CEO SPOTLIGHT – Micky Fung, Touchmedia, Shanghai

This month in the ‘CEO Spotlight’, we welcome Micky Fung, President of Touchmedia ^[1] in Shanghai.

1. First of all, congratulations on receiving the Red Herring Award, considered the world’s leading award for New Technology Companies. It must be quite an honor for someone who has been described as a ‘brash New Yorker’ and who ‘talks like a street punk’, if you’ll pardon me for quoting others. How do you handle such comments? Has having such a personal image been a help or a hindrance in your success in doing business in China?

   I can only agree with those comments. I am a scrapper. I had my first job when I was seven, (True!) washing dishes in a Chinese restaurant in New York. I was buying and selling used car parts when I was 13 and had my first business before I was 20.

   My family has been blessed. We are more than comfortable today, but we have definitely done it the hard way, fighting our way up from arriving in New York in 1966 completely penniless.

   I don’t think my background, has been a hindrance to doing business in China. In many ways, it reminds me of New York 25 years ago when it was your integrity and determination that got you going, not the sophisticated financial games that have created the economic mess in the States today.

   And with any start up, it’s determination that gets you there. We thought it would take a few months to get an effective, stable system off the shelf when we started Touchmedia. As it was, we ended up having to do it ourselves, because we couldn’t buy anything robust enough for life in a taxi, and it took us four years and $4.8 million just to get that first step. Without perseverance, you never make it as an entrepreneur.

2. You have screens in Beijing, Shanghai, Guangzhou and Shenzhen where people take 10 million taxi rides per day. Do you monitor taxis for broken screens, cleanliness and so forth, or how is that handled? I would think with so many people touching the screens that this might be a real problem.

   Absolutely!

   In Shanghai, for example, we do it in two ways. Firstly, the units can monitor themselves and every time they come into the taxi station, they download automatically by wifi what they have been doing and the system sends out an alert if they have fallen outside fairly narrow parameters. Secondly, we man all the relevant taxi stations in Shanghai all day every day so that we can do a physical check. A system might be functioning normally but the screen is dirty, for example, and that can only be fixed with a physical check. On average, more than half the screens are checked one way or another every three days.

   In other cities like Guangzhou, we have units that communicate by CDMA, so those units we can ‘call up’ anytime and check them. It’s not perfect. We catch about 80 malfunctioning screens a week. 75 % of those can be fixed at the station in 10 minutes or less. If it looks like taking longer, we just whip the faulty machine out and slot in a new one and then take the faulty machine to our maintenance centre.

3. I understand that all viewers’ responses on a screen are (or can be) measured and recorded, and that the users’ phone numbers or e-mail addresses can be collected, downloaded, and provided to an advertiser. Is this permission based? Do users have to supply these to use the screens? If not, how are they collected? And can the advertisers use the information to follow up with direct mail, samples or other marketing offers?

   Always permission based! You can use the screen as much as you like and never put in an e-mail address or phone number. The only time we collect personal details is if the viewer wants more information, wants to enter a promotion or wants to take advantage of a client offer and buy something.

   We then pass that data to the relevant advertiser and that advertiser only. The advertiser has to agree in advance to send at least an acknowledgement to all participants. If it is a promotion or competition, we also ensure that the prizes do exist and are distributed properly.

   Advertisers follow up with an e-mail or SMS message with, for example, a link to a Web site where participants can get more information, an answer as to whether they have won and how to collect a prize, and so on.

   As with any CRM program, if the advertiser gets a further response, t can develop the relationship.

   Our rate for valid responses is several times the norm in this market, so the program has been very successful. All together over half a million people participated in just the last few months.

4. Having been so successful in the U.S. with fashion and real estate businesses, what possessed you to move your family to China? What does the country of so many people offer a foreign independent business person?

   It was a big decision, really big, and very hard on my family. I am so lucky for their support. It is that anchor that keeps me sane. I had been doing business in China since 1982. I think it is a remarkable country. Moving at warp speed. In a single generation, it has moved 300 million people, equal to the population of the whole United States, out of poverty and it will do the same again in the next few years. I wanted to be part of that.

