June 28, 2000

Software entrepreneur Keng Lim is aggressively plowing back investments into his Asian roots with new vehicle Escalate.com and plans to open up in at least five countries by year-end.

The Malaysian-born Lim, who founded and sold Kiva Software Corporation to Netscape Communications for a cool US$180 million in 1997, told ZDNet Asia his initial target markets are Japan, Korea, Greater China, Southeast Asia, Australia and India.

"We have established operations in Japan, and are in active discussion with leading players to enter the Korean and Greater Chinese markets. We are also in the process of establishing a development center in Southeast Asia," said Lim.

Lim describes Escalate.com as the first e-commerce applications service provider, or ESP. The company enables both new dot-coms and established corporations to outsource their entire e-commerce infrastructure and start selling products and services online within six weeks to three months at significantly reduced costs.

"We found in late 1998 that more and more corporations were fed-up of paying high up-front costs for their e-commerce solutions, and with promised benefits only showing up nine months to a year down the road," said Lim.

"We decided to significantly change the economics, and to offer an outsourced, end-to-end solution at 20 percent the cost of doing it in-house, and enable clients to go to the market very quickly with expert backing."

Lim set up Escalate Inc in January 1999 with three long-term collaborators from his Kiva days and has since raised US$45 million in working capital from firms such as Accel Partners, Norwest Venture Partners and the Barksdale Group, headed by former Netscape chairman Jim Barksdale.

The 34-year-old MIT-trained Lim has proven to be software Midas in his short career. He first honed his entrepreneurial bravado as one of the five original developers of a database software company called Approach Software, which was eventually sold to Lotus Development in 1993.

In 1995, he pioneered the development of the Kiva Application Server, the first enterprise-class software product that enabled secure and reliable transactions over the Internet.

When Kiva was acquired by Netscape, Lim played a significant role in legitimizing his new employers enterprise product family and deployed high-transaction e-commerce sites for clients such as Bank of America, Chase Manhattan Bank, Citibank, Ford, FedEx and E*Trade.

Sharing the risk

It was in Netscape that Lim was convinced that most companies will move away from buying packaged client/server applications in favor of outsourcing to application service providers or ASPs.

Escalate.com takes the ASP model a step further by offering to undertake and manage the entire Internet selling chain from applications to infrastructure, merchandising, marketing, catalog management, customer fulfillment and logistics.

Lim describes it as a "Shared Risk/Reward" model. "We take the risk. We don't make money if our customer doesn't make money," he said. Customers do not need to buy software, hardware or hire additional staff. Instead, they pay a monthly subscription based on capacity used and a small transaction fee for every transaction processed.

Escalate boasts round-the-clock service, highly scalable applications and powerful data centers with enough capacity to add up to six customers every four weeks.

Lim said he is aggressive about expansion plans in Asia because he believes the region is set to boom. "The e-commerce market potential in Asia has not been realized and has only reached the sub-10% level. I project that within three years at least 20% of the largest e-commerce sites and e-marketplaces in the world will be based in Asia."

He also predicts that key players in e-commerce in the region would already have emerged within an 18-month timeframe.

Lim is projecting Asia to contribute 20 percent of Escalate.com's worldwide revenue, and will expand its headcount in the region to over 150 within two years.

Escalate.com is targetting high-traffic websites, portal players, destination sites, ISPs, ASPs, financial service providers, manufacturers, retailers and large corporations that are looking to add e-commerce capability to their websites.

Saving the hassle

The company hopes to attract established Asian companies that already see the benefits of outsourcing but are wary about building an e-commerce site from scratch.

"By tapping into the expertise of e-commerce service providers, Asian companies can bypass a great deal of expense and time and reach the global marketplace more quickly," he said. Lim cites early customer Turoturo.com, an online store for handicraft and goods manufactured in the Philippines, that the Escalate.com team had up and running within four weeks.

Lim believes the key asset for Asia to leverage on in an Internet-driven world would be its existing manufacturing capability and natural resources. "Asia offers some of the best consumer products in the world in electronics, appliances, footware, toys and many others. The region has many other natural resources, and an enormous manufacturing capacity, which has already contributed significantly to the B2B phenomenon. At the same time, Asia has a vast pool of cultural and art products that will contribute strongly to the e-commerce market globally," he said.

In countries where the take-up rate of e-commerce has been slow, Lim believes that eventually every country may need to embrace the Internet to succeed in a globalized economy. "The digital divide is very real. Those who are learning how to work in and create e-businesses will have the upper hand in the marketplace. It will take a huge amount of effort and commitment for some countries to catch up. My fervent hope is that the divide will eventually dissipate. On the positive side, we are already seeing changes in countries such as Japan, Korea, Singapore and Malaysia," he said.

No pain, no gain

Lim does not see the current moribund outlook on US dot-com companies as a damper for Asian companies. "The current shake out is a moment of truth for some. Companies that have poor business models, weak infrastructure and poor retail planning are not doing well. The fallout and consolidation is actually a healthy and necessary step in establishing a mature economy. History has shown us in the case of telecom, networking and the PC eras that the ground shifts in order to weed out those who cannot meet the needs of the market. Ultimately, good companies with strong management, proven business models and large target markets will endure."

Lim said the market has given US dot-coms a "necessary but painful lesson". "I hope that companies in Asia will learn from it and not make the same mistakes. Every dot-com must think long and hard about how their company will be profitable."

Lim said e-commerce service providers can be part of the solution for Asian companies by offering to mind the store while their clients focus on their core expertise, and on building up their businesses and brandnames.

Asked what Asian dot-com companies would feature on his shortlist if he was a venture capitalist shopping in Asia , Lim cites Sina.com, Tom.com, Alibaba.com, Jobstreet.com, IQMind.com, AceFusion.com, Live-e.com and ECnet.com.

Lim expects Escalate.com to make a significant impact in the ESP space this year and to go public within a 12- to 18-month timeframe.

The Redwood City, California-based company has grown from four to 200 employees in 18 months and is currently in hiring mode. It hopes to add on another 150 staff by year-end including software design engineers, content producers, applications analysts, database specialists, systems administrators, and business development and customers service managers.

Published in ZDNet Asia