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PE Interview With e-Ha Founder George Chen
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Shanghai-based e-Ha.cn offers online and mobile restaurant reservations. However, e-Ha, and its founder, US restaurateur George Chen, has a vision to build a platform where service industry companies, starting with restaurants, can offer variable pricing and sell excess inventory to their customers. The result is a Dianping.com or Yelp.com-style website where users can look up information on restaurants, set up a personal profile and read and write reviews, but also book a table online or through their mobile phones. Restaurants peddle excess capacity by offering deals, such as 30 percent off on Monday nights. Unlike most restaurant booking services, e-Ha has a fully online system (though only 500 of the 10,000 restaurants listed on its site are linked into the online system) that allows e-Ha to track a reservation and take a commission when it generates business for restaurants. The company currently uses an SMS-based mobile system, but is planning to build out WAP and Java services in the future.
The company is currently looking for a US$5 million Series A round. Below is Pacific Epoch's interview with e-Ha founder George Chen. Chen has opened 11 restaurants in the San Francisco area, including Betelnut and Shanghai 1930, as well as Shikumen Bistro and Roosevelt Steakhouse in Shanghai.
Pacific Epoch: Where did the idea for E-Ha come from?
George Chen: I was on Wall Street all through the 80s, then I switched gears and went into the restaurant business. I came out to China in 2004 to see what was going on, just like everyone else. We opened Shikumen Bistro in Xintiandi; however, we got into a fairly high rent situation with high labor costs as well. We lasted about 20 months.
That experience taught me that the Shanghai restaurant scene is a huge but very fragmented market. There are maybe 30,000 to 40,000 restaurants in Shanghai. Customers just forget about you or when they do show up they want a deal. I had all this excess capacity, but couldn't reach my market. The problem in China is that you do not have any part time employees like you have in The States. Everyone is full time, which raises costs. I also noticed that everyone is on their cell phones constantly. I myself was receiving e-fliers and SMS telling me to go to other restaurants. It was annoying, but everyone was doing it.
When I started developing the idea for E-Ha, I thought how with airlines, the person sitting next to you is probably not paying the same price, and in hotel rooms, the guy in the room next to you is probably not paying the same price. So why do you pay the same price at a restaurant at 7pm on Friday night and at 10pm on a Monday night. As much as E-Ha is about offering online or mobile reservations, it is also about a variable pricing model to push perishable inventory—in this case seats—in the service industries. Our focus right now is restaurants, but eventually we can get into spas, theater, workout facilities, bars—anything that has excess capacity.
PE: How is e-Ha different from other online booking services?
Chen: Some people call us an Overstock.com for restaurants. We think what we are doing is a fairly innovative idea. There is no one doing this in the US or anywhere right now. It is hard to execute, because there are a lot of pieces to it. What we are trying to do is deliver value by monetizing excess inventory. We push it to customers through a discount. But how do you collect from the merchant? A lot of people are doing mobile coupons, but how do you collect on that? That is an ad model and e-Ha is not an ad model. What we have is a cost-per-acquisition (CPA) model. We put your deal on e-Ha, and push it to the customers. They make a reservation through us and the restaurant has business that they would not have had otherwise. They fill empty seats. That is how you make money in the restaurant business—on Monday nights, the slow times. Everyone is busy on Friday and Saturday. It is the off-times where you make your profit. So the restaurant wins with our model. We don't charge the customers anything, and e-Ha gets a commission.
PE: Can you walk us through how a customer would use e-Ha's system?
Chen: A user makes a reservation at a restaurant on e-Ha that includes a deal; say, for 20 percent off an RMB1,000 bill. The user gets 500 points for joining e-Ha and they apply 200 points to the purchase. When they get you the check there is no coupon or VIP card, nothing to swipe, because e-Ha made that reservation for them. The RMB200 is automatically taken off the check. e-Ha gets a percentage of that discounted amount.
The user can then rate the restaurant on their mobile phone. A restaurant rating validates a user, so the next time that restaurant has a special deal, we can push that to the user. We also have a personal profile page, where users can fill out questions about themselves. Our filters are then able to selectively find things that suit the consumers, rather than just throwing stuff out there.
PE: Do consumers think of e-Ha as a place to book a table or as a place where they can get a discount?
Chen: For the consumer, they do not have any idea about the excess inventory, variable pricing model. All they are looking for is a deal. They see a deal on e-Ha for a discount at a well-known restaurant on Monday, and that gets them interested. At Roosevelt's, we have had at least 40 reservations through e-Ha in the last 30 days. We have paid e-Ha almost US$300. The user doesn't have to understand anything that goes on behind the scenes. They just want something that gives them value and is easy to use.
PE: A lot of Chinese people like the call center model. Do you think they will embrace the online model?
Chen: They do, but that is changing with the growth of the Internet. People in the US would also prefer to talk to someone rather than go through an automated prompt system. But for businesses, it is very difficult to scale if you just have the call center model. Also for this type of thing, for a company like Ctrip, people can book all day long. However, for us, if everyone picked up their phone at five or six o'clock to book a place for dinner, you would not be able to handle that with only a call center model if you have 50,000 people calling at the same time.
PE: What is the primary way people book right now?
Chen: Right now it is about 75 percent web, 25 percent mobile. We do not actually have a call center model. We will give you the call center number on the website to keep in case you need it. Some people end up just calling the call center, but the call center people are supposed to walk them through how to use the mobile service. There is a learning curve, but once you learn how to use it, you are in the loop. There are some commands you have to learn for the mobile part, but if it helps you save money and makes your life easier, you will do it.
PE: How many restaurants are you working with?
Chen: We have deals with about 1,000 restaurants and we have about 10,000 listed on the site. Restaurants have their own page on the site where they can see their deals. We are setting it up so that they can go in and manage their own mini-web page and change their deals.
PE: Do all restaurants offer discounts?
Chen: Some offer flat discounts that can be used anytime. Others, such as South Beauty, are a little more sophisticated in what they offer. Once restaurants understand the variable pricing model, they are interested because they don't want to give 20 percent away on a Friday or Saturday night.
We prepare marketing materials that show restaurants how much business they are actually doing. The smart ones, like South Beauty, get it. Some of the smaller restaurants are not so savvy. We are trying to help them understand the concept.
PE: How many employees do you currently have?
Chen: We have 43 employees in two offices. We have four in-house developers, along with a senior engineer, and four testers. We have eight salespeople and four sales support.
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