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on PRISM

The unfolding PRISM story is likely one of the biggest Internet/public policy stories of the decade, and the debates surrounding it could be a defining moment in the history of the Internet.

At its core, PRISM is about the erosion of constitutional rights in the US, and the invasion of privacy on a scale never seen before. Coming from China, I certainly had the chance to observe the negative consequences of a lack of safe-guarded constitutional rights; but suffice it to say, citizens of the US should take note, when one of their favorite Chinese activists writes a column on PRISM in The Guardian comparing the US to China.

On a secondary level, PRISM is also about antiquated laws in the Internet era. One of the major defenses the US government is trying to put up is that PRISM is not used to spy on US nationals (and aliens in the US). That may comply with longstanding US domestic laws, but it certainly does nothing to address the concerns of other nations. The EU is demanding answers, and Germans in particular are being reminded of the days of the Stasi. In light of this, will there be a wave of stricter regulations towards Internet companies globally? Would multi-national companies such as Google / Facebook face tougher compliance challenges in order to operate in local markets?

And certainly, this turn of events provides a lot of fuel to trade protectionism, in the sense that more nations will want national champions in the Internet and Telecoms space, so that they can be free of US surveillance. Some countries could theoretically follow China’s model and block out certain US Internet properties, in the name of failing to comply with domestic privacy laws.

Last but not least, PRISM is also a big topic for tech PR. The “9″ firms identified in that notorious slide scrambled to issue denials, which have been duly dissected by media, and follow-up denials, as well as requests to the US gov to allow them to disclose more on the matter. But I suspect in any case these 9 companies are big losers from a PR perspective. I also found it ironic that Yahoo! wasted no time to use Tumblr to make statements, while Googlers turned to Google+ (the comments on these Google+ statements are not a bad measure of public sentiment towards Google). Twitter got a PR windfall for the mere fact that it wasn’t on the list. And Mozilla/Reddit (and a few other Internet companies) earned major PR points for taking action and demonstrated their authenticity to their brands - conspicuously missing are the big tech companies. And let’s not forget, the story is still unfolding, so we may well learn that the denials of the “9″ are only semantics, so the worst may well be yet to come for those massive brands (well, Paltalk not withstanding).

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By Bayjinger – June 13, 2013

Interoperability as signal of relative market performance

There were two thematically similar pieces of news today – the first, Blackberry announced that it would add the once-popular BBM messaging service to iOS and Android; the second, Microsoft announced that outlook.com now supports chatting with Google accounts.

Going back a few years, both pieces of news would be bombshells, with bloggers likely proclaiming that hell has frozen over. In today’s tech scene, both are of minor note.

In grad school, a tech strategy professor had made the observation that efforts at providing interoperability usually make strategic sense for players who are trying to catch up. For market leaders, generally there is little strategic rationale to support your competitors’ platforms. The classic example of this would be productivity software, most famously office suites. Even today, there are a few competitors to Microsoft Office. Supporting Microsoft’s document formats are a core feature; it would be a non-starter to try to get adoption when you don’t support .doc / .ppt / .xls. Conversely, there is usually no reason at all for Microsoft Office to support competing office products’ proprietary formats. (Office may support some open standards, but that’s another story)

So one way to read these pieces of news today, is to see them as signal that Blackberry and Microsoft have on a strategic level acknowledged the dominance of its respective competitors. For Blackberry, even just a few years ago BBM was seen as a crown jewel, a killer app for its loyal user-base. To add cross-platform support would be like opening the floodgates for a mass exodus of users. – Well, that exodus happened anyway. For Microsoft, its web services have long offered some forms of interoperability (e.g. facebook chat support on Windows Messenger), but outright admitting that Gmail is more popular seems to be a first (just the title of the linked official post itself is revealing).

To extrapolate on the observation, Rene Ritchie made the observation that “as of today, every major mobile competitor… also makes apps for iOS“. This is obviously tied to Apple’s vertical integration business model, which is asymmetric compared to Google / Microsoft’s more horizontal play (hence, it is a much bigger deal for Apple to even consider making its software available to other platforms). And you can also make the comment that Apple doesn’t really have proprietary killer apps that would benefit from being cross-platform. But at least partially it is also a signal of Apple’s platform strength.

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By Bayjinger – May 15, 2013

Apple: all news is bad news

Apple’s stock has taken a rather spectacular dive the past 6 months. It’s almost halved in value, and market sentiment is continually abysmal on the stock. To me it has reached the stage where all news is bad news.

