Nikkei Business
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Dominic Penaloza, Meta4 Group CEO
Transcending the language barrier with the help of the Internet

Relying on strong conviction and tireless energy, after surviving the original Dotcom crash, the creator of the WorldFriends multi-lingual social networking service made the business profitable within three years.

Dominic Penaloza at his Shanghai office, holding a giant match symbolizing the ‘match making’ bridge between people (of common interests.)

Dominic Penaloza Jr., born in February, 1970 in Toronto, Canada, 37 years old. Graduated from the University of Western Ontario in Canada with an Honors Business Administration degree. After graduation he worked in Hong Kong as an investment banker at Smith Barney Inc. (now part of Citigroup) and private equity investment company PAMA Group. In January, 2000 he founded HungryForWords and assumed the role of CEO. He moved from Hong Kong to Shanghai in 2005.

A unique online service named WorldFriends is attracting people’s attention. From its main office in Shanghai, WorldFriends achieved profitability three years after its launch. It now has 1.5 million registered members from all over the world and mainly from Asia. Japan is the source of 70% of WorldFriends’ earnings. WorldFriends is an Internet social networking service (SNS) operating in four languages: English, Japanese, Chinese and Korean.

Dominic Penaloza is the founder and CEO of WorldFriends. Early in 2000, he started started Meta4 Group, the company that operates WorldFriends, and a few short months after launch the Dotcom bubble burst, leaving him to struggle to keep the company growing within the difficult business environment. Penaloza seems to be Asian but looks somehow exotic and tall at nearly 180cm, wears smart casual clothes and speaks native English. Anyone might guess he is an overseas Chinese, but perhaps few would correctly guess his origins. So, we directly asked him. He started to tell us with a shy smile “well, it’s a bit complicated”. He was born in 1970 in Toronto, Canada. Penaloza’s grandparents are from Fujian, China; they moved to the Philippines before World War II and changed their surname to a Filipino name. His parents emigrated from the Philippines to Canada in the 1960s. This is how a Canadian entrepreneur with a Chinese face and Filipino surname was born. He was born and raised in Canada, where English and French are the official languages, and lived there until he graduated from university. French was a mandatory subject in school, (but although he spoke English with friends,) the language he first spoke with his parents was ‘Hokkien,’ Fujian’s Minnan dialect. When visiting the Philippines over the summer holidays, his relatives spoke to him in Cebuano and Tagalog. Mandarin and Cantonese were added after he started to work in Hong Kong. “My whole life has been a series of cross-cultural situations, feeling at home everywhere, yet nowhere, at the same time. I always tried my best to overcome cultural and language barriers. WorldFriends was born from my own experiences,” says Penaloza.

Becoming Friends with Native Foreigners

Although the Internet is a global communications technology without borders and geographic boundaries, surprisingly few companies have truly exploited this to provide a robust international service to users of different nationalities and languages. For example, the users of Japan’s largest SNS, Mixi, are almost entirely Japanese people. The world’s largest SNS, Myspace, does provide multi-lingual services in languages including English, Spanish, and Japanese, but each site is managed as a ‘national silo’ and there is little inter-mingling of the various sub-communities. In contrast, Penaloza’s vision is that due to the pace of globalization, the global village is becoming reality and the emerging ‘global culture’ is already larger than most people realize. Despite the trend in creating mono-lingual SNSs, Penaloza created an online community where users of different nationalities and languages can enjoy chatting with each other, and find friends. With the quadrilingual WorldFriends service, users can find other users who match with their interests from all over the world. For example, a user could set a requirement such as as men in their 20s who speak English and live in Japan, and get plenty of search results. However, WorldFriends does not provide a translation service. Penaloza developed the service as the best place to experience ‘social learning,’ the ideal way to improve foreign language ability, appealing to anybody who has an interest in learning foreign languages and new cultures. The most effective and fun way to learn a new language is to become friends with native speakers of that language. However, in reality, it’s difficult to find frequent opportunities to socialize with such people. In fact, unless you work in the company where you deal with foreigners on a daily basis, such chances are rare and finding them requires a lot of effort and expense. Some of the readers may have browsed through the classifieds section in exchange program booklets, looking for a penpal, or posted an advertisement with hopes in finding one. As a person who had lived in seven different countries, Penaloza had the insight that the real world demand for cross-culture friendship and language exchange far exceeded the supply, and believed that a big business could be built by bridging the demand-supply imbalance using the Internet.

