Red Guards couldn't drive capitalism from WebEx owner

Subrah Iyar, left, and Min Zhu are the co-founders of WebEx Communications in San Jose, Calif. Mr. Zhu spent seven years of forced labor on a rice farm during the Cultural Revolution in China during the 1960s. He worked from 2 a.m. to 8 p.m. seven days a week. He started college in China at age 30, having to compete against teenagers for the 2 percent acceptance rate.

SAN JOSE, Calif. -- China's communist Red Guards tried to "wash" capitalism out of Min Zhu's mind through seven years of forced labor on a rice farm during the 1960s Cultural Revolution.

They didn't do a very good job.

Mr. Zhu, now 55, went on to co-found WebEx Communications, a San Jose company that enables people to hold online meetings in which they can see and hear one another in real time. That's not exactly the work of Chairman Mao Tse-tung's model peasant farmer.

The culture and success of WebEx, which dominates its field, reflects the drive and frugality that has propelled Mr. Zhu since he emerged from the years of planting, harvesting and hauling rice from 2 a.m. to 8 p.m. every day of the week.

"He is forever trying to catch up on those seven, eight years that he feels he lost," said Subrah Iyar, WebEx co-founder and chief executive.

The company is valued at $1billion and is adding about 100 new employees a quarter. But it wasn't too long ago that Mr. Zhu pitched in to help haul office cubicle partitions to a moving truck to save a few dollars.

Mr. Zhu, lean and angular, eschews opulent corporate trappings.

"You like my office? It's a humble one," Mr. Zhu said. The cubicle-size space is utilitarian: There is a map of the world on a wall, tech books on shelves, a small U.S. flag.

He stands when working at his computer because his back was permanently damaged during his years on the rice farm, where he was frequently part of an eight-man team hauling 700-pound boulders balanced precariously on rope-and-bamboo slings.

Nevertheless, Mr. Zhu embraced hard physical work, such as building a retaining wall at his Los Altos Hills home. "I like the physical piece, not just the virtual," he said. "It reminds me of the hard life."

"We were told, 'For the rest of your life, you will stay here,"' Mr. Zhu recalled. "The hardest part was mental. Regardless of how smart you are, you were destined to be there, only to grow rice."

When the Cultural Revolution ended in 1976, Mr. Zhu, who had married a high school classmate while on the farm, took college entrance exams, but no more than 2 percent of university applicants were accepted. "I still remember walking into the examination place. All the other people looked so smart. How could I be the one who goes to college?"

In fact, he garnered extraordinarily high scores. At age 30, he sat in classes with teen-agers.

After graduating with a degree in mechanical engineering from Zhejiang University in southeastern China, Mr. Zhu earned one of two scholarships offered to attend post-graduate programs at Stanford University in 1984. "I was 36 with broken English and a mechanical engineering background. How could I become competitive in the valley?"

To help support himself, he tried babysitting, cooking and even walking dogs before becoming a Menlo Park apartment manager.

He earned a master's degree in engineering economic systems, but left before completing his doctorate degree. In 1991, he co-founded Future Labs, whose technology became the foundation for WebEx. He was in his early 40s and in a hurry to fulfill his dream of starting a company in Silicon Valley.

"He's always fighting against that sense of making up for lost time," said David Thompson, WebEx chief marketing officer.

WebEx, founded in 1996, became a publicly traded company in 2000. Under Mr. Zhu's guidance, WebEx designed a global network to facilitate online communications to companies that pay fees for "ports," or seats, at meetings, and for minutes used. WebEx provides all the infrastructure, so companies do not have to buy software or worry about internal tech support.

The system allows for the exchange of complex data, such as spreadsheets or Power-Point slides, as well as audio and video. Leaders of the online meetings can mark up spreadsheets the way TV sports commentator John Madden marks up a football field.