I’m not a proficient trader, so I won’t comment on whether it’s the right time to buy Apple. I only want to discuss the fundamentals, and why this current stock price makes little sense in the long term.

Apple is currently trading at a P/E ratio of below 9. Bears of the stock will say this is justified because they expect Apple’s future earnings to collapse – that’s where the fundamentals come in. I think I’ve observed Apple for quite some time and I’m generally up to speed on the mobile industry trends. My opinion is that little has changed in the market outlook for Apple between now and 6 months ago (when Apple stock reached all-time highs).

Think about these pieces of info:

  • Apple’s market share in the US has stabilized, if not straight up outgrowing Android
  • In the world’s biggest growth market, China, Apple has demonstrated tremendous growth and may have become one of the largest foreign companies in China (by revenue) in the short span of a few years
  • Out of all the PC manufacturers facing the momentous decline of PC sales, Apple is the best positioned as it is the company disrupting the industry in the first place with its tablets. Yet Dell enjoys a higher PE ratio than Apple (and yes, the buy-out talks buffed Dell’s price, but the argument is still valid)
  • Most data show that Apple still completely dominates in the tablet space (in contrast, Android tablets don’t seem to be selling), and the ecosystem is thriving – Supercell, a mobile gaming company that only has two iOS games published and is only focused on designing for iPads, is on a run-rate to generate $800MM in sales in 2013. Apple’s ecosystem is a king-maker; have we seen any case studies of remotely close feats from competing eco-systems?

Apple’s stock is a weird beast. When Jobs was alive, the price was continually under-priced with fears about what his health means to the company. After his passing it had a good rally in mid 2012, but even then at its peak it wasn’t that expensive (think about Amazon’s stock, at any given point in time). Nowadays bears routinely claim that Apple is dead, has stopped innovating, and that the management is dumb (“Tim Cook should resign!”). I struggle to find any evidence supporting these claims.

Perhaps people like nothing better than for the world’s most successful, yet obviously most contrarian (it has perhaps the smallest number of SKUs for any company of its size; it insisted on vertical integration when everyone said vertical integration was dead) tech company to stumble into irrelevance, so that conventional wisdom prevails once again (“Apple is repeating its mistakes of the PC platform wars!”) and Apple is nothing but a one-time anomaly that can be conveniently forgotten. I have a feeling that Apple will live longer than they expect.

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By Bayjinger – April 19, 2013

Why did desktop messaging apps fail on mobile?

I’ll start with clarifying the provocative title – when I say desktop messaging apps (referring to QQ, Skype, Live Messenger, Google Talk, Facebook Chat etc.) “failed” on mobile, I’m referring to their relative underperformance across the board compared to the pure mobile messaging apps (WhatsApp, Viber, WeChat, Line, KakaoTalk etc.). This defies conventional tech wisdom such as the power of network effects (the main driver behind the value of social network services) – why could these mobile upstarts so unanimously outperform the dominant messaging services with far greater user bases?

There are a few reasons I could think of.

One network to rule them all

To start off, it’s important to note one incredibly powerful network that has greatly leveled the playing field for mobile messaging startups – your phone book / contacts list. Phone numbers are by design unique identifiers, at a global level. Your phone book is usually far more important than your facebook friends’ list, as these are the people you’ve decided you need to be able to reach at a moment’s notice.

Mobile messaging apps such as WhatsApp use your phone book as a powerful boost to setting up your social network within these apps. This is analogous to Facebook / Linkedin asking to scan your email contacts list, but even more impactful (a stored phone number is usually more important than a stored email address). What’s more, because of the way smartphones work, mobile messaging apps generally have an easier time getting your permission to access your phone book (usually one click), compared to Facebook / Linkedin trying to access your gmail (need to type your username / password).

To make matters worse, few desktop messaging apps are designed to leverage your phone book. QQ or Google Talk has very little info to work on to merge your phone book contacts with your contacts on their network – any such process would likely be extremely manual with user approval entry by entry. Skype is perhaps the only desktop service that does somewhat better in this regard, as it has had to deal with phone-numbers for paying users of SkypeIn / SkypeOut.

Because of the above, network effects are actually working against the desktop messaging services, as they often poorly leverage the mobile social network (your phone book).

Cross-platform use cases work against the cross-platform services

At first glance, one could easily argue that the desktop apps benefit from being cross-platform (cross PC & mobile). What’s not to like about being able to chat with your friends, regardless of whether they are at their PC or just have their phones?

