The China Vortex

Several days ago, Sam Flemming of CIC, a Shanghai-based online reputation management company pointed me to a news article on Business Week called “Inside The War Against China’s Blogs”.

The article specifically highlighted a company called Daqi.com (in Chinese the name means “Big Flag” which has a certain nationalistic appeal), and cited a case in which it helped Toyota satisfy a customer who had not received his car after three months. According to the company’s CEO, her company, an Internet online reputation management company, helps its customers, mostly western multinationals, to monitor their online reputations and help put out fires with users in China.

Out of curiosity, I then entered Daqi.com into my browser address bar so that I could visit the site and learn more about the company and what they do.

What I found, and what I did not find, were very interesting.

First of all, I thought I was going to find an online reputation management company, or public relations company, or whatever buzzwords they are using now to lure in corporate business.

But I found nothing of the kind. Instead, I was confronted with what I would call a typical Chinese portal website, complete with channels for “Homepage”, “Society”, “Military”, “Strange and Curious”, “Autos”, “Digital”, “Women’s Makeup”, “Pictures”, and “Reputations” (in beta).

(I have uploaded the screenshots of the pages mentioned below to Picasa and you can access them here.)

Aha, I thought to myself, I’ll click on “Reputations” and see what I find. When I went there, I found that it was full of forums divided into the categories “Cars”, “Cameras”, “Notebooks”, “Digital Cameras”, “MP3″, and “MP4″. The page is very long, and like most Chinese pages, scrolls on quite a distance with recommended products in each product category. This page, like the rest of the website, was designed very much to lure Chinese visitors. To visit the page, you can go to http://exp.daqi.com/

My next question was whether they took advertising? The only banner advertising I saw was for Dell, which ran on the two pages I visited. But it would be foolish to think that their only revenue came from banner advertising. Looking at how the page was designed, and the way some of the products were given larger photos and highlighted, it was easy to see that some makers were paying for higher rankings for higher visibility.

But nowhere did I see anything about their online reputation management services. So I thought to myself, “Surely the person who wrote the Business Week story, Dexter Roberts, could point to a website where Daqi offered their online reputation management services, in either Chinese or English.”

I could find nothing of the kind.

Daqi claims that it regularly searches 500,000 forums daily for its corporate clients. I’m sure that it works on many sites which are not related to Daqi. However, it also raises the very uncomfortable possibility that it may actually manipulate online reputations by starting flame wars over product reputation, then charging their corporate clients money to put them out. (I’m not claiming that Daqi does, but the very fact that they run their own portal under their own company name and URI means that they have very little respect for their non-Chinese corporate clients and western journalists’ capability to conduct online research in Chinese.)

The clash of interests which arises from revenue from makers for higher rankings on their own portal site, and then revenue from non-Chinese corporate clients for “research insights” and “firefighting services” into Chinese online behavior is obvious to anyone. The temptation to use their own forums to “seed” opinions must be very great. These seeded opinions would then quickly proliferate to other sites.

There is a simple way to find out, and that is to check timestamps of postings. All forum software includes a posting timestamp, and it’s easy to check the timestamps on a subject to push it back in time to where and when a rumor started. What is harder to find out is the identity of the poster, but this can sometimes be done by checking the IP address of the poster if IP cloaking is not used. Different online identities sharing the same IP would most likely be the same poster.

I wonder how many corporate clients do this kind of checking?

I find the whole practice of hiring Chinese and paying them to post favorable comments on a per posting basis to be an unethical PR practice. According to the BW article, this is a common practice. A Beijing-based PR professional, William Moss, talks about this in more detail.

Online public relations firms will have to draw up and aggressively publicize clear guidelines on what they do, and what they don’t do when it comes to monitoring online behavior in China. Playing multiple roles as player and referee doesn’t make it in my book. I have talked about some of the skills needed in a previous posting.

This is part of the problem which actually slows down Internet growth in China. In spite of it all, there are healthy groups for product discussions.

Of course, each corporate client will have to make its own call as to what it is most comfortable with. And so will their VC backers. (I wonder if they read Chinese?)

But if someone does do an article on a Chinese company, at the very least, the URI mentioned should include, in either Chinese or English, the business they are in which is mentioned in the article.

