Information Arbitrage has an excellent article on how the different cultures at Microsoft and Yahoo! would have trouble coming together; he compares it to the difference between football players and baseball players.
This is one of those soft things which the number crunchers and bean counters usually miss, but invariably hits the outcome of a merger.
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?
Everything else being equal, it is safe to assume that human language-specific search should closely map to populations. For example, the US population is 300M, Canada’s is about 30M, the UK is about 60M, and Australia is about 15M and New Zealand is about 4M. These are the main English-speaking populations, and they total about 4.1B, and make up most English-language search. Of course, there are many other English speakers living in other countries, and there are many non-native speakers who also choose to search in English for their own reasons.
Most of them use Google as their leading search engine.
There are about 1.3B Chinese who use Chinese as their language of choice for search; for the most part, they use Baidu.
If the Chinese searched as much and as frequently as Americans, Canadians, Britons, Australians and New Zealanders combined, it is safe to assume that Baidu’s Chinese-language search would have about three times the volume of Google’s English language search.
This has not happened yet, but this report shows that the growth trend for Baidu’s Chinese language search is beginning, since it has already overtaken Microsoft, according to this report from Techcrunch. In China, Baidu commands more than 60% of the search market share, while Google’s Chinese-language search in China has only 20+%, and the gap appears to be growing…
In the US, Google is putting its efforts into the mobile Internet, and sees the mobile phone as soon replacing the PC-based Internet as the access device of choice for most people, even in the US. In China, South Korea, Japan and Europe, the mobile phone already is the access device used by most people, which accounts for the huge volume of SMS traffic.
Google Android is the major part of Google’s effort to define a mobile platform for communications. Since the Chinese carriers, especially China Mobile, and Baidu, have not yet defined an SDK for the mobile platform, many assume that Google will soon have a mobile strategy in China which will turn the tables on its Chinese competitors.
My answer to this: “Dream on…”
China Mobile has a well-deserved reputation as a very tough company to deal with in China, but they are not stupid…
The Economist has an excellent article on Rupert Murdoch which is in fact a review of a book titled: “Rupert’s Adverntures in China: How Murdoch Lost A Fortune and Found A Wife”.
All’s well that ends well…
It makes me wonder if the presence and performance of many western companies in China can be explained as company-financed executive wife searches?
Maybe Google should take heed.
As China becomes more developed and sophisticated, more westerners are coming to China to understand the reasons for its success. I don’t believe that the Chinese success can be fully ascribed to China’s rising wealth and development; a good deal also has to deal with how western countries have screwed up in their politics and policies.
In the kingdom of the blind, the one-eyed man is king. Right now, China is the one-eyed man.
Setting this aside, there are areas where China’s growth is remarkable.
In a recent blog posting, Henry Jenkins of MIT shows how much more willing Chinese youth are to live their lives out and share their behavior with complete strangers in a manner American youth are not yet willing to. Here are some of the statistics (mostly in percentages) of what he has observed:
# Almost five times as many Chinese as American respondents said they have a parallel life online (61 percent vs. 13 percent).
# More than twice as many Chinese respondents agreed that “I have experimented with how I present myself online” (69 percent vs. 28 percent of Americans).
# More than half the Chinese sample (51 percent) said they have adopted a completely different persona in some of their online interactions, compared with only 17 percent of Americans.
# Fewer than a third of Americans (30 percent) said the Internet helps their social life, but more than three-quarters of Chinese respondents (77 percent) agreed that “The Internet helps me make friends.”
# Chinese respondents were also more likely than Americans to say they have expressed personal opinions or written about themselves online (72 percent vs. 56 percent). And they have expressed themselves more strongly online than they generally do in person (52 percent vs. 43 percent of Americans).
# Chinese respondents were almost twice as likely as Americans to agree that it’s good to be able to express honest opinions anonymously online (79 percent vs. 42 percent) and to agree that online they are free to do and say things they would not do or say offline (73 percent vs. 32 percent).
