O Tannenbaum, How Your Fiber-Optic Needles Glow


By Bruce Einhorn It was only a matter of time. Hong Kong residents have seen a steel trader turn itself into iSteelAsia. And Hong Kong Telecom started an interactive television service called iTV. The new owners of the Hong Kong Standard newspaper relaunched the daily as iMail. And AUNet, a regional Internet service provider, became iAsiaWorks.

So when Boto International Holdings (stock code 585 HK), the world's biggest producer of artificial Christmas trees, decided to introduce a new, cutting-edge product, the name was a no-brainer. Get ready for the iTree.

WHAT MORE DO YOU NEED? It's never too early to start preparing for next Christmas. If Boto has its way, you'll be seeing the iTree at a store near you in December, 2001. In case you can't wait that long, here's what you can expect. The iTree will come in an array of colors and have fiber-optic needles, providing it with an everlasting glow -- no need to string lights anymore. Moreover, the 15-inch-tall iTree will have at its base an electronic gizmo that plays a dozen carols, counts down the days to Christmas, and features the "Grow a Tree" electronic game. Disappointingly, despite the name, the iTree won't offer Internet access.

For Boto, the iTree is serious business, part of the company's plan to take advantage of new opportunities presented by e-commerce. For most of its 17 years, the tree manufacturer has been content to stay in the shadows. Boto manufactures fake evergreens in its China factory as an OEM -- an original equipment manufacturer -- not unlike the Taiwanese computer makers that churn out PCs that the Dells and Compaqs of the world then sell as their own. Boto supplies its products to stores like Wal-Mart, Kmart, and Target, which then sell the trees under their own private labels.

The OEM business has been good for Boto, which earned $20 million in 1999 on sales of $100 million. The company enjoys a 30% share of the U.S. market and also sells in Canada and Europe. It even earned rare praise from David Webb, the notoriously grouchy publisher of Hong Kong stock-watch site www.webb-site.com. In December, 1999, Webb named Boto as his Hong Kong stock to buy for 2000. And, as Webb recently reported, investors who went with his suggestion did well since Boto's stock comfortably beat the benchmark Hang Seng Index (HSI). And don't forget the dividends that Boto paid during 2000. "Put $1,000 in the HSI a year ago, and you'd have $930," Webb wrote. "Put $1,000 in Boto, and you'd have $1,233. So Boto has outperformed the HSI by 32.6%."

FANCY TREE, FANCY BRAND. But Boto Corporate Development Director Terry Tse says the tree maker has had it with the anonymity of the OEM business. It wants to develop a brand name. That's where the iTree comes in. Boto will be making the new trees for itself, under the new brand name of DrFestive. This past holiday season, the company launched a new Web site, a portal called DrFestive.com. Very Deck-the-Halls, with Christmas stories, holiday recipes, presents, the site is aimed at building awareness of the DrFestive name, which might persuade consumers to grab an iTree next season. Tse explains: "We are good at solid manufacturing. We are leveraging the Internet to build a brand."

Of course, lots of companies have tried to set up portals to attract customers. And most of the sites are now dying painful deaths. So what can Boto offer that others don't? The secret, Tse says, has to do with a little piece of paper that comes in every box of fake evergreens the company makes: its warranty card. Only 30,000 of those cards make it back to Boto out of some 10 million trees sold. "Most people are too lazy," says Tse.

But while many of those lazybones can't be bothered to mail the postcard, they might be able to manage to sign up on the Internet. Especially if they can go to a portal like DrFestive.com that, as Tse puts it, "makes it interesting, fun, and easier for people to register online." So, the company officials thought to themselves, "why don't we build a Web site and enable customers to register online?"

HOLIDAY E-COOKIES. Already, Tse envisions what Boto will be able to do once it has nabbed some of those customers. Sure, Santa Claus may know when you are sleeping and know when you're awake, but there's not much data-mining value in that. Boto, on the other hand, will know where you bought your fake tree and how much you've paid for it. "That," points out Tse, "is valuable information."

Surprisingly, Tse says retailers like Wal-Mart and Kmart that sell Boto's products under their own private labels won't mind if the company sells the iTree under the DrFestive name. "Wal-Mart and Kmart would love it," he says. "That gives them one more product to sell." And since the iTree will be a brand-name product, the retailers will be able to charge higher prices for it than for their own store brand. Tse says: "It's a win-win situation." Einhorn covers technology from Hong Kong for Business Week. Follow his weekly Online Asia column, only on BW Online


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