business models reengineering in china

Benjamin Joffe | CEO, Plus Eight Star Ltd.

Startup2Startup| Beijing, 2010.05

Innovation & Business ModelsRe-Engineering in China

TechCrunchEDITION

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Benjamin Joffe

4 years(Japan)

1 year(Korea)

5 years(China)

I’m not Chinese.I’m not even Asian…

…but I have been researching digital innovation in Asia for 10 years and built a company doing just that.

Those are some of the things +8* has been working on for some time.

• CEO, Plus Eight Star | www.plus8star.com• Digital Strategy & “Innovation Arbitrage”

• Best practices from Asia’s web and mobile

• Partner, Cmune | www.cmune.com• World’s First FPS game on social networks

• Facebook, MySpace and Apple.com

• Founder | Mobile Monday Beijing• Monthly forum for mobile professionals

• 35 events, 120 speakers, 3,000 participants

• Angel Investor, Advisor, Speaker• Asian startups with global ambitions

• 50+ events, 13 Countries

What I do Now

Why it’s hard to understandhow China innovates

And why talking about “Copy-to-China” only

does not help…

Our Challenges

• We are old

• We are not local

• We are not users

• We have (lots of) cultural stereotypes

• Things have been pretty good this way so far

Those challenges are mine too.

General assumption #1

Everything from USA is great

General assumption #2

Everything from Asia is weird(and sometimes funny)

Japanese like texting on mobile

Because they have small fingers

2000

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2008

2009

Asians like avatars

Because they watch animations

2000

2001

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2006

2007

2008

2009

Chinese like ring-back tones

Because they go to karaoke a lot

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

(The fun never ends)

Chinese like Farm games

Because of their agricultural history

2000

2001

2002

2003

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2008

2009

Awareness Test

PHOTO: MOBILE PHONE, BEIJING, APRIL 2010© Benjamin Joffe / Plus Eight Star Ltd.


Dual SIM, Music Player, Photo…

…and some unclear Windows-like icon


But did you notice that?


There is a link to check your QQ Farm

This is a “FarmVille” button

QQ Farm (or similar)

You don’t get that much on your phone but still…

By the way…

Case Study: Farm Games

Highlighting the world’s rich farming history

QuizWho Created the First Farming Game?

• Game MAU Dev. Country• FarmVille 61.6M Zynga USA• Farm Town 18.6M Slashkey USA• Country Story 8.1M Playfish UK• Barn Buddy 6.8M TheBroth USA• Happy Farm 2.5M 5 Minutes China• Happy Harvest .6M Elex China

Source: Appdata and Facebook, 2009.10.26

Answer: “It’s Complicated”

1. Five Minutes (China)

2. Slashkey (US) “culturized” it

3. Zynga (US) copied Slashkey

4. Playfish (UK), Elex (China), followed

If you have other sources let me know! [email protected]

The Mother of all Farming Games?or “where is the innovation?”

• Harvest Moon (1996)– On Super NES, by Victor Interactive

– Inspired Happy Farm

• Sim Farm (1993)– On PC, by Maxis

• Where is the innovation?– Not in the game concept, but in

viral & social mechanics

Innovation Models in China

• Innovation Model: 5C’s of Innovation

• Simplification hurts

• Innovating in and from China

5C’s of Innovation™

We are strategists – we can’t help creating acronyms!

The First Part

5Cs of Innovation™

1. Copy

2. Competition

3. Constraints

4. Combination

5. Context

Entry barriers

Technology?

Capital?

Talent?

Intellectual Property?

Censorship?

1. Copy

Many web businesses have

low tech and capital

requirements

Entry barriers

Technology?

Capital?

Talent?

Intellectual Property?

Censorship?

1. Copy

IP issues and Censorship are issues that all companies have to face, so at least it’s more or less on par… (though not ideal)

Will it blend?

Tencent(US$1.8bln)

2. Combination

IM + Avatars + Games +

Payment via mobile or

scratch cards…

Will it blend?

Tencent(US$1.8bln)

2. Combination

We published a detailed report about this company.Check www.plus8star.com

4 Facebook4 YouTube

5 Match.com3 Yahoo

4 Twitter

?