Some of the differences can be accounted for because, until recently, Chinese played relatively few games using game consoles, an area American youth have long had free access and exposure to. Instead, they play games in the Internet cafe, which offers an online and offline social experience which has not existed until very recently on the Microsoft and Sony platforms, and which has been addressed very well with Nintendo’s Wii.
These statistics do not tell us much about China on their own; I frequently insist that if one is to really understand what makes China’s Internet different it is necessary to dig deeper and look at its development at least from the application level. If one were to make even the most cursory look at users in any Internet cafe in China, one would find that most if not all, would have an instant messaging (IM) window open and are chatting with their friends while they are playing an online game. Lately I have noticed that in the Starbucks I frequent near Guomao in Beijing (Starbucks in China often offers free WiFi, compared with the US which charges users a daily subscription through its partnership with T-Mobile; go figure), many office types often have an IM window open even when they are busily working through their Excel spreadsheets.
For this reason, I particularly welcome the recent report by Plus8Star on Tencent’s QQ which started as a simple IM client and has now metamorphosized into China’s largest online company, and which has more than than 270M users in China. Basically, it has become what AOL would have become if it had been able to pull everything off with its acquisition of ICQ in 1998. In fact, the first version of QQ was called OICQ, standing for “open ICQ”; in its early days the company approached AOL seeking to become its China partner; it was brushed off. Now the company is listed on the Hong Kong stock exchange and has a market cap of US$11.4B.
The report is available in a free downloadable PDF version; the full version costs US$3,000. The greatest value of this report for those coming into China is that it provides valuable context and answers the “how” and “why” China’s Internet has developed the way it has.
Too much of the time, western observers claim that China’s Internet has changed the way it has because of Chinese government control and policy; not enough is mentioned about the business reasons why local competitors have succeeded why western companies have failed. This reports does a good job of plugging that hole in most peoples’ knowledge.
The title of the report sums it up: “Inside QQ: Learning from China’s leading online community”. An especially helpful page is page 23 of the report “Why do global giants fail in China?”. There have been billions of dollars which have been expended, and mistakes have been repeated over and over again in their quest for western dominance of the Chinese consumer market. I’m amazed that it continues to this day. This page alone is worth the price of the whole report; just read it.
If you are a business person anxious to break into the Chinese consmer market, or are just interested in learning more about the Chinese Internet, this report is a must-read.
One of the frequent questions I run into in China is how western Internet companies coming into China should position themselves for growth in China.
Should they try to be western, or should they try in the shortest possible time, try to become Chinese, hiring Chinese for their local staff and management? Under what circumstances is it best to be western, and under what circumstances is it best to be Chinese? And what if a company has been in Taiwan, Hong Kong and/or the US; how should they position themselves for future growth in the Chinese market?
Their positions are made more complicated because it is now hard to find good management people they can trust locally in China; as an organization becomes larger the camaraderie and culture which forms in the management team becomes increasingly important. Over time, this builds into trust, especially if they need to deal with problems and challenges which need to be overcome on a daily basis. This comes face to face with another China reality: it simply is not easy to find people you can trust in China. Backgrounds can be fudged, headhunters want to push their candidates; the list goes on and on.
Internet businesses are especially complicated; most founders come from technology backgrounds, even today, and they have very little understanding of marketing, company positioning, and yes, national and corporate culture. Many still have dreams of serving the world from one virtual data center in Redmond, Mountain View, Beijing, Hong Kong or elsewhere, and letting more junior management deal with the soft and fuzzy stuff like “culture” and “marketing”. Even relying on ethnic Chinese management from Taiwan or Hong Kong has not really worked, as China is littered with Internet startup failures led by Taiwan and Hong Kong management teams who really did not understand the dynamics of the market in China. There have been many western executives who have said “How was I supposed to know that they didn’t understand China; they told me that they were from Hong Kong/Taiwan?”
