Visiting Shenzhen

October 20th, 2007

I have been visiting Shenzhen for the past few days. The last time I was in Shenzhen was in 1999-2001, when the Internet bubble peaked.

This time around, the city has changed considerably since the last time I spent time here. Parts of the city are not recognizable, all in the good sense. There are many more skyscrapers than before, but somehow the city seems more refined and green than Shanghai and Beijing. When I was last here, the city had a grimy, grungy feel about it; no more. It takes pride in being the garden city of China, and in large parts, it is. The downtown area is clean, there are new and very modern shopping malls, and the people seem happy.

I have ridden several times on the Shenzhen Metro, it is very clean and modern. There is one line which roughly runs east-west; another line is under construction. Before, when I lived in Shenzhen, I would cross to Hong Kong every weekend. Now, I feel no need to do so; I can get everything I need in the city. Last night, I went out with a friend to a very nice and clean Japanese restaurant, owned by a Japanese, which had excellent fresh sashimi.

Real estate is still substantially cheaper, and many Hong Kong residents now keep their homes in Shenzhen, crossing the border every day when they go to work. Their children also go to Hong Kong schools, so when crossing customs in the morning and afternoon, there are often large groups of schoolchildren.

I went to a Starbucks once (there are many in Shenzhen; they first opened in the city in 2002), and in section of the cafe, I counted 25 persons and eight notebook computers in use. (In China, Starbucks offers free Wifi service.) If you work out the ratio, that means there were nearly three persons to every notebook computer in use, which is a very high ratio. I have not seen ratios this high in Shanghai, Beijing, or for that matter, in the US which is increasingly falling behind in many Internet usage statistics.

I have not checked any of the Internet cafes here, nor do I plan to. My own guess is that most Beijingers access the Internet from their offices, and the poor or 民工 access the Internet from Beijing’s low-priced Internet cafes since they cannot afford it at home. People in Shenzhen, for the most part, are comparatively well off since the city, which now has a population of 7-14 million mainly comes from other regions of China. (Over the years, the hukou system of individual registration has fallen into disuse, which is why the city government is no longer able to keep track of population.) If their usage of notebook computers in Starbucks is any indicator, they are also much more mobile.

Shenzhen is surrounded with factory satellite towns which employ many workers; most of these factories also supply food, housing and entertainment facilities to their employees. I’m sure that many of these factory workers now have broadband Internet access from their dormitory facilities.

Just to give you some indication of how common broadband is now, I am staying in a Home Inn (a Chinese chain of moderately-priced motels) which charge about US$25 a night. Broadband access is provided free of charge.

Shenzhen now has a very large and modern port and container facility which rivals Hong Kong in capacity.

I cannot help being impressed with Shenzhen’s and China’s development as a whole. In the late 70s, just when China’s reforms were starting and Shenzhen was just a fishing village, many refugees would try to swim across Mirs Bay to seek freedom in Hong Kong. Many of them drowned, and their bodies were washed up on the shores of Hong Kong, or Hong Kong held offshore islands.

Those days are gone.

The women in Shenzhen are fashionably dressed and wear makeup, and are more conscious of their looks than Beijingers. They also smile more readily, and look less self-conscious when they do. There is a lot of truth in the saying 天高皇帝远 (“The skies are higher when the emperor is far away”)

Definitely China is making progress. If the expressions on peoples’ faces are any indicator, China has come a long way.

Digging Deeper About China’s Internet Usage Data

October 11th, 2007

Jeremiah Owyang has published a good report for beginners who know nothing about China’s internet market. I questioned the wisdom of going to Hong Kong to cover the Chinese Internet; to me it seemed like visiting Toronto to understand the UK market. However, he does have some good takeaways for people just starting out in China and who do not read,write or speak Chinese.

I am going to dig a little deeper. Christine Lu of the China Business Network has mentioned to me that her audience is mainly for new people just starting out with China; I’m going to dig deeper and point out some real issues behind the current numbers tossed about re China. Tangos Chen has an excellent follow-up posting which is well worth a read.

All the reports which have so far covered China have been based on impressing non-Chinese with the huge numbers of China’s online population. This provides a very incomplete picture of China’s Internet users, especially those who go to Internet cafes. Most of these people go to play games and communicate with each other using QQ.

An awful lot is posted about China’s large online gaming population accessing the games from China’s Internet cafes. I suspect that a lot of the people who write these articles have never even been inside one in China. I would like to tell you about my first-hand experiences.