What happens with

3. Competition

Lack of competition make companies slow at

innovating…

4 Facebook4 YouTube

5 Match.com3 Yahoo

4 Twitter

?

What happens with

3. Competition

This is not a problem China has…

(in many cases)

Low GDP/capita

Limited advertising

No credit cards

No legacy industry

4. ConstraintsArtists set themselves

constraints to be more creative.

Low GDP/capita

Limited advertising

No credit cards

No legacy industry

4. Constraints

Why not entrepreneurs?

5. Context

Scale / Geography / Demographymake some services viable

Large scale, or very high urban concentration can help

5. Context

Scale / Geography / Demographymake some services viable

So can a younger Internet base

The missing C’s

1. Copy

2. Competition

3. Constraints

4. Combination

5. Context5. Collaboration

6. Culture

7. Comedy

After spending more time in

Silicon Valley we added a few “C’s” to highlight what

was missing in the startup ecosystem

in China

The missing C’s

1. Copy

2. Competition

3. Constraints

4. Combination

5. Context5. Collaboration

6. Culture

7. Comedy

Culture stands for “ability to tune to other cultures” (the

US is not that great at it, BTW)Comedy is about creating

emotional connections

Business Models Re-Engineering

The second part

Box vs. Online Games

• Box games

– Traditional retail model

– Virtual goods in US: 1 billion in 2009

• Online games

– Copy-proof

– Virtual goods in China: 5 billion in 2009

Taobao vs. eBay

• eBay– Commissions

– Don’t want buyer-seller direct communication

• Taobao– Free listing

– IM welcome

– BUT no crawling by search engines

This is how Taobao, entering the market in 2003, overtook eBay who was #1 in China

Tencent vs. AIM / Facebook

• Facebook

– Advertising model

– Social graph / Social web

• Tencent

– Virtual goods

– Closed system

This is showing the fundamental difference in business models between

Facebook and Tencent

Zhenai.com vs. Match.com

• Match.com– Advertising

– Subscriptions with self-service

• Zhenai.com– Value-added subscription: Matchmaking Manager

– 300+ people in call center to help your dating!

– 3,000 rmb (450 USD) for 6 months

Most Match.com copycats in China don’t

make much money. Zhenai does!

China’s Tech Stocks

This is a side note but might interest you. The

list is not exhaustive.

Market Caps Quiz

• Tencent 33.4 bln USD– Time-Warner 33.9 bln USD

• China Mobile 188.4 bln USD– AT&T 144.36 bln USD

• Alibaba.com (~20% of Group?) 9.2 bln USD (x5?)– eBay 27.9 bln USD

• Netease 3.87 bln USD• Shanda 1.64 bln USD

– Activision Blizzard (WoW, CoD, GH) 12.75 bln USD– Electronic Arts 5.32 bln USD

Quick word on Yahoo

• Yahoo’s market cap 21.5 bln USD

• China– “Alibaba.com would represent about 20% of the Group value”

(David Wei, CEO, Alibaba Group)– Total group value = 40+ billion USD?– Yahoo’s share = 16 bln USD?

• Japan– Yahoo owns 34.79% of Yahoo Japan, JV with Softbank– Yahoo Japan market cap = 19.8 bln USD– Yahoo’s share = 6.85 bln USD

• Total Asian assets >22 bln USD?

Ask your usual vendor for financial advice.

China’s Internationalization

You did not expect Chinese champions to just sit there, did you?

Chinese Companies Going Abroad

• Mobile companies

– Yicha (mobile search) | Japan

– NetQin (mobile antivirus) | Russia, etc.

• Software companies

– Antivirus | Japan

– Office suite | Japan

China’s Assets

• Skilled IT workforce

• Expertise in several IT sectors– Gaming, virtual goods, scalability, etc.

• Good execution

• Lower cost (fraction of US for a social game)

Things change and are case-by-case but as a macro view in IT,

this is my opinion.

China’s Hurdles: Soft Skills

Building

• Fundamental vs. Incremental Innovation

• Design

• Product/Project Management

• Quality

Companies (especially foreign ones) train many

staff in this, though.