For anyone from established business service sectors, such as banking, these ideas seem silly, even foolish. And they are. A simple reality of the Internet is that it is going to come under more national jurisdictions and regulations as it becomes a more important part of peoples’ lives. Just as it is inconceivable that banking would not be government regulated (unless you count the ongoing subprime mortgage crisis as a failure of the government’s regulatory system), it is becoming inconceivable that the Chinese, US or other governments would not want to have a say in how the Internet is run.
These established sectors know only too well how important it is to somehow find a way to live with government regulatory bodies. In China, successful new startups have almost always come from new areas which the Chinese government has not figured out regulations about and does not yet know how to regulate.
The perfect example is the online gaming industry. This industry was basically an import from South Korea, and took root in China because gaming consoles are technically illegal. (Sony PS2 and 3, Nintendo Wii and xBox360 are all freely sold; that law is seldom enforced, and all of the games sold are cracked versions.) The Chinese government’s rationale for that law was because way back in the nineties, the Chinese government saw PCs as a valuable educational tool, but considered gaming consoles to be expensive frivolous tools for kids to waste their time. At a time when the Chinese had much less buying power than they do today, it seemed like a good idea to ban gaming consoles.
This created an opportunity for Shanda, which was the first company to launch online games (almost all from South Korea) in the Chinese market. This idea caught fire with many younger Chinese and spawned the Internet cafe industry, where many younger Chinese choose to spend/waste their time and has also popularized QQ, the ultimate social networking application if there ever was one, and which for many Chinese, is the Internet.
This industry has swiftly matured, and with success has come regulation. Online gaming companies have tried to adapt, some have adapted (or tried to adapt) by moving into the online game publishing business from online game distribution. The transition from online game distribution to online game publishing has been a rocky road for companies like Shanda. The company has in the past acquired studios and titles, but many of the creative pros have left post-acquisition. A new wave of game publishers with strong titles have come up, led by Perfect World and the highly-contentious Giant Interactive.
On the regulatory and marketing fronts, the online game publishing company has become a victim of its own success: the huge amount of revenue it generates has created something the government and other regulators call a “social problem”, and it has fallen into a rut on the creative side, adding more titles in what are basically the same genre with very little to differentiate each other. The result: titles with diminishing shelf lives and ROI. People who are not addicted to games (i.e. people who have lives) have an increasingly bad view of the industry and game titles.
Unless you have some way to break out of your core audience, which is exactly what Nintendo did with the Wii. The greatest contribution of the Wii is that it has forced people to take a second look at gaming, as something other than just frivolous entertainment which wastes a lot of time and is anti-social for people who do not play games. (Heavy game players would argue that game players are social; they are just online.)
So the Nintendo Wii is halfway there; it has offered a new paradigm for games and gaming.
Now, if gaming is going to really succeed, it will have to get non-gamers to think that they are not playing a game. Then we are talking breakout.
And the game publishers (creative people) will have to learn how to get along and work with the marketing pros, and will have to understand that there is much more to marketing than press releases, press conferences, paying off the media to pick up their stories, planting stories and fake planted conversations on Chinese BBSes, etc.
To really go big, they will rely on a new class of professional and and a new kind of strike force.
We’re not there yet, and we’re not moving fast enough. But there is a way.
I believe in the value of history, but I also believe that there are times when we have to stop referencing the past for what we do in the future.
This is one of those times.
It has been some time since I last posted an article, so I thought I better give you a pretty good excuse.
Long story short: I have said goodbye to my old Windows (Averatec) laptop, and have bought and am using a brand new MacBook Pro 2.4G 2/250 15″ laptop running OS X (Leopard), which I bought directly from Apple. After buying the laptop, I swapped out the 2G RAM for 4G, so now I have one sweet top of the line Mac. Right now, I’m basking in the moment since I’m sure that Steve Jobs will introduce something more cool at Macworld 2008.
