The China Vortex

I’m in Hong Kong on business, and have had the opportunity to participate in the activities related to the launch of the Creative Commons Hong Kong. Rebecca MacKinnon has done an excellent job, along with some other faculty members from Hong Kong University, in making this a very informative and interesting event. At the event, I met with Angus Lau, who is another twitterer, and has done a lot to keep the Internet a lively topic in the SAR. Most recently, Angus has been active in organizing the recent Open Web Asia event in Korea.

Creative Commons Hong Kong

My takeaway from the Creative Commons Hong Kong event is that Hong Kong is in an excellent position to promote CC in Asia. It’s press is relatively open and free, and it really should be an excellent publishing center, especially for those connecting China and the west. In my opinion, it has not yet realized its full potential. Surprisingly, there are relatively few bridge people, who understand both the west and China as one would think. People fall into their own groups of Hong Kong people, who are interested in local gossip, westerners working for multinationals, and some Chinese from China. To a large extent, they don’t mix with each other as much as they could. This is unfortunate.

In spite of this, there are things I like about Hong Kong:

• Clean safe food
• Clean public toilets
• Real broadband of at least 200K up and down
• MOS Burger

The first three things, I’m sure you can understand.

But, what’s MOS Burger? Put simply, it’s a Japanese hamburger chain. Its hamburgers are delicious, and in true Japanese fashion, they have an eye to detail, taste and preparation which is better than McDonalds. It has stores in Hong Kong, but none in China.

If you are a computer nerd (if you read this blog regularly, you probably are more or less), then MOS burgers are to MacDonalds what Macintosh is to Windows. It’s just better, and it costs more. And I mean tastier, and sits more comfortable on your stomach after eating.

If you order a set meal, you can get a garden fresh salad as part of the C meal. (Maybe that’s why they don’t have the chain in China. Garden fresh salad in China? Ummm, I don’t know…) So, when I get to Hong Kong and after I have had my meetings, my job is to find out where the nearest MOS Burger outlet is.

BTW, if you don’t believe that it tastes better than MacDonald’s, I’d be happy to take you for a taste test.

Over the past year, the tone of coverage of many China-related topics in the US has improved. For the most part, writers covering China have tried to look past the generally-accepted stereotypes, and have tried to get a deeper understanding of what is going on in China.

But occasionally something finds its way through the cracks.

This article is really exemplary; it seems like the writer has taken all the stereotypes about Apple and China, and thrown them all together in one basket. Judging from the tone of the article, and what he professes to be truth, it seems like he has never set foot in China. Otherwise, how could be believe some of the things he writes?

Let’s take a look at some of the choice statements:

Apple has less than 8 percent market share in China for media players, and far less than 1 percent of either PC or cell phone market share.

Yes, so? I wonder if the writer has walked into any cafe in Shanghai, Beijing and Shenzhen, and looked around? Or has he taken any of the subways in any of those three cities and looked around for the signature white earbuds? The question should not be the percentage market share. It should be the trend, and whether it is tracking up or down.

Apple’s second biggest hit in China, the iPhone, isn’t authorized. One Chinese analyst estimates that some 1 million Apple iPhones are currently operating on just one Chinese carrier — China Mobile — with a smaller number on other carriers. Most Apple “Authorized Resellers” in China sell black-market iPhones, and many even offer illegal cracking services — a process that reportedly takes less time than activating an iPhone 3G in California.

Apple makes money off of every iPhone sold, whether it is through authorized or unauthorized channels. Sure, Apple would like to have a carrier agreement in China, but having a group of fans, even though it is relatively small percentage-wise, which is very enthusiastic about Apple products, is a good thing. Besides, there are a lot of people in China who pay even more for more expensive feature-packed mobile phones in China. In fact, the iPhone is not the most expensive phone in the market. Ask Nokia.

Apple succeeds because customers love the products and the brand. But in China, brands mean little to most potential customers, and hardware even less. Chinese consumers prize value above all.

This quote is a true gem and qualifies as one of the most ignorant sweeping statements about China for 2008, even though we are only halfway through the year. Obviously the writer has not been to China and walked in the downtown of any major city. Here is an article about the runup to the recent opening of the Sanlitun store in Beijing and another story about Chinese youth camping out in front of the Beijing Apple store, where they were behaving just like American Apple fans.
I guess that’s why there are no Mercedes Benzes, BMWs, and Chinese women don’t care about the labels they wear? Maybe he thinks that they still wear Mao suits?