Nobody likes bait and switch tactics, and I’m no exception.

Is that too much to ask for?

Technorati Tags: advertising, BBS, China, Chinese, cic, forums, imagethief, management, marketing, online, postings, PR, publicrelations, reputationmanagement, VCs, venturecapital

Several days ago, a different kind of earthquake happened in China in the telecoms field. Unlike the Sichuan earthquake which took so many lives and caused so much damage, this shakeup was not unexpected. It’s ramifications will be large, if not huge, and it’s worth going into some depth to get a deeper understanding of how this change will affect the development of mobile usage of the Internet in China.

Before leaving the Sichuan earthquake as a subject, I would like to point you to this excellent slideshow by CIC Data (h/t to Tangos Chan) which shows how China’s grassroots social media has helped in the disaster rescue and recovery process.

China’s New Telecom Landscape

The main points of the new joint interagency government announcement by the MII (Ministry of Information Industry), NDRC (National Development and Reform Commission) and Ministry of Finance (MOF) are phrased as an opinion and encouragement. (Note: When you get two government ministries and one super-ministry “encouraging” you this way, you do what you are encouraged to do, even if you are China Mobile and have the largest single-country number of subscribers in the world. After all, this is China, not the US, where big corporations tell Congress and the executive through lobbyists and lawyers what they want and are willing to do, and then sell it to the American people through the media as “being in the best interests of the people”.)

The main points are:

• China Telecom is “encouraged” to acquire the CDMA business of China Unicom
• China Unicom and China Netcom are encouraged to merge
• The basic telecom service of China Satellite should be merged into China Telecom
• China Tietong (part of the railways infrastructure and the third fixed line operator after China Unicom and China Netcom) is to become a wholly-owned subsidiary of China Mobile

All six operators (China Mobile, China Telecom, China Unicom, China Netcom, China Satellite and China Tietong) have been asked to separately submit their implementation plans to the relevant ministries where they will be encouraged (again) to reconcile their different plans and agree on a schedule. Once this is completed, the Chinese government will then announce the granting of the three 3G licenses and which operators they will go to.

Following the reorganization, there will be three companies left, which meshes perfectly with the number of 3G licenses to be granted by the government. There will be one license granted for each of the new 3G technologies: TD-SCDMA (China’s natively-developed standard), CDMA2000 and WCDMA. Current opinion is that China Mobile will get the TD-SCDMA license, with China Unicom and China Telecom getting the other two foreign technology licenses.

Reaction

The immediate reaction on the HKSE, where China Mobile, China Unicom, China Netcom and China Telecom are listed was unfavorable to China Mobile, the giant in the mobile sector in China. Goldman Sachs issued a sell rating on China Mobile.

You can bet that the six companies will be burning the midnight oil to complete and submit their implementation plans so that they can get the 3G licenses as soon as possible, which should be sometime within the next 3-6 months. Most likely it will not happen before the Beijing Olympics, even though the network infrastructure is there, simply because there is a lot of training and testing to be done.

My Take

This change marks the end of the first stage of the rollout of mobile phone services in China. While China has the largest single-country number of mobile subscribers, most people use mobile overwhelmingly only for voice and SMS services. From a business standpoint, China’s telecom industry has been in a wait-and-see mode for the past two years.

This second generation, or next stage of mobile services will be about a renewed rollout and introduction of more data services, and the more important metric for the operators will be ARPU (average revenue per user) instead of number of subscribers. So please, let’s stop talking about number of subscribers, and let’s talk about ARPU instead from now on.

ARPU will be the real metric to measure the performance of the three operators. I say “It’s about time!”

This change opens crack and opportunities for investment and new players, and gives more choices to Chinese consumers. China Mobile, the industry leader in mobile services, has continued to expand the number of subscribers, having the world’s largest number of subscribers in one country, with more than 500M. China Unicom has been playing catchup because it started as a CDMA service provider (as opposed to China Mobile’s GSM) and although it also later entered the GSM field. The small independent mobile operators such as Tom.com, Linktone and KongZhong have all languished because China Mobile was seen as the dominant player which wanted to completely dominate the platform and application-level services. While it would be a real challenge for those companies to claw their way back to health, venture capital and private equity firms can now look more favorably at the next generation of mobile services, which will no longer be as dependent on a single mobile provider, since there are now three choices available, and they will differentiate on the basis of how they cooperate with service providers and services they offer to Chinese consumers.