Oh well, that’s the Apple tax…
My first computer, bought in 1989, was a Macintosh SE 4/40, which had its operating system on a floppy disk. From 1989 to 1997, I used Macs, and owned about eight Macs. In 1997, when I moved from Taiwan to the US, I moved to the Windows platform because the Office suite on the Macintosh was not compatible with the Windows version. At the time, Steve Jobs had just returned to Apple as CEO (for several years he preferred using the term interim CEO, or iCEO, because the company was in such bad shape.)
For a long time, I was a satisfied user of Windows. Unlike many Mac users, I don’t think that Microsoft is evil, and overall, I believe that the company has tried to develop and launch decent products which bring value to their customers. But I think that there are problems.
First of all, Microsoft has too many product lines and business units. The end result: there are too many mini-business kingdoms fighting for their piece of the pie. Apple does not have this problem; it is run by only two people, Steve Jobs and Jonathan Ive. By any definition, they are very smart, even brilliant. Ultimately, they make the call about every product and service Apple ships. This means that there are no mini-business kingdoms at Apple.
Unlike Microsoft, Apple is run by designers. Engineers are interested in technology and features; designers are interested in how to make technology usable. For designers, user experience is everything. Jobs and Ive are designers, not engineers. Most people are excited by design and usability, not by technology and features. Since Apple controls the hardware and software, Jobs and Ive are in a unique position to control and shape user experience in a way no other company, not even Microsoft, can. This is why the iPhone has been a runaway success, not just in the US where it was first launched, but all over the world. When it comes to the space where technology and design meet, Apple is in a league all its own, and the market is now rewarding it.
But Jobs doesn’t just understand design, he also understands marketing, which is all about managing peoples’ expectations and perceptions. Even though he is widely respected, he never hogs the spotlight; by saying less, he puts Apple’s products and services in the spotlight where Mac aficionados can work themselves into an excited frenzy and become evangelists for the company. By saying and doing less, Steve Jobs does more for the company.
Enough big picture stuff; let’s talk about the experience. Long story short: I love it. The OS feels mature, and it does everything I want it to do, and fast. I tend to be a fast thinker with bad short-term memory; when I want something I want it to happen right away. There is a Chinese saying xinxiang shicheng which means “to get something as soon as you can think of it”. That was always the ideal when talking about computing for me; why couldn’t the computer do what I wanted it to do NOW? For the first time, I feel that I’m close to that goal.
While Windows has been generally satisfactory, I have never been satisfied with Windows registry. While a new Windows computer was snappy, it would quickly decay into molasses mode when the registry got all gooked up. During the ten years I have been using Windows, I have used several different versions of Windows (Windows 95, Windows 98, Windows 98 Second Edition, Windows 2000, and Windows XP). And this does not include the software patches for all the different versions. From a business and customer point of view, it makes no sense that Microsoft could not take care of the registry problem over the past ten years. During the same ten years, Apple has been able to shift to an all-new Unix-based operating system which is rock-solid and continues to improve in performance.
At the same time, with Windows I still have to put up with some DOS commands and foibles such as the backward slash for directory navigation, instead of the forward slash used by Unix, and Windows failure to differentiate between upper- and lower-case in naming conventions. (I have a real problem with the backward slash “\” even though Bill Gates invented it himself.) If I’m spending most of my time on the Internet, why not just deal with Unix on the computer’s OS, which is the native language of the Internet?
Microsoft should be more like Apple and just explain to their customers why they are phasing out a lot of the obsolescent stuff including DOS commands and navigation, and should bring Windows naming conventions in line with Unix.
I bought and installed a copy of Windows XP so that I could run my favorite Windows application, MindManager Pro 7. Since Mindjet also makes a Mac version, I have downloaded the trial version and have been using that. Result: I haven’t been running Windows XP at all.
