Information @ge interviews iSteelAsia.com's founder and CEO, Andrew CF Yao.

iSteelAsia.com is Asia's first steel exchange vertical portal founded by ten key foreign and regional steel enterprises in December last year. Only two days ago Yao was in Beijing to announce the launch of a Chinese-language version targeting the Chinese steel community. The site recently celebrated its first major deal worth US$1 million, which was placed through the site from Switzerland to a Chinese customer.

Info@ge: A portal for trading steel is quite an unusual concept, where did the idea stem from?

Yao: Last April, while I was visiting New York city, I happened to come across priceline.com on the Web when researching online airfares. Having to make last minute bookings for air flights frequently, I was constantly being ripped off by the airlines. I followed the news on Priceline.com closely to the moment it went to IPO and found that its value exceeded all the airlines combined. Now, that got me thinking.

Following the growth of Priceline.com, I decided to venture out and create something for the Asian steel industry. The reasons are simple, I know the industry very well, it's the second largest industry in the world after petro-chemicals, and its an industry famous for its operational inefficiencies and middlemen which makes it perfect for the Web.

Info@ge: Why is iSteelAsia.com located in the offices of Van Shung Chong (VSC) Holdings Ltd, one of the ten founding industry members and what is your relationship with VSC?

Yao: I am the chairman of VSC Holdings, which is the single largest shareholder of iSteelAsia.com. However, because iSteelAsia.com is a neutral trading platform, we are moving in March to The Center in Central. My role for iSteelAsia.com is to find strategic partners, and establish a strategic management team, then hand over all operations to the management team.

Info@ge: Can you disclose VSC's stake in iSteelAsia?

Yao: It's very difficult because we keep adding founding members to iSteelAsia.com, who are also entitled to revenue warrants hence will dilute all founding member's shareholding positions. The revenue warrants is one of our vehicles to attract more transactions going through our site. It is our intention to recruit 20 founding members this year and 50 by 2002.

Info@ge: So are you simply looking to engage players in the steel industry?

Yao: No, we will even dilute the company's shares to content providers such as Reuters who is already one of our founding members in content provision. We will also look for strategic alliances, such as financial institutions.

Info@ge: How big is the steel market in Asia?

Yao: Asia steel consumption is growing so fast and represents 45 percent of the world's consumption, which is larger than the US. This market is worth 150 million tons, two times the size of US and very close knitted. The second market in Asia is Japan and Korea, which add up to 120 million tons.

Info@ge: It is difficult to convince buyers and sellers to trade online?

Yao: The barriers to entry as always with portals is the reluctance of people who resist change. However, it would be more difficult if we were a business-to-consumer portal. For example, in China, the PC penetration rate for businesses as well as Internet access is much greater than for consumers. Being an end user of steel you are usually at the upper end of the PC penetration ladder.

Info@ge: How much did you spend to launch iSteelAsia.com?

Yao: We spent US$10 million already and we are prepared to spend whatever it takes for the next three months. We believe we are the first in Asia and 6-9 months ahead of the next competitor, and as you know the first mover advantage is extremely valuable. Take a look at eSteel.com and Metalsite.com, both pre-IPO domestic steel portals in the US. The market valuation for eSteel in December was US$350 million and as for Metalsite.com, one of its founding members sold 20 percent of shares for US$200 million which gives the company a US$1 billion market cap.

Info@ge: The value of these deals are huge, and not your typical credit card transaction. How are they transacted?

Yao: We use virtual L/Cs (letter of credits) and right now we use ABN AMRO bank to capture these transactions. Virtual L/Cs are nothing revolutionary, it's simply putting a L/C application online.

Info@ge: Are you taking to any other banks?

Yao: We are taking to a lot of banks and are in negotiation with two of them. This will provide a better level of financial services to iSteelAsia.com customers. When buyer and seller conclude a deal online, the site offers services from partner banks to help with transactions. At the moment we have one bank however if we had several then each would put in a competing bid at the best rate for the services charged. However, currently actual transactions happen offline.

Info@ge: What are your revenue streams?

Yao: We take less than one percent commission on all deals. Our business model calls for multiple revenue streams and we have established revenue sharing partnerships with shipping, banking, surveying, and insurance companies to bring their services online. In the future we'll look to provide logistics, and other supply chain management services.

Info@ge: Steel is only one of many commodities, how easy will it be for a company to replicate your portal for another commodity such as rubber?

Yao: It's easy for industry experts to enter the market because having the right contacts and knowing the market is very important. For example, our number one initiative was tagged China and Chinese, that includes China, Hong Kong and Taiwan and Malaysia, Philippines, Thailand, Indonesia and Singapore where local steel industries are all controlled by Chinese trading families speaking Chinese. There are many ways to skin the cat but as a company we will focus on developing our portal. For example, developing a steel hedging mechanism. You can go to the financial markets now and hedge a position for gold but there's no such service for steel. On the other hand, from an investor position, once we have the experience, we can easily replicate our services and extend to other markets. For example, some of our customers, such as automobile manufacturers, will use steel, as well as plastics and other materials.

Info@ge: What are your projections for transaction volume on the site?

Yao: We took a conservation approach and this year we want to hit US$350 million but in year 2002 we want to hit US$5 billion. We have 800 members and anticipate 6000 by December.