In order for Chinese startups to survive and prosper, they will increasingly differentiate themselves on their business and execution skills instead of just technology. Good management will be key.

It goes without saying that Apple’s iPhone will be the most high-profile beneficiary of the change, since it will have two other mobile operators to talk to besides just China Mobile. Instead of just having a loyal base of hacked iPhone users in China, Apple will have a chance to test its vision of the mobile Internet with Chinese users.

The major handset makers such as Nokia, Sony-Ericsson and Samsung will also want to test their application services among Chinese users, and will have greater chance of reaching them.

There are many opportunities in search and display advertising, and subscription-based services. Most of these opportunities are not infrastructure-related, but service- and tool-related. I will talk about some of these opportunities in the future.

While this is a short-term setback for China Mobile, it will ultimately help the company because instead of becoming a lazy monopolist offering bad services, it will have to compete on service. This will make the company more competitive when China starts planning seriously for 4G.

I give the plan an enthusiastic “thumbs-up”!

This is a good example of central planning working to help competitiveness, and in favor of consumers.

It would be nice if, ahem, other countries with large consumer markets, took a closer look at this move and how it helps competitiveness.

Technorati Tags: 3G, advertising, arpu, BBS, cdma, cdma2000, China, chinamobile, chinanetcom, chinatelecom, display, earthquake, gsm, internet, policy, search, sichuan, td_scdma, telcos, telecom, US, wcdma

Yesterday, Twitterdom in China was on fire with the news, first published on TechCrunch, that Facebook clone Xiaonei had raised US$430M from Softbank, which is huge, even by current Web 2.0 bubble standards. Immediately on Twitter, there was almost an uproar, especially from users in Taiwan, who said that it was ridiculous that a Facebook clone would have such a high valuation. Does Oak Pacific Interactive and Softbank know something which we don’t? (My answer to that is a simple “Obviously yes”.)

But before delving into that, let’s talk about the pluses and minuses of C2C, or “copy to China”, a term which I believe was first used by Tangos Chan, publisher of China Web 2.0 review. I believe that when an entrepreneur does not have a clear idea about what he is going to do, starting with a copy of a currently popular application is a good way to go. After all, if it got funded by VCs in the US, it is highly likely that given the team’s experience, they will also be able to get funded in China.

What is important is what happens after it gets initial funding. Where many startups lose direction is that they look too closely at their competitors, and don’t look at the challenges for many users whom they want to reach. Most ask the wrong questions: They are too focused on their platform and applications, and don’t study the problems their users have in their daily lives.

There are a few simple questions startup founders need to find answers to:

• What are the most important tasks for a person in any given day? (These are always changing according to age, situation, etc.)
• Where do they encounter the most frustration?
• Can you offer a solution to this?

I have a simple way of looking at this: If the need is urgent, then you can charge a fee or subscription for it. If you can help people make more money, you can charge a fee or subscription for it. If it is a hardware solution which simplifies and clarifies life and makes the user more efficient, you can sell it (as is the case with the iPhone).

If it does not do any of the above things, but still offers some informative or entertainment value, then your most likely source of revenue is advertising.

Back to C2C. When OICQ was launched in early 1999, it was nothing except a Chinese-language clone of ICQ. It had an advantage in that there was tremendous need among Chinese for easy convenient communications across the computer and the then-new mobile phone platforms. The management saw this need, offered the services, collected fees all along the way, evolving into QQ along the way, and the company is now worth more than US$11B.

Tencent, the parent company for QQ, saw a social wave in China, copied something which worked overseas, fulfilled the need, and evolved it into something tremendously popular and successful in China. Instead of looking iinwards and worrying about their technology and UI, they looked out, and saw the opportunity in users’ needs and frustrations.

Now the company has more than 500M registered user accounts. It has achieved brand lock-in among most younger Chinese users.

That is why I say that when anyone only compares UI features, they are not thinking deep enough.

