Taxi trip to success in ShanghaiBy Mina Hanbury-Tenison Published: June 22 2010 22:04 | Last updated: June 22 2010 22:04

Taxis are cheap in China’s cities and traffic jams are long. That has been a good combination for Micky Fung, a Chinese-American entrepreneur from New York, who has brought advertising to bored passengers in the form of small interactive screens set in the back of the car head rests.

Pointing to an 8in LCD touchscreen in a Shanghai taxi, the 52-year-old founder and chairman of Touchmedia shows off his creation. Video ads from big brands such as L’Oréal and H&M play in loops, but the real entertainment begins at the press of a finger on the screen: touching a Braun icon starts an interactive programme on men’s shavers. Pressing the Shanghai Expo icon launches a visitor’s guide.

There are now 10,000 of Touchmedia’s interactive screens in Shanghai’s taxi cabs, with another 5,000 in Beijing cabs, 4,000 in Guangdong and 2,000 in Shenzhen.

For Mr Fung, the proliferation of the screens is a gratifying outcome to eight years of hard work.

A child of Hong Kong immigrants, Mr Fung grew up in New York, where he worked in his father’s garment business, before running his own clothing line. In 1998, a chance encounter with an LCD advertising screen in a Las Vegas taxi had Mr Fung mesmerised. He returned to New York, where he was running an

angel investor fund with friends, to explore the idea of interactive ad screens for taxis, which would eventually become Touchmedia.

But when Mr Fung told his family he was moving to Shanghai to start a media business, they laughed. Mr Fung says: “I’m illiterate in Chinese – can’t read and can’t write. I was the worst student in the family.”

Determined to prove them wrong, Mr Fung arrived in Shanghai in 2002 with Scott Lau, a Chinese-American architect from New York, and $1m of funding raised from his own personal investments. Five people squeezed into an office in central Shanghai. Mr Lau’s father, a retired PepsiCo engineer based in New Jersey, was recruited to provide free labour: “We basically locked him up in the office for four months until he could come up with a machine for us.”

Touchmedia officially incorporated in Shanghai in 2003, but that was just the first step. It signed a contract with Shanghai Blue Union Taxi, one of the city’s taxi fleets, for 10,000 screens. But manufacturing them became a challenge: “None of the bigger manufacturers, like Foxconn, wanted to deal with us – their minimum was at least 5,000 units,” says Mr Fung. After some negotiation and pleading, the company convinced a factory in Guangzhou to make the first 1,000 screens.

Inside view of an outsider

After eight years starting and developing his media and technology company in China, New Yorker Micky Fung has the following tips for other outsiders:●Show sensitivity to the culture. “Don’t impose your western ideas of what should happen on people and businesses here.” ●Guanxi (connections) are important. “It is what drives business here. When people talk to you, learn to read between the lines. Avoid confrontation.”●Understandthe economy of scale. “New York has the largest US market for taxis at 13,000 units; even a second- or a third-tier city in China has at least that number of cabs. We can do things in China on a scale that would not be possible in the US.”●Encourage your staff. “People here are very smart, but they are ‘book-smart’. The education system does not encourage creativity. Whenever there is a big problem, the staff are paralysed. They don’t want to be penalised for trying and failing. My managers have

to give a lot of pep talks and encouragement to get staff to pluck up courage to try new solutions.”

Problems began to emerge when the screens were installed. First, the LCD screens could not withstand the dust, extreme heat, vibration and unstable voltage of the Shanghai taxis. Also, cab drivers would cut the cables to shut off the noise of the soundtrack from the ads. Most of the 1,000 screens were not working frequently and the test clients, such as Nokia and Virgin Airlines, were not impressed: $1m of Mr Fung’s personal investment soon grew to $5m. “I was paying for 10,000 contracts, and I only had 1,000 machines installed. It was painful,” says Mr Fung.

While the company looked as far afield as the UK and Australia to buy a work-able prototype, it also became clear that much-needed further funding was not forthcoming. By 2004, Mr Fung was ready to pack up and return to New York.

But he had learnt the value of dogged persistence from his father, who started with nothing but built the purchase of 20 rusty Singer sewing machines into a Manhattan manufacturing and real-estate business. Mr Fung also knew en-durance: as an eight-year-old, he had washed dishes for hours every day to help the family pay off their passage to the US from Hong Kong.

Late one night Mr Fung thought: “I’m better than my family gives me credit for. I’m not going to go home and become a laughing stock.”

So he channelled his energies into getting a functioning prototype built, and eventually close liaison with manufacturers in Guangzhou yielded a robust new model. In 2006, a first round of venture capital funding of $8.75m finally came in – from Qiming Ventures, Shanghai Venture Capital and Mr Fung’s own holding company, Touchmedia Asia. By mid-2007, some 3,000 functioning screens were installed in the cabs of another Shanghai taxi fleet, Ba Shi. Second and third rounds of funding, of $15m each, soon followed, and Touchmedia continued to sign up taxi fleets in Beijing, Shenzhen and Guangzhou. Revenues were still tiny – about $150,000 for 2006, according to Mr Fung.

However, advertisers liked the new second-generation machines. With millions of taxi rides a day in China, mostly of 15-25 minutes, Touchmedia could deliver middle-class consumers in a fragmenting media market. By the end of 2008, revenues had increased 1,000 per cent over the previous year, says Mr Fung, although he declines to give a figure. For 2009, Mr Fung says, revenues were “north” of $15m. By the end of this year, he says, Touchmedia will hit profitability, with revenues “way north” of $15m.

Touchmedia’s full ad rate for 1,000 taxis for one month is Rmb480,000 ($70,000, €57,000, £48,000), for which the company guarantees at least 1.2m views and

200,000 people interacting with the ad. Customer usage data is monitored by an independent service, CTR Market Research.

Interest from international companies in Touchmedia’s 20-plus proprietary patents on hardware and software has prompted Mr Fung to explore franchising for overseas distribution. But for now, his focus remains on China. “We project growth of 100 per cent for the next several years,” he says. “New York City has 13,000 taxis, but Shanghai alone has 48,000 taxis. Even the smaller cities in China have 13,000 taxis.”

With nearly 400 employees, and the unit cost per screen down to $250, Mr Fung is considering an initial public offering for Touchmedia next year.

However, a taxi-based media service faces continuing challenges. After complaints from some passengers last year, Touchmedia had to install on/off buttons. But, says Mr Fung, “we found 5 per cent turn the machine off and 3 per cent turn the machine back on again, which means only 2 per cent of the [passengers turn] it off.”

Censorship is also an issue: although Touchmedia is an advertising medium and so does not fall under China’s tight censorship rules, good relations are still paramount. “We work closely with the government. We do a lot of public service announcements – for Shanghai Expo, we had nearly 1.7m people participating in our survey in just one month,” says Mr Fung. “We started as a media company, but then became a technology company. We’re now five companies rolled into one – creative, media, technology, sales and taxi maintenance.”

All the same, he does not envisage staying in China for ever. His family lives in New York and that is where he belongs: “When I’m done with this project, I’ll be going home.”

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