In practice, this again often work against the desktop apps. For one thing, users generally have very different communication habits when they are sitting in front of their PC versus holding their phone. Messaging on the PC is generally low commitment – your friends may not be online when you are, and even if they are, you often don’t know if your friend is watching a movie, playing a game, or working, so you don’t care whether they respond promptly or not.

Conversely, mobile messaging apps are meant to be always on, and market themselves as replacements for SMS. As such, mobile messaging can also be low commitment (useless texts), but carries with it a sense of immediacy not found in desktops. That’s why if you sign in to Skype/QQ/Google Talk on mobile you may prefer to make yourself invisible – you don’t want to be spammed on your phone with what you consider low impact messages/conversations from people idling at their desktops.

A sub bullet point here is that some mobile messaging apps have caught on via novel use cases – e.g. WeChat with the voicemail-like functionality. Such a function would sound ridiculous for a desktop app, but makes perfect sense on mobile.

As another aside, the difference in input speeds also make the cross-platform chat experience potentially undesirable to both parties.

At the end of the day, designed for mobile first versus “extending platform to mobile” leads to dramatically different use cases. Desktop apps make far too many compromises in being cross-platform to truly challenge the mobile first apps. A great example is actually to think about the other way round – how often would you use WhatsApp if it were available on desktops? Or even better, how often do you use iMessage, which is already cross-platform, on your Mac?

Geographic scope, focus and execution

This part is going to sound a bit fluffy. The first point is that few desktop apps have achieved global domination, which allows a mobile messaging startup to focus on cracking a specific geography and start growing its network. Indeed, there isn’t really one mobile messaging app that is ubiquitously used globally.

The second point is admittedly a bit of a conventional wisdom – mobile messaging startups have better focus, and are more agile, and therefore they have out-executed their desktop competitors. I do think this is the case, especially if you think about how WeChat caught on, but this shouldn’t be thought of as the sole reason. The above two sections cover some of the underlying enablers, and are more interesting from a strategy discussion perspective.

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By Bayjinger – April 9, 2013

Facebook Home: good for Android, bad for Google

Facebook unveiled the next major part of their mobile strategy today with the Facebook Home announcement. Let’s talk about it from a few different angles.

Presentation

The event itself was quite compact, a no-fluff, well-rehearsed show (perhaps they took note of Samsung’s controversial Galaxy s4 event in New York some weeks earlier). There seemed to be some ramblings from the tech press about seating arrangements (lack of space/tables). The appearance of the CEOs of HTC and AT&T are obviously for show, but it did demonstrate that Facebook’s all grown up now and can demand the attention of industry heavy-weights when they want support.

Implications to Android eco-system

To the Android eco-system as a whole, this is overall a great new product. Facebook Home is the type of customization that may well be unique to Android (both Apple and Microsoft likely want too much control of their OS to allow this type of customization), and helps improve Android’s position at the high end of the marketplace versus Apple.

Many commentators have noted that this is not a fork; some have claimed this is the first step to a fork down the line. I think those are valid points. The consideration from Facebook’s point of view should be, what kind of an experience are we aiming to offer to Android users, and do we need to go as far as forking to offer that experience? Right now, Facebook Home is primarily about raising mobile engagement with Facebook, and taking over mobile messaging. To that end, a fork is not necessary as long as Google allows this type of deep customization.

Should Facebook Home take off in the market place, it is not inconceivable to see Facebook advance lower into the software stack, and go into a full fork when it needs to. A scenario could be – Facebook Home takes significant market share within Android; Facebook then plans to roll out its own Android app marketplace, with built-in Facebook tie in (all apps come integrated with Facebook data); by wanting to roll out its own Android marketplace, Facebook would likely have to declare a fork as it is running right against Google Play.

Facebook Home also shows a new path for all parties interested in bending Android to their benefit. This halfway measure (to a full fork, which is costly to maintain) makes a lot of sense to many established Internet services. For example, why wouldn’t Tencent do something similar (outside of the fact that the Android landscape in China is a mess and it would be difficult to create a middleware offering)?

Implications to OTT messaging apps

Just yesterday, I had written about OTT messaging apps and their potential threat to Facebook. Facebook Home is a large counter-offensive in this regard. Facebook is putting its messaging service front and center. It wants Facebook chat to be the ubiquitous messaging service for Android users.