I can see that I’ll be doing some prototyping and maybe even development on this computer. For this reason, I’m keeping the configuration relatively simple and clean. Web servers use port 80; since Skype uses port 80 too, I’m keeping it off this machine. I’m thinking of getting a new ASUS Eee PC to cover that.
But then, maybe not. I have also bought an iPod Touch and a Nokia e61i.
They should keep me busy for a while…
For most of my career, I have been looking for patterns to discover why some companies come out of nowhere and become big and great, and why others who have dominated the market lose market share and users to the newcomers. More often than not, the newcomers are entrepreneurs who had a vision, while the established companies were as Lou Gerstner called it in his book, “Who Says Elephants Can’d Dance?”
I have looked at startups and established companies, and if there is one word which separates the hungry newcomers from the established, shall I say it, dinosaurs, it is fear. It is not so much the emotion, but how they react to the possibility of failure. More than anything else, this strikes at the heart of what differentiates the entrepreneur from the established firms which frequently end up belonging to another age, and usually end up being swept into the dustbin of history.
Most successful Internet companies, whether they are Yahoo! or Google in the US, and Shanda, Baidu, Alibaba or Tencent in China have one common theme in their histories. At some low point in their early years, their founder/s almost gave up, and they almost sold their companies at a low price to another company. When this happened, the founder/s would seriously consider their options. Sometimes they would lay off people, cut down their costs, maybe fight with their spouses who wanted them to quit and work for IBM or Microsoft or somehow throw in the towel and give up, or sell out. Then, when things were at their lowest point, their user numbers would go up, or they would secure funding and they would turn the corner and start to grow dramatically.
It is all about fear, and overcoming fear. When you have reached a low point, there is no more fear.
“What is the worse thing that can happen to you?”
That you will lose your house? Your car? Your spouse and family? That you will die and be forgotten? Are you willing to take these risks?
When you have reached that point, there is nothing more to fear. It’s all about willingness to sacrifice today in the belief that you will succeed tomorrow. What is there to lose? Money? That has already been invested. Quitting would only be a recognition of the loss; most entrepreneurs refuse to recognize the loss. This is what makes entrepreneurs special; the best ones are truly fearless.
On an individual basis, this is called a near-death experience. If you are not sure what I mean, watch the movie Fearless (1993).
And it’s not about money. They know that money buys the trappings of success such as a big house and trophy wife or mistresses, but that they are just trappings of success. After they become successful, they frequently look back on their “good old days”. And what are their good old days? When they didn’t know whether they would make the month’s payroll, or were living in their car, or eating instant noodles because they could not afford anything better.
This is not something which can be taught in business school. And this is why the US was, and now China is, a great place for entrepreneurs. It’s easy when you are starting from zero. More than any other markets, American business investors believe in the value and experience of failure; this is where Japan and Europe cannot compete with the US and China.
And this is why is it so difficult for large companies to make the leap or cross the chasm. The only way for a successful marketmaker to bridge the gap is to give up all its revenue, all its investments and to start over again.
That has not happened yet. Microsoft has tried to do it, but they cannot sacrifice revenue; their investors won’t let them. Yahoo! was a great Web 1.0 company with great assets but has had significant challenges reinventing itself from the glory days when banner ads were king. When companies become successful, they attract people who wish to avoid risk and who want to make money to buy their big homes, drive big cars and to have their status. They are risk avoiders, not risk takers. Once a company starts to attract this kind of person, it cannot re-invent itself.
It fears failure and won’t take risks.
Entrepreneurialism is all about finding success or failure relatively quickly by putting everything on the line. What the Internet has done in the US and now in China is it has sped up the failure and success cycle, collapsing the amount of time it takes to discover what works.
In my articles I am frequently critical of large businesses which cannot adapt to new changed situations; this is because they are afraid of fear and failure. They want to be market dominators at a time when the market is changing beneath their feet. They have meetings and talk and grumble and analyze, but most of the time they are not able to do much. They acquire small companies to maintain growth, and more often than not, they destroy the spark which made those startups successful in the first place. Or the smart people who have entrepreneurial talent and are willing to take the risks see market opportunities and become entrepreneurs in their own startups themselves.