WorldFriends was launched in July 2003 and its member base of internationally-minded people steadily grew. Penaloza devised a flexible distribution platform by partnering with websites for Japanese and other Asians who study English and websites that introduce Japan and other Asian countries to Westerners.

“WorldFriends has tremendous growth potential, and 1.5 million members is just the beginning. With the acceleration of globalization, 10 million is very achievable.” says Penaloza.

Since profitability is just as important as growth in the member base, Penaloza initially focused on the Japan market. While English is the most studied language all over the world, in Asia demand for learning English is very high. Asian people are willing to spend significant amounts on English learning to boost their career prospects. The reason he decided to focus on the Japanese market was that Japan is Asia’s largest market for English learning.

“I was inspired by the fact that millions of Japanese people take private English courses and pay tens of thousands of yen every month. I was sure that people would be interested in brand new ways and opportunities to learn English using the Internet, (especially if it would be more fun and effective, yet less expensive, compared to English conversation school or study abroad.)” says Penaloza.

WorldFriends reached profitability in July last year. WorldFriends’ revenue comes from member subscription fees and about 4% of all members purchase premium service subscriptions. Registering, creating profile, and searching the member base are all free of charge. But in order to initiate communication with another member, you need to be a “VIP” service subscriber. There is another kind of paid membership, “Open Club”. With Open Club, users cannot initiate contact with others, but anyone can contact Open Club members free of charge, including regular members. There are many people in Japan and China who want to study English, but feel embarrassed to send poorly written messages to native English speakers. Open Club is designed for such people who want others to initiate the contact. “I am also Asian, I have experienced the embarrassment and challenges of learning languages and cultures myself, and so I understand users’ feelings.” says Penaloza.

Winning the hearts and minds of Japanese people who study English.

Subscription fees are different based on the market, currency and length of subscription. A 3-month VIP subscription is 7000 yen and a 3-month Open Club subscription is 7500 yen. It is not cheap compared to general online services; however, 70% of revenue comes from Japan.

Penaloza found an untouched market in the Internet space which was blocked by the language barrier. Even after identifying a need demanded by consumers, it is not easy to make it a successful business, especially a complex need such as international friendship, culture exchange and language exchange. Partnering with many distribution partner websites from various countries whose business practices, and languages are different, and providing a service that is attractive to a very diverse group of users is a large operational challenge. Penaloza won hearts and minds of Japanese who study English and got his business on track.

WorldFriends operates from three offices in Shanghai, Tokyo and Hong Kong and one of its competitive strengths is its “international DNA” provided by the melting pot of its internationally-minded staff from China, Japan, Canada, Switzerland, and several other countries. The business got on track due to Penaloza’s personality and capability.

“Dom has excellent skills in picking what is necessary and unnecessary from the many ideas from our employees and decide which direction the company should go,” praised Ken Harada who joined WorldFriends as business development director after starting up various Internet companies in Japan such as DoubleClick Japan.

“Dom has excellent skills in accurately understanding the important points, even if the subject of discussion is outside of his field. He is a responsive boss, thus employees feel inspired to work hard,” said Jim Yao, WorldFriends’ IT director in Shanghai who has extensive experience in technology management and development in both USA and China at IBM.

Penaloza’s grandfather was an entrepreneur who started his business trading spare parts with US forces in Philippines after the war. Later, he started a successful business importing ball bearings and roller bearings from Japan into the Philippines. Penaloza’s father is a serial entrepreneur who was a pioneer in opening up a series of shops and restaurants in the original Chinatown in Toronto. Penaloza started his first business venture early, when he was five years old. He opened a lemonade stand in front of his home in Toronto (photo, right).