What’s curiously missing then, as I think about it, is the lack of details around how Facebook Home will tackle the issue of address book management. Will Facebook Home merge your address book with your Facebook friends data? When you create a new contact, would it automatically try to find the person on Facebook and add him/her as a friend? I don’t think Facebook talked about this topic at all today. It would be a jarring, disjointed experience if your interactions with your facebook friends were this beautifully designed flow, while your interactions with real-life people (the folks who call you and message you) is still the stock Android experience. Perhaps this is something next on the to-do list for the product.

In this one regard, OTT apps such as whatsapp still offer a better flow. It doesn’t have the legacy baggage of trying to match a phone number with a Facebook identity – your phone number is your unique identifier, so when you add someone to your phonebook, the person will show up in these OTT apps instantly. For example, WeChat gives you a hint whenever one of your contacts has signed up for the service.

As to whether OTT apps are seriously threatened by Facebook Home – I think the answer is yes and no. Yes, in that there will be a segment of users whose needs will be fully served by Home and therefore lost. No, in that Facebook Home is unique to Android (a small portion of Android too), and one of the biggest value propositions of these OTT apps is that they are ubiquitous and fully cross-platform. A great example to think of is Apple’s iMessage – I love the service since it comes right out of the box and requires no setup, but I still need to use whatsapp / weChat etc. because not all my friends use iPhones.

Implications to Google

Everyone is now eagerly awaiting Google’s response. Many have joked today that Google will unveil “Google+ Home” at Google I/O. In all seriousness, now is a great time for Google to reflect on what is the future direction of Android, with Samsung commanding 40% of all Android shipments on the one hand and Facebook launching a direct take-over of Android’s user experience on the other.

Google could choose to close off Android in the sense that if you want Google’s services (Google Play, Gmail, Maps, Youtube) on your phone, you cannot use such a deep customization as Facebook Home; but that would also take Samsung’s TouchWiz as collateral damage, and I’m not sure Google’s ready for that confrontation yet. Of course, it could make special deals with Samsung so that TouchWiz is exempt, but that could make relationships with hardware vendors even more complicated (side deals everywhere).

Google could choose to make pinpointed counter offensives, such as cloning Facebook’s Chat Heads so that there’s less value in installing Home. But such services would quickly run into the same problems Google has on the web – it doesn’t own the social network. A fancy Android-only chat feature is of little use if you need to add your social network into it first. It could be a cool OTT app, but it won’t have access to the rich sharing and interactions that are happening on Facebook.

Google could choose to stay the course and just focus on making Android and Google’s services on Android better. It could also focus on whatever plans it has for Motorola, should it go the direction of offering strong Google hardware. As long as users demand Gmail / Maps / Youtube, to a certain extent Google doesn’t need to respond. However, they will surely be constantly bothered by how Facebook has taken over all the real estate on their OS, which Facebook surely can use to promote other services in future.

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By Bayjinger – April 5, 2013

Rise of the OTT messaging apps

One topic I have been mulling over the past week is Over-the-top (OTT) messaging apps and their impact on the broader TMT space.

To start off, I would recommend a read of WSJ’s piece last week, which provides a good summary and features some good quotes from key players. The short story is that riding on the wave of smartphone adoption, a whole host of messaging apps have gained massive traction with mobile users. As Benedict Evans tweeted last week (side note – subscribe to his weekly newsletter, it’s a must read):

The notable leaders that people often mention are WhatsApp (US), Line (Japan), KakaoTalk (Korea) and WeChat (China). I’ve called out each app’s home base country, but really, these apps are fighting for every consumer across the globe. This feels eerily similar to the social networking hype cycle of the mid 2000s, in more ways than one (more thoughts on that below).

There are two major types of players impacted by the emergence of this category.

The first is telcos, whose SMS revenue is likely experiencing accelerating decline at the hands of these OTT services. (Apple’s own iMessage is also a big player in this regard.) I’m somewhat surprised at the lack of response from US telcos – SMS represent the most lucrative part of their service offering (the cost of one SMS is a tiny fraction of the rates charged). Perhaps they’ve prepared for this by tying expensive data plans to smartphone contracts – the increase in data ARPU certainly offsets the loss in SMS revenue, but from a profit margin stand point the story could be different. Another factor limiting US telcos is the topic of net neutrality, which hinders their ability to negotiate with / extract value from these OTT services.