Now, the question is whether Xiaonei or any of the Chinese Facebook clones can evolve into something successful. The China of 2008 is vastly different from the China of 1999, and there are all kinds of communications solutions competing for users. The dynamics has changed to favor the user, who now has almost too may choices.

Add to that my feeling that SNS (social networking solutions) are a solution to a problem which is not that urgent for most people (hence the reliance on advertising as a revenue source instead of fee or subscription).

Of course, if depending on income was the only way to make money in this business, then I’m sure that Xiaonei would not have received such a high investment. An article in Plus8star talks about possible strategy scenarios in the move (h/t to Kaiser Kuo).

Technorati Tags: advertising, c2c, China, copy2china, encent, entertainment, facebook, fees, ICQ, income, information, iPhone, oakpacific, oakpacificinteractive, plus8star, qq, softbank, subscriptions, taiwan, techcrunch, twitter, ui, US, VC, venturecapital, web2, xiaonei

This article is a follow-up posting to my previous article about why China Mobile should buy Baidu.

One of the rules for mergers and acquisitions is that if one company wants to be acquired by another company, they have to be moving in generally the same directions. This way, less management attention needs to be spent on changing direction and redirecting resources.

If we take a look at China Mobile, they are a Chinese company which has been looking aggressively outside of China. With 500M+ mobile phone subscribers in China, it has the user base and cash flow to be truly a world-class company. China Mobile is proposing to set up a development lab with Vodafone and Softbank to work on widgets and others services to offer China Mobile and Vodafone subscribers. From the surface, it appears that these two leading carriers are trying to wrestle some of their technology dominance back from Apple’s iPhone, which will offer its own Apple App Store, selling mobile apps directly to Apple iPhone users beginning in June.

Interestingly, Vodafone is helping to bring Apple’s iPhone into the Indian market. According to a recent article, Apple may be discussing launching the iPhone officially in China with China Unicom. (Note: I disagree the author’s tone about Apple not getting it right in selling in China, I think that Steve Jobs knows very well what he is doing, and is biding his time until the 3G iPhone comes out in June. China is another piece on his chessboard, albeit a very important one.)

On the business side, China Mobile has been most agressive in Pakistan, following on its purchase of Paktel in 2007, and has just launched its Mobile Zone in the country. This looks like a test learning market for China Mobile. There are not many companies which can afford to “test” in a country with a population of 180M, China Mobile is one of them.

Based on this, it would be fair to say that China Mobile is leaning forward into overseas markets. It has enough money in its coffers to expand more quickly, but the most serious barrier is lack of international management talent who can execute in non-Chinese markets.

In contrast, Baidu is much more focused on the Chinese domestic market, where it continues to grow and pull ahead of Google. Everything suggests that the Baidu management believes that there is much more room for revenue growth domestically in China. The only tentative step Baidu has taken outside of the China market is with Baidu Japan (baidu.jp), which has only 0.3% of the Japanese search market.

Compared to Google, Baidu still continues to go after the easy money in China. Google continuously introduces and refines it search algorithms which are the secret sauce of its success. In comparison, Baidu relies less on search algorithms, instead using human search to assist in search results.

Baidu’s search results are also fundamentally different from Google’s. While Google’s search results strictly differentiate between unpaid organic search and PPC advertising, Baidu makes no such differentiation. The end result is that unpaid search results are pushed further back in position on the search results pages.

If there is one challenge in Baidu’s reliance on human-assisted search (as opposed to automated search algorithms as Google uses) and giving preference to paid advertising over unpaid in search results, it is that while it boosts revenue in the short-term, it is not extensible outside China, except for some of the other East Asian markets (Naver.com in South Korea is one such example. It would be nearly impossible for Baidu to oust Naver.com from its leading position as the home-grown leader in that very nationalistic market.)

Here lies the challenge: China Mobile is looking outside of China now, and Baidu is still looking to grow revenue on the domestic market, while nearly ignoring the overseas market.

Is there room to narrow the gap and create a new company for mobile search advertising and location services, first in China and then which can be extended overseas?

That is the challenge.

Technorati Tags: advertising, Apple, baidu, China, chinamobile, iPhone, pakisitan, paktel, search, softbank, vodafone

There is a whole brave new world for social marketing which is unfolding and which, so far, has caught many businesses off-guard.