   China also has more taxis than anywhere in the world and that was the first area we wanted to develop for our business. And it has the fastest growing and probably most innovative outdoor advertising market in the world. It was the obvious place to be.

5. I’ve heard that many North American companies have had difficulty operating in China. Do foreign companies have difficulty because of the government regulations or adapting to the culture or what? How have you avoided the problem?

   I am Chinese. My family is Chinese. I have been doing business here since 1982, so no, I didn’t find it to too hard. We are also a pretty local company. Of 400 staff, maybe four or five are not Chinese nationals.

   And many government agencies have been very supportive. We were delighted to be part of the activity for the Olympics with the Beijing Olympic Committee and for the Shanghai World Expo next year, which we have already been promoting on our screens for nearly 12 months.

   We are also very keen to help government initiatives by making taxis more user-friendly for visitors to the city with maps and information.

   Lastly, when I started Touchmedia, part of what excited me was the ability to mobilize people to help other people, so we have done a lot of community service work and charity work with the government and various local charities. When you put all of that together, up to 30% or 40 % of the content on the screens is an informational service or community service, rather than paid advertising. I think the government recognizes that value and recognizes that around 96% of taxi passengers like the screens, so it has been quite straightforward to work together.

6. Your company has integrated into the community very well. In fact, you received the Media Award for Community Service from the Beijing Government in 2008. Promotion of community events and charities is high on the list of topics on your screens. Why and what role does that play in Touchmedia’s success? Can you give some examples?

   The informational service and the interest of the other sections, combined with the choice and control we give the passenger, has been crucial to making it work. Essentially, we sell eyeballs and the brains attached to them. If people are not using the screen, it has little value to advertisers, and we would not be getting the extraordinary recall and response rates which we achieve.

   But we really want to help others. The team gets very excited about the new charity programs each month. It is one time that everybody is happy to work late and do overtime to make them as good as possible. Winning the award was a great honor, but we would do the same anyway. It is part of our DNA.

   Yes, we are very proud of our successes. Working closely with my friend, the famous Chinese actor Ray Liu Liang Wei, who is Touchmedia’s partner and Honorary Chairman, we have taken the lead on informing the public about how to support events as diverse as the ‘Sichuan Earthquake Relief’, the ‘2008 Beijing Olympic Games’, the ‘2010 World Expo’, ‘1Kg More’ and many other charities.

   Very recently, Ray and I went to visit some impoverished children in Guangxi. We helped to provide funding for their schools so that they might have access to a better future through education.

   Running information about community services and charities on Touchmedia screens not only generates substantial donations, but also prompts responses from literally thousands of volunteers. For example, the team of more than 40 people who took part in the ‘1Kg-More’ Charity Trip to Anhui, in September, 2008, were selected from over 1,000 passengers who interacted with the ‘1Kg-More’ icon and volunteered their services. One volunteer commented to me, “I found out what I needed to know about the program from the screen; I was also able to confirm my involvement right away by touching the screen to input my details.”

7. Let’s talk about your expansion plans. You are now in four cities with your taxi screens. Where do you go from there? Is expansion to second tier cities worth the investment, or will you expand with the screens outside China? Or both? In what time frame?

   The company has three objectives for growth going forward. First, to enlarge its screen deployment significantly, increasing reach in its existing markets: Shanghai, Beijing, Guangzhou and Shenzhen.

   Second, we will expand over the next 18 months into some major second tier cities. Is it worth it? Chengdu alone has 10 million people and an ad spend of half a billion dollars. And for many of our clients they want us to be in more cities right now – 15 or 20. For them and us, it would not be much more work to load in 20 cities as in four. The economies of scale help us, too.

   Third we are also exploring new services on our system for the public and new uses of the system.

   The big factor in this expansion plan is people. I was so lucky originally to find the right partners and key staff. Some friends were also a huge help and encouragement. That made all the difference in the world. And we have a terrific team. Many CEOs say that, but at Touchmedia, it is really true. Our staff turnover is a fraction of that for the industry; their caliber, commitment, and creativeness is amazing.