China’s Hurdles: Soft Skills

Building

• Fundamental vs. Incremental Innovation

• Design

• Product/Project Management

• Quality

Selling

• Culture

• PR

• Country “brand”

• Partnerships

“Designed by XXX in Shenzhen”, for instance, is not fashionable yet

More about “Innovation Arbitrage”

Thanks!

www.plus8star.com

[email protected]

benjamin0123

http://twitter.com/benjaminjoffe

www.linkedin.com/in/benjaminjoffe

www.slideshare.net/plus8star

+81 | Japan

+82 | Korea

+86 | China

Telecom & Internet

+ Added Value

* High quality

Thanks for your attention!

55 | 9© Copyright 2010. All rights reserved. www.plus8star.comMobile & Internet

Innovation Arbitrage

About +8*

• Innovation Arbitrage

– “Bringing proven best practices and business models from Asia”

– +8* (Plus Eight Star) is the leading cross-market consultancy on mobile, telecom and Internet

in China, Japan and Korea.

– We work with large companies, SMEs, investment firms and governments worldwide to bring

them strategic advice and the best practices from advanced Asian markets.

There are more ideas

outside of your country

than inside.Tom Kelley

Author, The Art of

Innovation

• Our expertise

– Internet: our work covers

social media, communities,

ecommerce, online gaming

and virtual worlds.

– Telecom: we have extensive

experience with mobile and

telecom services (e.g. mobile

marketing and advertising,

mobile commerce, mobile TV

and mobile communities).

This is more detail about +8*

http://www.plus8star.com/



Our Clients

EUROPE

USA

ASIA

We work with large and small

organizations around the world

Most of our

projects are

custom-made


http://www.vectis-intl.com/index.html



Selected References

• Adidas | E-commerce and mobile commerce market analysis and strategic

recommendations for China, Japan & Korea

• Bouygues Telecom | Cases studies of leading Asian Web 2.0 services and virtual

worlds

• Deutsche Telekom / T-Online | Benchmark of Korean mobile & Internet

convergence strategies

• EU-China Information Society | Research on e-commerce and virtual worlds to

support the regulatory dialogue between the EU and Chinese authorities

• Microsoft | Analysis of Japan’s key players and market catalysts for mobile

commerce market positioning in China

• DeNA | Benchmark of leading SNS in China and South Korea (DeNA operates

Japan’s leading mobile social network)

• China Mobile | Benchmark of Korean leading online communities

• Sands Capital Management | Evaluation of investment opportunities in social

networks in China

• MIH / NASPERS | Analysis of leading online verticals in China (MIH is the largest

shareholder in Tencent, China’s leading online community)

• IMVU | Benchmark of monetization and engagement best practices in Asian virtual

worlds & SNS (IMVU is a leading US-based 3D virtual world & chat)




Customer Testimonial | IMVU Inc.

COMPANY: IMVU Inc.

Lee Clancy, VP Product Management & GM of Direct Revenue

August 2009

Q Has the service performed by +8* met your expectations?

A The consulting services provided by +8* met IMVU's expectations. Benjamin and his team showed a deep

understanding of major Asian virtual worlds and gaming companies, as well as their potential implications

for IMVU. In our communications with them, they were very responsive to our follow-up questions and

completed their final deliverables on-time.

Q How have you used or plan to use this research within your company?

A Only a few weeks after +8* delivered their findings to IMVU, we had already identified and roadmapped

various product enhancements that were a direct result of our learnings from the +8* study. What is more,

we have since launched pilot versions of those new features that have received extremely positive feedback

from IMVU users (e.g., "My Pets" mode). Additionally, +8*'s comprehensive report is an invaluable

reference that I consult often when considering new product enhancements.

Q What decided you to hire +8* for this project?

A We chose to hire +8* for this project because 1) they had a strong professional track record, which we

confirmed with representatives from several blue chip clients of theirs prior to the study; and 2) we felt that

their area of expertise and past studies were strongly aligned with our research needs.

A Silicon Valley

reference for

TC readers




Speaking Engagements

• Regular keynote speaker & moderator in IT,

Media & Investment events.