That is why successful change always comes from the bottom, not from the top. And that is why the cycle of change will continue, only faster.
UPDATE: Frank Yu pointed me to this article by the consistently good Paul Graham who says a lot of the same things.
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:
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.
What do you call it when people pay nearly double current sales price to buy a product which is basically crippled of its most important function, and the maker has spent zero marketing dollars to sell the product?
I’d call that pretty powerful buzz marketing.
According to this USA Today story, some Chinese are willing to part with 8800 yuan to own an iPhone which doesn’t have working phone capabilities in China, because Apple has not yet signed a partnership agreement with a carrier. (Presumably, Apple would part with China’s leading mobile service provider, China Mobile, to launch iPhone service in China.)
Any way you look at it, Apple’s iPhone has had a successful launch in the US. Apple has taken its legendary experience in hardware/software design and integration and applied it to a whole new product, the mobile phone, bringing good design sense and functionality to a product which has confounded most users for years. On the marketing side, Steve Jobs has put the reality distortion field into overdrive, convincing many Americans who have never used smartphones before to part with their money. A few analysts have gone so far as to predict that Apple will replace Microsoft in the mobile space, becoming the leading player for a new category combining hardware and software design and integration in mobile computing. A report which came out on Sept. 4 has claimed that iPhone sales in the US in July have already beaten smartphone sales.
In China, mobile phones are very popular and are more than just communications devices. Often, with the Chinese concern for social rank, they are indicators of social status. On the business side, this translates into frequent replacements of handsets among China’s rising urban middle class as users want to have the latest devices. Mainly for this reason, handset makers have placed most of their research and development in China, to lower costs and to be close to trends for their single largest market.
But could Nokia, Motorola, Samsung and LG have missed something Steve Jobs and Apple saw, an opportunity which Jobs’ gang could not pass up? And could the high rate of handset sales belie not only a desire to have the latest mobile device, but be an indicator that Chinese users were not satisfied with any of the handsets made by any of the major hardware makers?
Moreover, could this represent an opportunity for Apple, which has never had major market presence in China for its computer business, but has made limited inroads with its iPod business? And is this a major opportunity for iPhone in a major emerging market?
First of all, let’s take a look at what Apple has done differently. In typical Steve Jobs style, Apple has played God, giving buyers a complete final sealed package and solution, including software (a version of OS X) by Apple, and a hardware design by Jonathan Ive, Apple’s superdesigner who has been largely responsible for the elegance factor in Apple’s products. To the consternation of a new generation of software developers, Apple has provided only very limited support and documentation for designers of third-party applications for the iPhone. But even with this very limited support, something interesting has happened: the developers have organized themselves to develop new apps for the iPhone.
When was the last time you heard of a large group of developers organizing themselves to develop and extend apps for new Nokia, Motorola, Samsung and LG phones? And for nothing?
While Apple and Steve Jobs try to create consumer reverence somewhere along the lines of Moses coming down from Mount Sinai with the Ten Commandments, the fact is that the first iteration of Apple’s products still are far from perfect. But the products always gets better. This reveals something about Steve Jobs which he strives to keep from the market: he listens and acts on intelligent customer input.
Uniquely among major hardware/software companies, Apple does not use focus groups. Designers design for Steve Jobs: designs and features Steve Jobs likes are kept; designs and features he dislikes are tossed away. There are no focus groups by marketing groups for senior management to use as crutches for their decisions.
If you look at it closely, what is happening with all the buzz for the iPhone is a mirror copy of what happened when the iPhone was announced on Jan. 7 at Macworld in San Francisco. The six month waiting period created a huge amount of pent-up demand and free buzz for the iPhone in the US, which translated into record sales for the product when it was launched on June 29.
Now, it’s happening even in China.