In contrast, one of the biggest tech stories in China the past couple of weeks is telcos pressuring Tencent to pay for WeChat usage. That would certainly go against US net neutrality principles (it specifically discriminates against one application), but the underlying struggle is nothing new (or unique to China) – remember telcos trying to shut down VOIP providers to retain their voice revenue a decade ago? It is still unclear how the situation will play out, but Kaifu Lee has speculated that Tencent will bow down to the telcos and create some form of revenue-sharing partnership that telcos can be happy with – if that is indeed the case, it would be an interesting case study for companies elsewhere.

The second type of players impacted by these mobile messaging apps are the big social networks on desktops. I had mentioned earlier that the mobile messaging boom is similar to the social networking hype cycle a decade ago – one notable similarity is how these mobile apps have quickly tried to turn themselves into distribution channels for other apps (similar to how Facebook enabled the social gaming boom). A Reuters article on the topic points out that 8 out of the top 10 highest grossing apps on Google Play’s South Korea market are built on top of KakaoTalk.

There is a sub trend worth pointing out here. The mobile platform owners (Apple, and to a far lesser extent, Google) have far more restrictive terms on what functionality apps can provide, so turning these apps into app stores in and of themselves is a non-starter. That’s why these apps currently only promote 3rd party apps via an offer-wall type of interface – essentially, a list of recommended apps which will lead you to the respective official app pages on the official app store. This is obviously a far less integrated experience for users, and there may be problems with tracking the performance of these referrals. An interesting derivative, therefore, is the idea that these 3rd party apps are not native apps, but rather browser apps (e.g. a HTML5 game) that you launch inside the messaging app. This puts limits on app performance, but this scenario also more closely resemble Facebook’s browser-based ecosystem. It will be interesting to see whether platform owners crack down on this.

To wrap up, the growth of these OTT apps are clearly not over, and their experiments in building their own platforms are just beginning. I for one will be keeping an eye on this space.

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By Bayjinger – April 3, 2013

Apple’s China PR problem

Not that many years ago, I had written a rather harsh post on Apple’s iPhone launch in China. I remember the surprise I had when I got a comment on the post debating some numbers I had written, with the IP address of the comment suggesting it’s coming from the Apple campus in Cupertino (I can’t seem to find the comment today). Back then I had joked to my b-school room-mate, “there goes my chance of working at Apple!”

Fast forward a few years, and Apple has pleasantly surprised me with how much it has grown its business in China. In many ways, this was a perfect storm – the rise of the iPhone (and iPad later) globally coincided with China’s boom in luxury spending. iPhones and iPads became the perfect luxury item in consumer electronics, and a whole wave of Chinese consumers eagerly grabbed every unit they could get their hands on.

Apple posted $6.8 billion in revenue from the Greater China region in the previous quarter (their fiscal Q1 2013, which was reported in January). That is a massive amount, and I honestly struggle to think of any other international company that generates more revenue from Chinese consumers (the only companies I could think of that could challenge that number were global car brands – I tried searching for the revenue of VW’s China JV, but only found a quote for 2004 revenue of 38 billion RMB – roughly $5 billion by the old FX rate).

The sheer size of Apple’s China business (and the big growth potential) means that it must take any local PR crisis very, very seriously. (Read Bill Bishop’s piece in the NYTimes for a recap and his opinion.) So while it may be surprising to many that Tim Cook signed and issued an apology letter (in Chinese) to local consumers, I would actually argue that Apple’s response is barely adequate, and they should continue to be in full crisis management mode. It’s unfortunate that Apple has to deal with rather shady counter-parties such as various branches of China’s state media, but as long as Apple stays true to its ethics (and steer clear of Foreign Corrupt Practices Act violation), it should do everything in its power to control and mitigate the PR damage being done.

There are a few other pointless, but rather interesting (in vacuum) thoughts on this topic:

  • One could certainly ponder what Steve Jobs would have done if he was still at the helm. Tim Cook has always had the image of the pragmatic and efficient CEO, so it rather fits his persona to issue the apology. Would Jobs have done the same? Would people bash him for kowtowing to the Chinese government?
  • Comparisons to Google’s China exit are certainly going to be brought up, but such comparisons are doomed to be pointless. The straw-man counter argument is that Google never had that big of a business in China, so the upside versus the costs (to its public brand, its core values etc.) are drastically different – would Google have given up China that easily if it were making $10 billion a year in China?

(I apologize for the lack of substance in this post – I felt compelled to comment on the trending topic, but really there’s little to say)

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By Bayjinger – April 2, 2013

What are motivations to fork Android?

There are a lot of discussions – and quite a few attempts – of forking Android. But why would a company try to fork Android in the first place? What are the strategic motivations?

