The China Vortex

In my previous post, I talked about the dark side of China’s Internet cafes. I was surprised at how quickly I got responses to the posting; there were more than six comments in less than two hours.

Now, I would like to talk about a business opportunity in China’s Internet cafes. One of the biggest problems with Internet cafes is the uneven quality of the management; most are terribly managed, some are managed pretty well. Overall, the well-managed cafes suffer from the poor image problem associated with the whole industry. In a comment following my post, Fons Tuinstra says that the numbers of people going to Internet cafes are falling sharply, citing CNNIC figures. I suspect that this is because of a combination of factors:

• Educated Chinese families don’t like them because of their bad reputation
• With laptop computer prices coming down to 7,000-8,000 yuan for a fully equipped notebook, prices are coming with the range of most urban Chinese
• With monthly DSL prices between 100-200 yuan; broadband access is now affordable

In spite of all this, the Internet cafe still has attraction as a social and recreation area for young people who are looking for places to meet which don’t cost too much.

So why hasn’t someone come in with a roll-up strategy, buying up the good Internet cafes, offering professional management and a franchise package, and turning the whole thing into a franchise like Starbucks, McDonald’s or KFC? After all, that is how Ray Kroc started with McDonald’s in the 50s in the US.

These Internet cafes should offer clean well-lit areas which are frequently cleaned, fresh food and drink, clean bathrooms and a good overall experience. Just think of what could be done if a Chinese Internet cafe experience could be as good as an Apple store! Yes, prices would be higher but it would attract a much better demographic group. And a better demographic would make for a better advertising market.

Events could be planned for the stores educating people about online buying and selling, and to demo new products and services. Game contests could be held in a much better environment than are available now.

If I were an advertiser, I would really love to reach this demographic group. They would be upwardly mobile, not like the permanent urban underclass we now see in so many Internet cafes.

In short, make the Internet cafe a place where Chinese parents would not be ashamed of letting their child go to, and a place where the child could tell his parents he is at, without having to lie or admit to shamefully.

This would help to clean up the image of an industry which badly needs to improve its image. It would even make sense for an advertising company to get into it, as the advertising opportunities in a wholesome Internet cafe franchise are huge. I can think of several companies which should seriously consider doing an Internet cafe franchise in China:

• Focus Media
• Baidu
• Tencent
• Google
• Starbucks
• McDonald’s
• KFC

And now, here’s the company I’d really like to see do a Internet cafe franchise in China because it really knows about making cool stuff and it understands lifestyle marketing. If they did it, and did it right, they would own the Chinese Internet cafe experience.

Now wouldn’t that be something! You saw it here first.

I can always wish…

I have been spending a lot of time recently with game developers in China. Didn’t plan it this way, but it has been interesting.

I have a few thoughts about the industry based on my observations. Most of them apply to both gaming and animation. So far, the biggest takeaway I have had so far is that the vast majority of companies, and certainly the Chinese government, have no understanding of human talent and the creative process. If they find it, they destroy it through sheer ignorance and bad policies. Why would a talented person want to work with any government anywhere? There is surprisingly little imagination for such a big country. And when someone does hit on a successful idea, it gets rehashed over and over and over again. Many Americans complain about how bad Hollywood is at coming out with new original ideas; it’s still better than China.

Give you an example. The Chinese government wants to create an animation industry, so what do they do? They ask American, Japanese and European companies to set up schools to train animators in huge numbers. They limit the hours of foreign-made animation which can be broadcast on Chinese TV.

There’s just one problem.

There aren’t any good Chinese story writers and artists. Or at least any that I know of.

So you have all these armies of animators who have nothing to do, so what do you do? Get them to do outsourcing for foreign animation companies who are looking for relatively cheap labor.

But then they want to build a Chinese animation industry, so what do they do? They try to partner with non-Chinese producers and writers to create stories. But then the stories aren’t Chinese, right? No, because they partner with a Chinese animation company, they can then get their production to be considered Chinese and maybe broadcast on Chinese television, where if they are smart, they can get a good deal.

It just underlines one thing. There is _no_ understanding of the creative process in China. It is all very top-down, and screwed-up.

To be creative, all you need is one person who is good at conceptualizing plausible worlds. They can use words or they can use illustrations. That is my definition of fantasy.

One of my pet peeves of the Chinese gaming industry is that everyone rehashes the same old genres for their titles. It is all Sanguo, the Monkey King or some other derivative from Chinese folk history. There is nothing new, nothing original. Once one title in a genre succeeds, everybody jumps on the bandwagon and works it to death, turning out a lot of garbage in the “me too” development process.

I find this very interesting. Why? Because all the talk is about China’s peaceful rise, its bright future, etc. etc. But when it comes to stories, it looks to the past. This doesn’t make sense to me. If a country and people are optimistic about the future, they look to the future and try to visualize it. If Chinese are indeed optimistic about the future, then why aren’t they writing and developing game titles which are about some future/near future China which captures all their hopes, aspirations and fears and is plausible to those of us living in the present?