A good part of the reason for this is because many corporate marketing departments are managed by people who cut their teeth when TV, radio and print were the main ways to reach audiences.

Sam Flemming, who is the founder of Shanghai-based CIC, a market research and consulting firm which covers brand buzz in China, has posted an article on how online trends will affect how agencies will think and work.

Based on my experience working in traditional media and then online in China, I think that online users are about 2-3 years ahead of online users in the US. This is because the Internet developed without the help of advertising income in its early stages, unlike in the US where advertising was a very established model. For this reason, it is much easier for Chinese consumers and advertisers to adapt. In China, there is much stronger tie-in between offline events and online promotions, instead of just relying on online advertising as in the US.

US corporations and advertisers have to “unlearn” much of what they have thought would work in the new online space.

One of the big questions is that agency account people will have to learn to become advocates for their brands and products both offline and online. Where does the agency and customer advocate line end and begin? It’s easy to see that in the very near future the best agency account people will be those who are the most passionate and eloquent advocates for a product, and can exercise good judgment quickly. Those who succeed will be the ones who can go from strategy to tactics very quickly, while keeping the client clear about overall goals and weaving through the intricacies of the online conversation.

One book which is going on my “to read” list is Jump Point, which talks about how marketing to the interconnected online crowd is going to work.

Technorati Tags: advertisers, advertising, brands, China, cic, corporations, events, iwom, marketing, media, offline, online, print, promotions, radio, samflemming, TV, US

One of the great challenges in the digital world is: “How to create value?” People are spending more and more time online, and are moving to a mobile Internet, which has been attested to by the success of Apple’s iPhone platform. But spending online has lagged behind, especially in China, where advertising has been slow to take off.

Obviously there is something wrong with this picture. What can be done to bring value to people, and are companies looking in the wrong places?

Advertising has been established in the west for more than a century, but it has been much slower to take off in China. There are several reasons for this: for one thing, after having been a strictly socialist society for nearly thirty years, there really wasn’t much of an ad industry in China in the period from 1949 to 1977. A consumer society did not exist, and Chinese citizens did not have many choices. There was the hukou system which meant that Chinese citizens could get enough of what they needed, but only if they were in the right city, and only enough to take care of their basic necessities.

After 1977, when China started to open up, the ad industry had to basically build up from almost nothing. Now, in 2008, it is one of the few markets where ad revenue is growing by leaps and bounds. In the west, many companies are questioning the effectiveness of advertising in the face of the growing power and effectiveness of the Internet and its poster boy for online advertising, Google.

Still though, there is plenty of room for alternative business models. In 1999, while Yahoo! was earning a great deal of ad revenue from banner ads, Chinese companies had to look for alternative business models which were grounded in how Chinese were willing to accept value, and were willing to pay for it with real money.

Tencent, the creator of the fabulously successful QQ IM client, has probably the most successful virtual currency in the world, Q-Coins (in Chinese, Q-bi, it means “Q currency”). Since its introduction, it has become a fabulously successful currency which has its own currency exchange rate, and is bought and sold offline. In short, to many Chinese, it is a real currency with value. This is a case of something which was created in the virtual world, was deemed to have value, and then taken into the offline world.

This leads to a very interesting question for social networks: If Q Coins have been so successful as an online social currency for transactions among community members in China, then why haven’t the western SNS sites such as Facebook, Friendster, etc. created their own currencies which their own members could use worldwide? And why should there not be a secondary market for trading these virtual currencies among themselves, and then with real currencies?

Ogilvy China Digital Watch has done an excellent job of keeping an eye on the development of online advertising in China. But I have a question: “If the volume of online currency denominated transactions were added to digital adspend in China, how would that compare to how much is spent on online advertising in America?”

Could it be that in fact China is already a leader in bringing online-created goods and services to the offline world, and is ahead of the west?

Who knows, maybe the answer for a global ad agency like Ogilvy would be to issue its own virtual currency and to get as many people worldwide to use it as possible?

Now that would be a twist!

