: for similar reasons, several in the House opposed granting President Clinton fast-track trade-negotiating status late last year. Talk to mana

software engineers in Silicon Valley and you'll soon learn that these neoprotectionists don't speak for them. To software and multimedia firms in particular, overseas, or "offshore," labor holds great promise, a win-win situation that enriches both American and foreign workers – and benefits consumers to boot. Globalization, they contend, creates opportunities for products that would be too expensive to make in the US alone, while also increasing productivity. Abroad, they say, outsourcing bolsters wages and encourages higher education. Moreover, it makes sense. Despite the two-thirds global market share held by American software companies, only one-third of the world's estimated 6 million programmers actually live in the US, and studies released this January confirmed what leading software companies already knew: there's a shortage of skilled IT workers. Last year only 26,000 computer science graduates matriculated from US universities, and the US Department of Commerce has reported that 1 in 10 infotech jobs lacks a warm geek. No wonder, t

t entrepreneur Jas Dhillon went to India. He did so not to save money – the cost differences have become negligible, he says – but because he was unable to attract employees in Silicon Valley, even when offering six-figure salaries. Using code written in Bangalore, he has launched Blue-Line/On-Line, a service that enables construction projects to be managed over the Net. Morgan Inter

va multimedia firm, moved most of its operations to Vietnam, where it now employs about 120 artists and programmers. There, the firm reduced its costs by a staggering 70 percent – as a result, says Morgan president Ed Dua, he's hiring again in San Francisco. Perhaps most

ont, high tech employment departs from the low-wage manual work US businesses have historically foisted on contractors in developing nations. It encourages higher education – and sometimes pays for it. Last year Oracle trained about 200,000 students abroad, and the firm plans to spend $50 million to train thousands more this year. Yes, this is hardly altruism (Oracle will expand its market by having users abroad), but Oracle's programs definitely defy the conditions of textile sweatshops. Even The Ins

tf Electrical and Electronics Engineers (representing nearly 100,000 computer professionals) disagrees with attempts to shackle the international labor market. "We've come to the conclusion that monopolies – either in terms of companies or countries – don't lead to growth," says Paul Kostek, president-elect of IEEE-USA. "The competition is actually very good," he concludes. "It keeps us on our toes." (<a

=hm</a>) is a San Fisased journalist. <

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ussell00 spent December treading water. Each finished roughly even for the month. To start 1998, I

pinto the TWIT$ cash reserves to buy two medical stocks that are off their highs. I purchased 3,000 shares of BioChem Pharma in front of its Hepatitis B drug launch and 10,000 shares of Fusion, which announced on December 17 the completion of a Phase I trial for its proprietary blood-clotting technology, FloSeal Matrix. This trial, conducted at the University of British Columbia's Vancouver Hospital, used FloSeal Matrix to prevent patient blood loss during major surgeries. Everyone hates t

aase-software sector right now, but I like this entry point for Oracle. Oracle's stock price has been almost halved since reaching its 52-week high of 42 1/8 on August 20, 1997. Buying now is a pure play on Larry Ellison's ability to restore his greatly diminished net worth. The only other a

iis Pegasus Systems, an online reservation system for the hotel industry. Most of the hotel chains own a piece of the company, and its recent deal with Microsoft positions Pegasus to consolidate a fragmented industry. Company Pri

is Symbol Shares Close 1/2 Since Purchase Action | ArQule | Pha

ecals | ARQL | 8,000 | 23 | + 5% | hold | Arbor Softwa

tware | ARSW | 4,000 | 41 1/4 | – 1% | hold | Ascend Commu

ts | Network hw/sw | ASND | 4,000 | 25 7/8 | – 58% | hold | Aware | Netw

hw | AWRE | 14,000 | 10 1/2 | + 0% | hold | BioChem Phar

rmaceuticals | BCHE | 8,000 | 21 1/8 | – 1% | buy 3,000 | Cisco System

Nork hw/sw | CSCO | 3,000 | 58 1/16 | – 4% | hold | Dataware | S

a| DWTI | 30,000 | 3 3/16 | – 41% | hold | Forte Softwa

tware | FRTE | 15,000 | 7 1/2 | – 68% | hold | Fusion Medic

ical equipment | FSON | 45,000 | 3 1/2 | – 32% | buy 10,000 | Informix | D

asw | IFMX | 6,675 | 5 5/8 | – 86% | hold | Intel | Micr

pINTC | 2,000 | 72 5/8 | + 4% | hold | PathoGenesis

haceuticals | PGNS | 4,000 | 37 15/16 | + 5% | hold | Pharmacyclic

Pmaceuticals | PCYC | 7,000 | 24 3/4 | + 27% | hold | Quick Respon

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ad with US$1 million on December 1, 1994. We are trading on a monthly basis, so profits and losses will be reflected monthly, with profits reinvested in the fund or in new stocks. TWIT$ is a model

ashed by Wired, not an oially d portfolio. Jeffery Wardell is a senior vice president executive financial services representative for Hambrecht & Quist LLC and may have a personal interest in stocks listed in TWIT$. The opinions expressed herein are those of the author and not necessarily those of H&Q's research department. H&Q has not verified the information contained in this article and does not make any representations to its accuracy and completeness. Wired readers wse thformation for investment decisions do so at their own risk. By Brad Wien

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ves we't enough to discourage state-sponsored murder, University of Texas professor Gerald W. Scully proves in his paper "Murder by the State" that killing one's citizens is bad for the economy. For one thing, it's hell on the tax base. There is, writes Scully, "an inverse relationship between the amount of killing of the domestic population and the 'value' of the people being killed." For the complete text of his study, see <a href="http://www.public-pstudies/s211/s211.html</a>. By Frank Jo/

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crammento crowded rush-hour cabins, it may come as a surprise that the eight major US carriers fly jets at an average of only 65 to 70 percent capacity. When marketeer Jay Walker realized this, he began devising a system using the Internet to offer consumers a potential deal on the millions of seats that fly empty. The result, Priceline.Co

es this month, and, according to Walker, will enable consumers to name the price they'd be willing to pay for airline tickets. At the company's Web site (<a href="http://www.priceline.coply provide your irary, the price you're willing to pay, and your credit card number. If an airline accepts, Priceline.Com will get back to you within an hour with a nonrefundable ticket. "This is not for the bus

sson," says Walker, whose Stamford, Connecticut-based Walker Digital Corporation lined up 12 investors, built a US$25 million budget, installed 80 Web servers, and reached "solid" agreements with all the major carriers prior to launch. "We're going to reach what we call the VFR crowd – the visiting-friends-and-relatives crowd. They're the kind of people willing to say, 'For the savings, I'll take a connection in Minneapolis.'" By the end of 1998, Walk

xts Priceline.Com to ring up a million hits a day for the 1,000 to 3,000 tickets available daily. To get those hits, he's spending $10 million to advertise this spring. Says Walker, "The airlines like this system because it gives them an opportunity to add incremental revenue without disrupting their retail-fare system."