The rest of the world’s love of the Apple brand has enabled Apple to get favorable terms with carriers around the world. But this hasn’t helped much in China. Apple initially demanded a big two-digit percentage of carriers’ wireless revenue as a condition for granting its coveted exclusivity deal, according to reports (one company says Apple demanded 30%). The Chinese carriers were apparently unimpressed by the value of Apple’s brand compared with the value to Apple of access to Chinese consumers. They appear to have forced Apple to drop its demand for any share of wireless revenues.

The reason Apple has not been able to get an agreement with China Mobile is because they are both big companies with very big egos who want to control everything. I would say that Apple and the carriers have trouble reaching an agreement because they are so much alike, and don’t believe in compromise.

One-party rule in China actually affects product quality. One example is that Apple will probably be required to disable the iPhone’s Wi-Fi feature in order to comply with the Communist Party’s strict Internet control and censorship rules.

The relationship between one-party rule and product quality is an arguable point. But if it is that simple, then why are ALL of Apple’s products made in China? As for the disabling of Wi-Fi on phones sold in China, that is a China Mobile requirement, not a State Council requirement. (If you think that the rulers of China don’t have better things to worry about than whether mobile phones in China have Wi-Fi functionality, you don’t know anything about the country and how it’s ruled.) Besides, with the recent re-arrangement of the Chinese telcos, it’s not as if China Mobile is able to control Wi-Fi as much as it would like.

China is number one in intellectual property theft

Apple’s whole business model is based on creating value through exquisite design, superior branding and the sale of creative intellectual property (IP) — then defending its rights against the IP thieves, pirates and counterfeiters.

How will this formula succeed if China doesn’t enforce intellectual property laws?

The music piracy rate in China is between 90 and 99 percent, depending on whom you ask. China is the global epicenter of intellectual property theft in general, and of Apple IP theft in particular — especially iPhones and iPods.

Fake iPhones, and phones that steal Apple branding; illegal iPhone unlocking services; trade in illegal movie and music files; all appear to be tolerated and even government-protected activities in China.

Oh yes, how can we talk about China without IP violations? Seriously though, this is an issue. The best way to fight IP though, is for a country to get more prosperous. As people become wealthier, they are more willing to spend money on software, music, etc. In China, it is also very important to explain the importance of IP to various government ministries, and even be flexible about how much you charge Chinese consumers. Many Chinese think that they should not have to pay as much for music as US consumers because they have a lower income and standard of living. Does that fit into any American companies’ equations? Up until four years ago, Microsoft had a very high level of illegally installed Windows licenses in China, and constantly lobbied with the US Congress to “punish” China. When Microsoft China changed tactics and chose to engage Chinese ministries, educate them, and lower the license fees (as China’s standard of living increased), first the ministries, then the schools, then the people started buying original software from Microsoft. Now Microsoft gets more revenue from China, and the relationship with the government is much less confrontational. Piracy of Microsoft software still exists, but again it’s about the trend, which is improving.

Steve Jobs is an exemplary business and marketing genius. But when it comes to learning about other markets, he is lazy. He would like nothing better than to set prices for all media products sold through iTunes himself, and he would like it to be the same all over the world. China is a major kink in his vision.

How many times has Bill Gates been to China? How many times has Steve Jobs been to China?

I rest my case.

Unless you have been living under a rock for the past six months, you have probably heard of Twitter. Developed with Ruby on Rails, it has now hit the big time, with many companies offering client versions of Twitter, so that you don’t have to keep the Twitter web page open to record your deepest thoughts, which you can share with your community/ies.

Technically speaking, there is not a whole lot of difference between Twitter and many other IM clients, including Tencent’s QQ, the immensely popular Chinese IM client. If there is any difference, it is that Twitter makes it possible for dispersed communities to keep track of each others’ activities. In contrast, the IM clients are mainly Web 1.0 tools which enable people to find and contact each other to meet offline. QQ, for instance, is a great enabler for that popular activity which we shall call “dating” in China.

The difference between Twitter and the Web 1.0 IM clients is not so much in the technology, as in the way people handle relationships. Put simply, the lines between offline and online relationships are blurring, and in many cases, more people spend more time online than they do offline. For this reason, their online communities are gaining value, and in a few cases, are assuming primary value, while their offline relationships become secondary.

This was not the case for most of the Web 1.0 IM clients.

From the business perspective, this means that businesses will have to pay even more attention to what is going on online, as I have mentioned in my previous post.

In China, many people do not have email addresses, instead they rely on QQ ID numbers to identify each other. Walk into any Chinese working area (including Starbucks and any other area which provides free Wifi) and chances are you will see that almost every screen has a QQ or Windows IM client window open.

And they are using it for business, not just personal gossip.

So, the ultimate test of whether Twitter becomes the American QQ is whether American’s use it for business, not just social chatting.

If that happens, the American Internet will suddenly look a lot more like the Chinese Internet.

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…