Technorati Tags: advertising, banners, businessmodels, China, currencies, google, ogilvy, online, q-coins, qq, US, virtual, yahoo

For most people, blogs are no longer exciting as they were in 2002, when they first burst on the scene. Part of the reason for this is because although the technology for blogging is mature, an economic model for bloggers has not really taken hold. This is especially the case in China, where there are a huge number of bloggers and the Internet has become hugely popular, but the economic rationale has not yet appeared. Several years ago, there was a lot of talk and conjecture about a long tail, and idea which Chris Anderson made popular with his book, The Long Tail.

Unfortunately in China, the long tail looks like a Manx cat. (The Manx is a variety of cat which is born tailless.)

Recently there has been much discussion in the US about the value of ad networks. The economic rationale for ad networks is simple: they buy unsold inventory and place ads in them so that no ads go unsold. Better to place ads anywhere than to have them wasted, right?

Not so fast, says Jason Calacanis. Quoting from ESPN’s recent tough statement banishing ad networks, he says that “the use of ad nets diminishes the value of their (clients’) brand and content by spreading it so widely, ultimately threatening existing relationships with advertisers”.

In his article, Calacanis argues that for that medium-sized publishers, they should take on the costs and responsibility of their own ad sales networks to sell their own inventory, instead of outsourcing to an outside ad network. He argues that a real publisher is in control of three things:

• Your writers
• Your readers
• Your advertisers

Moreover, he puts numbers behind his definition of a mid-sized publisher. If you have more than $250,000 in ad sales, you should hire your own dedicated sales person.

His advice is that if you are a mid-sized publisher:

1. Hire three ad sales people
2. Spend 50% of your time going to ad meetings and conferences
3. Kick out your ad networks and use something simple like Google Adsense to take up your backfill

Another article about how Gawker Media pays their writers left me even more interested in how these numbers would translate for China. Gawker writers are not paid a salary, but simply get an “advance” against pageviews. Basically they have to hit their pageview numbers if they are going to do well. Moreover, these numbers are public.

This raises a really interesting question: How would these US numbers for pageviews and traffic volume translate to make sense in China? And could it be that blog ad networks in China have held down bloggers’ salaries by providing low quality untargeted traffic, and the only way to turn the situation around is to have publishers build their own ad sales teams in-house instead of relying on outsiders to sell their ad inventory so that they can pay their writers a working wage?

I suspect that the answer is “yes”, because only a publisher has the best sense and feel for their own content and audience. Ironically, it could well be that ad sales for medium-sized networks are something which cannot be sold best over the Internet.

Now, that would be a change, wouldn’t it?

Technorati Tags: adnetworks, advertising, blog, blogging, blogs, China, Chinese, espn, gawker, jasoncalacanis, longtail, media, outsourcing, pageviews, sales, traffic, US, web

In Sept. 2007 I wrote an article about how Apple’s global marketing for the iPhone was attracting and creating a new user base in China. Now, we know that there are more than 400,000 unlocked iPhones in regular use in China.

Since Apple gets recurring revenue for the iPhone through its contracts with the operators, many analysts have said that these unlocked iPhones represent lost revenue for the company. In China, China Mobile gets all the revenue spent by users for moving data up and down from the cracked iPhones, and does not have to share any of the income with Apple. And the statistics show that iPhone users consume much larger amounts of data than competing mobile phone platforms.

Obviously this is a serious loss for Apple.

I say “Not so fast!”

Today, Apple just announced its new iPhone SDK. Now, the Apple iPhone will talk with Exchange servers, morphing the Apple iPhone from something corporate IT departments viewed as a consumer toy, to a full-fledged platform on a par with Blackberry, Windows Mobile, Symbian and Linux.

As in most Apple presentations, the most important stuff always get buried close to the end of the presentation. That was the announcement of the Apple App Store, which will allow developers from all over the world to build and sell their iPhone applications. Developers will be able to charge any price they want, and Apple will keep 30% to cover hosting, distribution and credit card fees. The App Store will be available as a new button on the iPhone beginning in June. Presumably, this download will work on all iPhones, including cracked and jailbreaked iPhones.

Make no mistake about it, this is truly revolutionary news. The iPhone platform has taken over the role which the carriers once took for themselves. Today is as important a day as when Apple announced the Macintosh platform in 1984, singlehandedly launching the desktop computing industry.

Today Apple launched the mobile applications industry. When the Macintosh platform was launched in 1984, it led to the growth of Microsoft with the Office applications suite, which was developed for the Macintosh before the PC platform.