First entrepreneurial venture at age five; a lemonade stand in Toronto

Penaloza was raised in an entrepreneurial family, and he experienced first-hand the ups and downs of entrepreneurial life. Penaloza’s father started businesses in the Philippines, the USA and China. Regardless of success of failure, building companies in foreign countries has been the daily life of the family for at least three generations. “Becoming an international entrepreneur was the natural choice for me. My grandfather was an entrepreneur, and my dad is an entrepreneur, even my grandmother and mother are entrepreneurs,” says Penaloza.

Penaloza majored in business administration and after graduation he headed to China for one year to help establish his father’s company in the market. He then became an investment banker with Smith Barney Inc.’s Hong Kong office in 1994. Later, he joined PAMA Group, a prominent pan-Asia private equity investment company, and worked on investment deals in across Asia including Japan and Greater China. It was an ideal training ground for Penaloza, whose goal was to become an entrepreneur.

Penaloza’s entrepreneurial turning point occurred in autumn 1999 when the whole world was focused on the so-called Internet bubble. Countless investment propositions had been sent to PAMA, but PAMA was very cautious and passed on all of them. However, one day Penaloza came across a business proposal that grabbed his attention. It was about permission email advertising, which he deemed to have profitable potential. PAMA passed on this one as well, but he kept it in his mind for future entrepreneurial plans.

Inspiration came suddenly. As a finance professional struggling to master Mandarin, Penaloza traveled with handmade flashcards with English on one side and Chinese on the other side for him to study new investment terminology. After accomplishing the IPO of a PAMA investee, he took a holiday in Italy, and when he was flipping through the flashcards at his hotel room, the idea suddenly bloomed in his mind; personalize the flashcards and send them daily free of charge inside emails, supported by advertisers who would pay to reach a white-collar, highly educated audience.

7 days test policy

“I can provide free education to help millions of people around the world who are trying to learn languages. It’s not just a substance-less dotcom, but can surely be a profitable business. This is the work I should pursue.” thought Penaloza.

He tendered his resignation at PAMA when he returned to Hong Kong and started to prepare for the business. Fortunately, Penaloza’s bosses and partners at PAMA agreed to invest as individuals. The flashcard service was named “HungryForWords.com” and launched in February 2000. However, the happiness and thrill of launching the business was short-lived, as the Internet bubble was burst a few months after the launch. His hope for further financing was extinguished and he faced near bankruptcy. Penaloza reduced the scope of the business and skated on thin ice towards profitability and financial self-sufficiency. Two years later, HungryForWords.com became profitable, but investors were still not interested in Internet businesses. But Penaloza never gave up and established WorldFriends, making use of his marketing know-how, business networks and a little excess cash from HungryForWords. In order to reduce operating costs and to move closer to a future major market, he moved the main office to Shanghai in 2005.

Mr. Makoto Yasuda, director of Li and Fung Ltd., the leading trading company in Hong Kong, a WorldFriends shareholder who was also Penaloza’s colleague at PAMA describes Penaloza, said “Dom has a tremendous drive to succeed and a huge spirit for challenge which are crucial for an entrepreneur, and also calmness and patience which are crucial for investors. If he was just an average entrepreneur, he might given up a long ago.”

In fact, it’s common for Overseas Chinese businessmen to give up on businesses at the first signs of challenge and look for a new business opportunity. However, Penaloza never gives up until he succeeds. The driving power to make WorldFriends become a profitable business was his daring spirit which survived years of hardship after the bubble burst.

Asked if he had ever thought of giving up, Penaloza replied “I have my own ‘7-day rule’. I consider myself an ‘ideas person’ and I think of new business ideas all the time, perhaps once per week on average. I have many ideas about business opportunities, but after examining the ideas from various angles, I still feel strongly about few of them after seven days. Only HungryForWords and WorldFriends passed the test. I was so sure of the success, so I never thought of giving up at all.”

(Shinji Tahara, Nikkei Beijing branch)