8. I’ve read that there is low consumption of conventional media in China, yet pictures of streets there seem to show a different story, and your own company is now also into posters, magazines and newspapers. Why go into these sectors, if that’s the case – and with the distribution of posters and magazines in taxis, aren’t you just reaching the same affluent audience?

   If by conventional media you mean TV, newspapers, magazines and radio, then yes, consumption, particularly by affluents is often far below levels in the West. It is mostly a cultural difference. People in China, particularly the more affluent white collar professional classes, live their lives out of home. They see friends out of home and even family, and so on. So you have to reach them out of home. Hence, the proliferation of outdoor media. Our cities are also much denser. The suburb of Shanghai in which I live has a population bigger than all but a very few U.S. cities. Just the one suburb.

   But with 1.3 billion people there is still a huge opportunity for conventional media. Whereas going into the newspaper and magazine side of the business was something that came along as part of other plans and will never be our number one priority, it is still a very profitable niche for us. Yes, it is the same target, and that is quite deliberate. It is a group of consumers that we understand, and of clients that we know and have a relationship with already. So we can then offer our clients a more complete program.

9. Your audience is the upper 10% of consumers in the cities where you operate, yet with a population of so many millions, there must be opportunities to reach many more. Have you any plans to erect digital billboards, for example, or do you only want screens that offer interactivity?

   The most attractive audience to more advertisers is that top group of affluents. And our focus is interactivity. We get awareness, recall and response figures 4-to-40 times the norm for our clients. There are many reasons, but the key is interactivity. Have you ever tried to learn a language? If the teacher just talks at you, you learn very little. If they make you try to have a conversation, give you quizzes and games and ask you questions, you learn many times more. The screens are the same, we just make it fun to learn about products and services.

10. The average taxi trip is 18 minutes, 89% of the taxi passengers use the screens, and with 15,000 screens reaching a total of approximately 20 million passengers per month, how many of them are women? How do they use the screens, as opposed to how men use them?
    

    The split of men and women is 50.5% to 49.5% in Shanghai and a fraction higher in Beijing, for example. The numbers of each gender using the system are about the same, but what they look at is obviously different. The women are more interested in clothes, cosmetics and shoes. The men in electronics and cars. Both like travel, shopping and dining.

    Interestingly, one difference is in response with contact details. Men find giving a phone number quicker and easier. Women much prefer to give an e-mail address. They don’t like to give a phone number. I think men the world over have found that it can be hard to get a woman’s phone number!

11. I understand that you spent seven years and US$30 million developing Touchmedia’s proprietary software and hardware, and that you now hold 20 patents. You are now investigating putting screens into shopping centers and exhibitions. Is there much competition in these sectors, and would you have to make other huge R&D investments, or would it just mean an adaptation of what you already offer? Is there lots of potential in that sector?

    R&D is an ongoing investment we are very happy to make. Just with the current new system, there are more than a dozen new services we are developing for both consumers and for clients. Yes, we are looking at other opportunities for our system, but we are just testing the water and won’t commit till we are sure of our direction and of the potential opportunity. In terms of competition, we are not too worried. Interactivity is the key and we feel we are far ahead of most other players in this respect.

12. What rules, regulations or restrictions inhibit digital out-of-home companies such as yours – and could inhibit other companies from developing and expanding digital signage in China?

    We are very careful to follow all government regulations. They vary a little from city to city, so it would probably take a long time to look at.

    In terms of competition we know we have several advantages.

    The first is the technology. More than 20 companies in China and countless others around the world have looked at this area and, to the best of our knowledge, no one can match out technology and business model.

    Second, in China we have a very strong position in Beijing and Shanghai which have 38% of the advertising market. It would be very hard for a competitor to get sufficient scale without those markets.

    And thirdly, it is a much more complex business than it may look. We have taken seven years and $30 million to get to this point. A new player, even if they were much smarter than we were, has to take some time to work out the same problems, by which point we will be even stronger. In any business there is a significant first mover advantage.