Now, do you think that Microsoft will have enough sense to develop apps for the Apple App Store, or will they continue to stick to developing for the Windows Mobile platform only? My feeling is that if Microsoft developed for the Apple App Store, they would get traction very quickly, if only they would let their developers develop.

Make no mistake about it, today, Apple launched the mobile computing industry with the iPhone computer SDK which user statistics show, is the favorite platform among consumers, and is gaining headway in the corporate space.

Even in China, where it is not officially sold and supported yet.

With the iPhone computer SDK and App Store, along with Apple’s excellent development tools, any developer with any sense will start building apps for the iPhone computer.

Including in China.

So where does this leave China Mobile? Much press has been devoted to Apple’s unsuccessful negotiations with China Mobile to distribute the iPhone in China.

In reality, the interests of the companies are aligned.

• Both China Mobile and Apple want the mobile computing industry to succeed.
• Both stand to make MUCH more revenue when the platform takes off.

Right now, they are just jockeying for position in this new business ecosystem. Where they rub against each other is on the applications platform level, which China Mobile wants to control as much as possible, and on the revenue share level, which China Mobile wants to control, and does not want to share with anyone.

Today, Apple just won on the application platform level round on the rapidly growing iPhone computing platform.

But I predict that China Mobile is quietly pleased with all the extra revenue data consumers on the iPhone computer platform have been generating, and which it does have full control over. Have you noticed that China Mobile has not broken out those revenue numbers yet? When the Apple App Store launches in June, those numbers will shoot up even higher.

You see, there is nothing wrong with being a commodity data mover when you run into the ideal data platform for users.

Round two will be about who will define ad standards and specifications for the iPhone platform (Apple), and how advertising revenue will be shared in different markets on this platform.

Technorati Tags: advertising, Apple, applications, China, chinamobile, computer, consumer, corporate, data, iPhone, microsoft, office, sdk

In technology marketing parlance, the three screens refer to the television screen, the PC screen and the mobile phone screen. Most marketers and advertisers now recognize that more eyeballs and viewing time are going to the PC screen, and even more will soon go to the mobile phone screen, and the question they are asking is “When will advertising on the PC and mobile phone catch up with advertising on the television?”

This is a question which Kaiser Kuo, publisher of Ogilvy China Digital Watch, asked in his article “Closing the Marketing Gap”. To quote from his article:

The “Marketing Confidence Gap.” That’s Ogilvy parlance for that vexing and persistent chasm between, on the one hand, the high percentage of media time spent by the average consumer online and, on the other, the relatively low percentage of overall ad budgets being directed online.

Kaiser then goes on to point out that when TV was the disruptive new technology, advertisers most likely ran into the same kinds of complaints from what were then mainstream media buyers (print and radio). And that it took some time for the new advertising models for TV to take off and then reach a new equilibrium of general acceptance. The new medium created its own new business ecosystem with the most well-known being the television market research firm AC Nielsen.

The three screens model throws the old model of TV advertising into question. For many video watchers on the PC, the main appeal of watching videos on Youtube or Tudou is because they can watch them anytime, without advertising. Contrast this with the old broadcast model of the 1960s in the US, dominated by ABC, NBC, and CBS and a few affiliate networks. In the 1970s, cable TV began to take off; it did not have any advertising and relied exclusively on subscriptions. Then in the 80s, satellite news (CNN) took off. So the good old days were not really as quiet and stable as some would have us believe.

This is why the relationship between time spent online and advertising does not hold water for me. There is no rule which says that the correlations which applied to the first screen of television should also apply to the second and third screens of the PC and the mobile phone. I would go so far as to argue that disk and broadband prices have dropped so low that the traditional ad agency role of playing matchmaker to ad inventory (advertisers) and media (publishers) have disappeared. My opinion is that the only place where there is any meaningful and measurable matchup of ad inventory and media are done online is with search ad results, with Google the leader in most of the world and Baidu in China.