OK, you’ve got a peaceful rise, tell me how it’s going to look.

The whole world wants to know. Sell me China’s version of the future. And don’t talk to me about the 2008 Beijing Olympics; that is only a sporting event.

What would that world be like? What would the technologies be? How would people interact with each other? What challenges would they face? Would the world be at peace or at war? Would people continue to fight with each other, or would they face challenges together? How would they resolve their differences? What international institutions would there be and how would they work? Would people interact with other intelligent civilizations? How would they do it? How would nations and ethnic groups interact with each other and solve their problems? How would they treat each other and would they overcome racism? How would they handle ideologies?

And could a Chinese writer and artist team create a plausible world which answers these questions? If it was TV, they could make a program out of it, and if it was a game, how would players interact in it? What would the rules be?

In a recent conversation with a production company owner, I asked him what differentiated his company. His answer: technology. Technology cannot sell a good story; a bad story is a bad story, even if you tie a red ribbon (technology) on it. On the other hand, a good story can hold people in captivation for a long time; technology is largely irrelevant.

Why is it that the Chinese government seems so intent on developing the part of the value chain which has the least value added, the junior animators, while the concept and idea people, artists like Ang Lee have to go the US to make it big on a global stage?

If China doesn’t answer these questions and answer them soon, it will be a big market but only a second-tier player.

The future is not entirely dark. There are movies like Crazy Stone which show the sparks of some original thought. But it’s entertainment, not fantasy, and it doesn’t show me a new plausibl world. I hope to see more. As far as I’m concerned, it can’t come soon enough. I am looking for new, creative products in the fields of animation, gaming and movies.

If you know of something interesting which has a fresh different angle and fits into the fields I have described, please post about it in comments.

I’ll follow up, and if it plays out, I’ll write about it in a following article.

And please, no Chinese penguins.

Last night I had dinner with five individuals in Beijing. Except for me, all of them had real hands-on experience in the gaming industry in China. (My experience in gaming is limited to the business side; not programming and production.) All of them were Americans, or had extensive experience in the US.

Long story short: China has become a boomtown for gaming companies doing development. There are several reasons for this:

• A large Chinese gaming population
• Smart programmers and artists
• A large cheap labor pool which is eager to work, and more importantly, learn

Significantly, most of the group had started, or were starting, their own companies in China. The president of one company, Gage Galinger, had been working in stealth mode for three years, quietly hiring and developing its own title for his company, Possibility Space.

Most of them were former Microsoft employees.

Gage was from Texas, and had come to Beijing to start his own game development studio. He is not Chinese, or Chinese-American, but Caucasian. I always admire someone who is not of Chinese extraction, and is willing just to jump on a plane to Beijing or Shanghai, learn, and start a company. More than anything else, that is what starting a business is all about in this age of globalization. This is the mark of a true entrepreneur.

After arriving in Beijing, he started hiring for his own studio where he is lead programmer and president.

I’m sure many of my readers may be wondering how someone who does not know Chinese could possibly function in an environment where many people do not speak a common language. How could he add value?

This is where his background at Microsoft came in handy, and the American style of collaboration for game development really shines. In Chinese gaming companies, the artists and programmers are just worker bees, performing repetitive tasks. They are not asked, and do not offer their opinions about the games they are developing; they are told what to do, and just do it. In his company, employees are required to show their day’s work to everyone else in the company, and others are encouraged to critique the work. Of course, most Chinese are reluctant to say bad things about other peoples’ work, afraid that it will hurt their colleagues’ feelings. For Americans, it is more natural to critique other peoples’ work because Americans are able to separate the work from the person.

Most of the time anyway.

Gage said that the path was not entirely smooth; he had to fire people who did not fit. But all in all, he was encouraged by the experience, and he had a very clear idea about how he added value to his company. He was very optimistic about his experience, and said that for him, living in China was about realizing the American dream of having his own company and making his own title, and launching it worldwide.

The economics of the gaming industry in the US is broken; developments costs are high, and game developers are always in debt and losing their IP to investors. But development costs in China are low, and Gage claims that his developers in China are better than any team he has worked with in the US by an exponential factor, or anywhere else.

He said that he has tried to get other game developers to come to China to partner with him, but while they have expressed interest, none have made the move. He has just opened an office in Austin, Texas.

If America had more entrepreneurs like Gage, who don’t overthink, overplan, have a solid core skill, and just get on a plane to China and start their company, and are humble and willing to learn, the US would be in a much better place.

America used to be a much more entrepreneurial country, now it is overly regulated, overly expensive, overly specialized, overly structured and overly corporate. In order to be competitive again, the entire society and culture will have to make major adjustments. The road will not be a smooth one.

That is why the smart entrepreneurs, like Gage, start their businesses in China.

In this new globalized world, China has become what America used to be.