Genius. Pure genius.
Yesterday I participated in Barcamp Beijing 2007, which was held at the France Telecom Research and Development Building in Haidian district in Beijing. There were more than 100 participants with some 24 sessions held in three different languages.
It is hard to describe the firehose of information from Barcamp, but I will try to offer some of the highlights.
Michael Sikorsky, CEO of Cambrian House, first spoke about how to raise financing for startups. Based in Calgary Canada, Cambrian House offers a business platform for service providers, and Michael has successfully transitioned from being a tech person to a business person. I was immediately impressed by his praise of Paul Graham, founder of the Y Combinator seed-funding group. Paul Graham is the smartest tech guy who has transitioned to business, and Michael showed how Y Combinator has introduced a new VC business model of seeding startups by mentoring them through the startup process.
I have spoken frequently with Frank Yu about the need to bring something similiar to the Y Combinator seed capital model to Beijing. Chinese startups badly need mentoring, especially in their early phases because most of the founders do not know how to build teams. This is something Paul Graham’s Y Combinator organization has been able to address very well, teaching business smarts to founders from tech backgrounds.
The other main takeaway from Michael’s talk was that it was important for new companies to be “investor-centric” as opposed to “founder-centric”. If a company is set up to be friendly to investors up-front, then it is much easier for it to scale.
Andrew Lih, who is now living in Beijing, spoke about the Wikipedia movement. Andrew is a researcher in new media, and is now working on a book on Wikipedia due for publication sometime next year.
In the afternoon sessions, Karl Mattson, president of Medium Cool based in San Francisco, talked about what kinds of people were needed to build a good company. He put special emphasis on need for background diversity. When most Americans hear the word “diversity”, then tend to think in terms of racial, religious and sexual diversity. What Karl was talking about was the need to get people from different parts of the world, social and educational backgrounds so that they can exchange views by looking at a business proposition from different angles. Failure to do so meant that companies would often have “blind spots” and result in “group-think”, where the same group of people have a narrower and narrower vision.
I have noticed this tendency even in very large and successful US companies such as Microsoft and Google, where the definition of a smart person fits very closely with the founders’ definition of smart. This has resulted in a form of inbreeding, where the companies’ blind spots get bigger and bigger, creating opportunities for new challengers and startups.
Following his talk, Robert Scales, founder and CEO of Raincity Studios, talked about his company’s experience working with Drupal, the open-source community web framework. Robert talked about how Drupal has matured into an excellent solution for all kinds of businesses, with new modules being added on a regular basis. Previously, companies had been wary of using open-source as a solution because of security cares, but now he found that they had gone past those issues and had come to embrace it as a development platform. The best part for his 12-person team based in Vancouver was that because the software is regularly updated, his company only has to concentrate on basic functionality, design and configuration issues for his clients. And if his company cannot perform the work, design and feature requests can just as easily be addressed by another team which is familiar with Drupal. Now, his company is so busy that he has come to China to look for designers and coders to augment his Vancouver team; he mentioned that he is so busy that he has had to turn away business.
In reply to a question from me, Robert mentioned that the average billing amount and timeframe for a project is 3-6 months and 50-100k (Canadian dollars) per project.
My session was on the topic of “Building Management Teams” for startups. I focused on some of the problems which I found most Chinese startups to have:
Many photos were taken, including many by Kris Krug, president of Bryght, one of the event sponsors. You can find the list of sponsors from my previous pre-event posting. If you would like to see photos from the event, you can find them on Flickr.
Many participants will be going to Shanghai where Barcamp Shanghai 2007 will be held at the offices of Tudou on Sept 8.
Barcamp Beijing 2007 was a very interesting and exciting event for those interested in technology. It provided an excellent opportunity to meet some of the participants and drivers in open-source and Web 2.0, and gave those from outside China a chance to learn about the Chinese market, and a chance for Chinese to mix with outsiders.
All in all, an excellent experience.