WebEx has recorded a steady increase in sales and finished 2003 with nearly $190 million in revenue from more than 9,500 corporate clients. Last year's profits were nearly $60 million, but that included a $15.6 million tax benefit.

The company has no debt and reported $143.5 million in cash at the close of the first quarter in 2004. It reported sales of $56.3 million for the most recent quarter. For 2004, WebEx forecasts revenue of $235 million to $245 million.

The phrase, "Let's do a WebEx," has become part of the corporate lexicon.

"It dominates the space," said Pacific Growth Equities analyst Joseph Noel. "They have fantastic margins. They really are pretty tight on expenses."

The company is perhaps most widely known for its flashy ad campaigns. Recently, WebEx hired comedian Lily Tomlin to portray the pinched-faced switchboard operator "Ernestine," who refers to online meetings as "the new ringy-dingy."

WebEx, analysts say, will be challenged to retain its lead.

Nathan Swanson, with ThinkEquity Partners, believes the company needs to develop simpler online meeting products aimed more at the mass market, which the company says it is doing. Furthermore, he said, the company will be under continual pressure to keep prices down.

Indeed, while WebEx has outpaced competitors, it faces continued battles with companies that offer related services and products, such as Raindance, IBM, Oracle and Macromedia. In January, Cisco Systems acquired WebEx competitor Latitude Communications.

For now, though, observers view Microsoft, which acquired Web conference company PlaceWare last year, as the biggest threat.

"WebEx knows it has a window of opportunity -- and that window is rapidly closing," said David Coleman, managing director of Collaborative Strategies.

Mr. Zhu is mindful of the difficulties his company faces. He is always thinking of the next step -- some say, the next four steps. Zhu envisions WebEx technology transforming how the world communicates through home phones, cell phones -- even TV.

WebEx just entered into a partnership with Hong Kong University of Science & Technology to develop a process that will allow people to have multimedia meetings through wireless devices using a 3G network.

Mr. Zhu is something of a force of nature. He waves his arms as though perpetually flagging a taxi. His words flow quickly in a futile attempt to keep pace with his racing thoughts.

"He talks with so much energy," said Jordan Zweigoron, former director of strategic relations at WebEx. "He nearly blows you out of your chair. It often takes weeks for his vision to sink in."

At night, after he leaves the office, Mr. Zhu takes walks near his home to think through his company's next moves.

"I don't write anything down. I have all this fuzzy stuff," he said, pointing to his head.

He works as many as 80 hours a week -- and expects a demanding work ethic from those around him. He grew up with a hard-working mother after his father died when Mr. Zhu was just "40 days old." He describes his childhood as "lonely."

Mr. Zhu is as sparing with money as he is with time. During the early days of WebEx, he and his wife, who assists the company's China operations, watered company plants to avoid hiring someone to do it.

Any WebEx board member who fails to attend at least 75 percent of meetings will not be paid the annual retainer fee the following year -- a requirement that few, if any, top valley companies have.

"I challenge every employee, 'Why did you make a $6-a-minute cell-phone call?"' he said. "It's not a lot of money. But it's the philosophy of our company: To be sure we will be there for the next play. We will not be eliminated."

In response to its growth, WebEx plans to move into one of the Mission Towers in Santa Clara, Calif. It will be renamed "WebEx Tower." The upgrade is rooted in business, Mr. Zhu said. Clients from Asia, who equate a company's success with the quality of its office, are apt to get the wrong impression when they see the present San Jose headquarters: low-slung buildings with windowless offices originally designed for manufacturing.

"They will think we are a start-up," he said.

Mr. Zhu frequently returns to his homeland, where he has donated money to computer labs at several universities. He's now something of a celebrity in China, where the company has about 500 engineers.

It is not uncommon for high-ranking delegations from China or Hong Kong to visit Mr. Zhu at his office, where the parking lot is so jammed with employee cars that the company uses a valet service.

"It's pretty enjoyable," he said. "Now, people respect me. It's very important to me."

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