• Engagements in 2008/09/10• Echelon 2010 (Singapore , Upcoming)

• CHINICT (Beijing, Upcoming)

• Global Mobile Internet Conf. (Beijing , Upcoming)

• Startup2Startup (Beijing, Upcoming)

• Ignite Shanghai (Shanghai, Upcoming)

• Virtual Goods Forum (London, Upcoming)

• Dell Online Summit (Beijing)

• Microsoft Entrepreneurship Lecture Series (Beijing)

• Mobile Social Networking Asia (Hong Kong)

• Stanford University (Entrepreneurship)

• Berkeley University (MBA)

• SXSW Interactive (Austin)

• PICNIC (Amsterdam)

• Virtual Goods Summit (San Francisco)

• Inside Social Apps (San Francisco)

• eComm 2010 (San Francisco)

• eComm 2009 (San Francisco)

• Ad:Tech (Beijing)

• Ad:Tech (Shanghai)

• Ignite (Amsterdam)

• Ignite (Beijing)

• Ignite (Paris)

• Mobile Asia Congress (Hong Kong)

• Lift Asia (Jeju, Korea)

• ITU Asia (Bangkok)

• Infinity Ventures Summit (Sapporo, Japan)

• LeMobile 2.0 (Paris)

• Asia Venture Capital Forum (Hong Kong)

• Graphing Social Patterns (Washington, D.C.)

• iGaming Asia (Macau)

• Unite Conference (San Francisco)

• China Mobility International Summit (Beijing)

• 3G Summit (Kunshan, China)

• Red Herring Asia (Hong Kong)

• China Internet Forum (Beijing)

• Media’08 (Sydney)

• China Internet Forum (Beijing)

• Wireless Developer Forum (Beijing)

• Open Web Asia (Seoul)

• XMediaLab: Virtual Worlds (Seoul)

• Mobile Monday Global Summit (Helsinki)

• Mobile Monday Global Summit (Kuala Lumpur)

• EU-China Virtual Worlds Conference (Beijing)

• EU-China eCommerce Regulatory Workshop (Beijing)

• Startonomics (Beijing)

• UnConference (Singapore)

• BarCamp (Shanghai)

• La Cantine (Paris)

• Mobile Focus (Stockholm)

More information at www.plus8star.com/presentations/

Our presentations are

based on our research…

…but generally only

scratch the surface


http://www.plus8star.com/presentations/



Media Coverage

• Media Coverage

– Our research and views have been quoted by numerous media outlets on topics ranging

from Telecom and E-Commerce to Social Networks, Gaming and Virtual Goods.

– Selected media: Forbes, The Economist, The New York Times, International Herald Tribune,

The Guardian, Advertising Age, VentureBeat, TechCrunch, ReadWriteWeb, Gamasutra, etc.

More information at www.plus8star.com/press/

Various media that quoted

our work or views…


http://www.plus8star.com/press/



Event Organizer & Advisor

• Founder & Organizer: Mobile Monday Beijing

– Mobile Monday is the leading network of mobile industry

professionals, counting over 50 chapters around the world.

– We founded the Beijing chapter of in 2006 to support the ecosystem.

– Results: 35 events, 125 speakers, 3,000+ participants (avg.100).

• Co-Organizer

– Startup2Startup (Beijing, May 2010)

– Geeks on a Plane (Beijing, May 2010)

– Startonomics (Beijing, May 2009)

– Startup2Startup (Beijing, May 2009)

– Open Web Asia (Seoul, October 2008)

• Advisor

– TEDxBeijing (November 2009)

We also help the

community




Contact

• Benjamin Joffe, Founder & CEO

– 10 years experience with Telecom & Internet in Asia.

– “China’s Top 100 mobile industry influencers” in 2007 & 2008.

– Senior Expert for the EU Delegation to China.

– Regular speaker at events on mobile and Internet in Asia.

– Fluent in English, Japanese, French with working knowledge

of Mandarin, Korean and Spanish.

• Contacts

– [email protected]

– benjamin0123

– http://twitter.com/plus8star

– www.linkedin.com/in/benjaminjoffe

– www.slideshare.net/plus8star

Beijing Office (HQ) Tokyo Office

Sanlitun SOHO A-710 Flat Hagiwara 2D

Chaoyang District Setagaya-ku 6-36-8

100027 Beijing, P.R. China Tokyo, Japan

Tel: +86 (0)10 8447 7985 [email protected]

+81 | Japan

+82 | Korea

+86 | China

Telecom & Internet

+ Added Value

* High quality

To get in touch

Zaijian!


http://www.slideshare.net/plus8star

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