This is why I think Sam Flemming’s talk about Internet Word of Mouth (IWOM) has hit an important vein which the ad agency’s have failed to grasp. It is an uncontested fact that while e-commerce in China has been slow to take off in China, many Chinese look for information about purchases beforehand by visiting BBSes and seeing what others say about a product. So why is there no way to track the main influencers of buying decisions and rewarding them with money if their recommendation results in a completed sale? To me, this has always seemed like a difficult, but not insurmountable, technical challenge. In the west, there would be complaints about people making recommendations because they want to make money instead of actually having tried and used the product, but in China, I don’t believe that those disputes would be likely to arise.

China has a unique retail phenomenon called tuangou 团购. This is groups of individuals and families who meet each other in the BBSes and who are planning on purchasing the same big-ticket items. Then, they go and negotiate volume discounts with individual retailers, eventually selecting the retailer who gives the biggest discounts. I have never heard of this phenomenon anywhere outside China.

There are plenty of opportunities in China; it’s just a question of how you see the challenge.

Technorati Tags: abc, advertising, cbs, China, iwom, marketing, mobilephone, nbc, ogilvy, PC, retailers, television

The quality and amount of discourse on the proposed takeover of Yahoo! by Microsoft has had my bullshit meter jumping off the charts, and I felt I just had to chime in.

Paul Kedrosky summed it up best when he said that it would benefit Google the most. Anyone with half a brain and who has worked in corporate management more than one week knows that the most painful thing to do in business is to grow by acquisition. Acquisitions are especially hard to do in a market which has matured relatively quickly in the US, such as search advertising. But analysts and senior management sometimes like to do acquisitions because it creates a lot of buzz. And in the lousy US market nowadays, any buzz which does not include the keyword “subprime” is welcome buzz.

Organic growth is the much better way, and in the long run, yields better results. A lot of early Google talent has been cashing in their chips and leaving the company; shouldn’t Microsoft focus on hiring some of those very smart people to beef up their search offerings? Wouldn’t that be a better way to catch up to Google’s search technology? Yes, and I’m sure that Microsoft is doing that right now, but it doesn’t capture the imagination of the old media folks the way Microsoft! would.

“Let’s toss a big fat red herring to the dumb masses!”

In spite of its management problems, Microsoft still has a formidable technology pool of talent. The fact that it cannot create an operating system as reliable as Apple’s Leopard even though it has more than three times the number of employees is more a testament to bad management of talent and resources than to anything else. It could even be argued that Ubuntu Linux has a friendlier and more stable operating system, and it has almost no revenue, and almost everyone working on it is a volunteer!

So why does Microsoft’s Steve Ballmer want to do this deal? I see it as hail-Mary desperation pass to show that he is “doing something”. If you are saying that it is useless and dumb, then you have a problem. You see, you have committed the unforgiveable sin of looking too closely and thinking too much.

Shame on you!

To add to the entertainment value of this show, Google has jumped in with claims that it is seeking to protect the “openness of the Internet from a closed company like Microsoft”. Now, I have had many images of the Internet, but I have never quite had the image of the Internet as this beautiful bride about to be horribly ravished by some mean thug in the northwest. As a matter of fact, I think that the Internet has been ravished many times before, continues to be ravished, and somehow manages to live with it and get along with life.

Now, if Google has suddenly discovered that Microsoft is closed, why should it limit itself to complaining about Microsoft? Why not go after nation-states which are not famous for openness, and frequently tinker with the “openness” of the Internet. If they have any trouble thinking of any, they are welcome to call me.

I could easily come up with more than 190 names.

So Google can now also score points with your senile old grandfather, the one who criticized Microsoft for being a monopoly way back in the 90s, but still makes sure to keep his copies of Microsoft Office current.

YEAH, GOOGLE STANDS FOR OPENNESS!

Now, to add to Uncle Steve’s general cluelessness, he comes out with this gem stating that Google has no products, it only has search. He may not have heard it, but there is a whole bunch of businesses which don’t have products; they’re called services.

Yes, Google doesn’t have any products; it only has services. But the services produce something called search advertising revenue by matching advertisers with content providers using keywords and taking a chunk of revenue in the process.

Do you think that Steve knows why he’s buying Yahoo?

Frightening thought, isn’t it?

Technorati Tags: acquisitions, advertising, google, keywords, microsoft, paulkedrosky, products, revenue, search, services, steveballmer, yahoo