I am now in Beijing, and I have been to several Internet cafes here. Several months ago I also went to several in Shanghai.

Let me tell you something about these Internet cafes and their users. For the most part, these Internet cafes are shitholes and firetraps. And the people who go there are young, single, low-income males. They do not bring their dates there. The places are smoky, dingy and poorly lit. They sell some basic food and beverages in the front, and also charge people a fee to sleep overnight on the dirty, bug-infested, stained futons which pass for couches. If you want a truly terrible experience, visit their bathrooms.

These are dirty decrepit places in every way; they are just filthy. If fire safety laws were actually enforced, they would be shut down. And the people who spend their day playing games are, in my opinion, China’s new urban permanent underclass. Why do they go to Internet cafes? Because most of them are from outside Beijing and Shanghai, and the Internet cafe is the cheapest place to go to. They can get by spending 20-30 yuan (US$5-6) a day, including food, drink, games and a place to sleep.

The characters are sad characters; if they were living in England 150 years ago, Charles Dickens would be writing about them. From the Chinese perspective, although games and the Internet are highly addictive, Internet cafes serve a useful purpose. Otherwise these people would be on the street, unemployed. The Internet cafe today in China is what gin and beer was to England’s working class in the mid-19th century when Karl Marx was writing Das Kapital about the evils of class exploitation.

Now, if you were an advertiser, would you want to reach this audience? It all depends.

If these people were working their way up the social ladder, got better jobs, made more money and spent less time playing games and socializing at the Internet cafes, then yes, there would be some value in reaching this audience. On the other hand, if these people are a permanent underclass who have very little money to spend, then the answer would have to be no.

I have made an interesting observation from a personal experience. Earlier this year I visited Chongqing for the first time, and went to an Internet cafe downtown. It was on the ground floor of a an office building (unlike in Beijing and Shanghai, which are in upper floors or basements). It had windows you could actually see in and out of. It was clean, had fresh air, and carried fresh food and drinks. Unlike Beijing and Shanghai, it was divided into smoking and non-smoking areas. The highest fee for a booth was 4 yuan an hour, and there were several people paying that amount at 11AM in the morning, when I visited. I could tell that it was cleaned and maintained on a daily basis. I would not have been ashamed of going into this Internet cafe, unlike in Beijing or Shanghai.

For this reason, I am much more impressed with Internet cafe users in Chongqing than I am with Internet cafe users in Beijing and Shanghai, which are basically awful.

The trouble with the reports about China’s market is that they don’t go deep enough; they just present very basic number information, enough to make the marketing and bizdev types get excited about China, but not enough to ask hard questions which provide insights into user behavior, so that advertisers can really take a deeper look at Chinese audiences, because there is not one; there are many.

Here are some questions I would ask and like to see answered in a report, and advertisers contemplating targeting China’s Internet cafe users should also ask:

  • Please explain your methodology for data gathering.
  • What cities and provinces do you gather data from?
  • How do you scrub your data to make sure that it is as close to factually correct as possible?
  • What is their average income divided by city/region/provinces?
  • What kind of jobs do they have divided by city/region/provinces?
  • How many hours do they spend online per day divided by city/region/provinces?
  • Can you show me the amount of churn of Internet users over time? (This is one of those rare situations where high churn is a good thing; you want these people to make their way up the social ladder.)
  • What games and activities do they spend their time on?
  • Define the difference between hardcore and casual gamers over time.
  • How much money do they spend every month divided by city/region/province?
  • What do they spend their money on, divided by city/region/province?

I always find this kind of information much more useful than the “Wow, China has a lot of people!” level of coverage; I find this information, for example, very helpful in understanding the Chinese mobile market and its users better.

I’d like it if the publishers of Ogilvy China Digital Watch
 or CiC or some other agency could commission a report like this, and make it widely available on the Internet.

I suspect that the hard-core gamers are basically a bunch of losers, but the casual gaming market has good potential for advertisers.

It is time for advertising departments to start slicing and dicing the Chinese audience on demographic and psychographic profiles, and finding out the education/economic profiles of different audiences. Forget the big numbers about China; let’s get our hands dirty and start looking for insightful information which will really help advertisers, consultants and everyone else.

Enough China hype already; it’s time to dig deeper and get down to business and start making money for our clients.

Developing Games and Living the American Dream In China

September 18th, 2007

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.