To try to get a comprehensive picture, let’s put ourselves in the shoes of different players in the broader TMT value chain.

A typical handset vendor -

  • Generally speaking, forking Android allows for deeper differentiation compared to run-of-the-mill competition, if the vendor has the software prowess.
  • An extension of the above, another consideration is to offer a customized OS deeply tailored to a specific market, e.g. China, where the local Internet landscape is drastically different from the west, and hence Google search / Gmail / Youtube etc. are irrelevant (making it far less attractive to stick with Google’s stock Android). A lot of big Internet countries actually fall into this category (if partially), e.g. Russia, South Korea, and perhaps Japan.
  • Another possibility is to serve the specific needs of a big customer – e.g. a telco, or a government agency; or generally, a big company that has very specific plans on how the devices will be used (e.g. as a retail POS). This doesn’t generally impact consumers, though I’ll call out telcos later since their perspective is important.

An Internet company -

  • Very similar rationale to why Google created Android in the first place – gain distribution within target audience. For a Internet company with a large enough set of services and users, creating a controlled, dedicated and direct channel with the end-user is a strong temptation. Amazon is the first company that actually did this on a large scale with its Kindle Fire tablets; we shall see if Facebook does something similar next week.
  • Again, in places such as China, there is even more incentive for the major Internet players to fork Android, since Google is conspicuously absent and players would love to fill the void.

A telco -

  • Fewer and fewer telcos nowadays actually have strong value-added-services of their own (we can thank the iPhone for dramatically pushing adoption of over-the-top services – i.e. apps), but for a brave telco that still wants to retain a bigger cut of the pie, backing an OS of their own is a logical approach. China Mobile did this for a while with its OPhone, to little success.

A startup -

  • A startup could be trying to fill the gap for any of the entities above; in that case, the motivation is the same, except it’s being executed by an outside party.
  • There is space for a startup focusing on creating an Android fork without catering specifically any of the interests above. The initial motivation is to capture a sizable user-base by offering a better product, which could serve any number of future monetary goals. An example would be this week’s unveiling of the Smartisan OS in China, which was incredibly hyped up in the tech community. The Smartisan team is focusing on what they think is a far more usable version of Android, in the hopes that superior usability will lead to market share, which they can later monetize either by launching their own phone or other forms of industry partnerships (e.g. as a gatekeeper of their user-base for other Internet services, collecting a referral fee in the process).

MINOR UPDATES:

A couple of missing points to add to the original post.

For companies (both large and small) trying to target adjacent markets, Android offers a compelling starting point to build an offer. Example adjacent markets are gaming (where OUYA recently unveiled their first attempt) and in-vehicle systems (such as Ford’s SYNC) which are resembling tablets day by day.

Another motivation across the board for large companies is to strategically counter Google’s influence of the market. As in, forking Android just for the sake of undermining Google. To a certain extent, Microsoft’s continued investment in Bing is motivated by such thinking – keeping Google in check by owning and growing Google’s largest direct competitor.

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By Bayjinger – March 28, 2013

How long can content region-locking last?

One of the questions I’ve pondered a lot recently is the topic of content region-locking. I’m mostly talking about the practice of TV/film rights owners reselling their content to different local providers across the world, with each local provider only having license to distribute the content in their local territory. Examples of this are the region codes in DVDs (and in VHS previously), and of course different TV networks across the world showing the same show to their local audience. This has been a great demonstration of price discrimination in action, and has generally helped rights owners maximize their revenue/profit.

In the analog, or rather, pre-streaming world, there were attempts to arbitrage the system, with varying degrees of success. Pirated satellite TV has been around for ages, especially in emerging markets such as many parts of Asia. And of course the whole pirated DVD industry, which was quite dominant in countries such as China – as evidenced by DVD hardware manufacturers having full region unlock as a must-have feature – if your brand of DVD players can only play DVDs coded for the Chinese market, you might as well not go into business. In mature markets, it usually wasn’t worth the effort for the average person to try to steal satellite TV; although western visitors touring China usually tried to take full advantage of the local DVD prices, knowing that they were buying pirated copies of the whole box-set of Lost (or some other long-running series).

In the Netflix/Hulu world, where rights owners are hesitantly putting their content online, the situation suddenly gets very complex. Rights owners, used to thinking of the virtues of region-locking, are rightfully reluctant to give any one streaming provider (say, Youtube) worldwide rights to their highly valued content. This is why Netflix has to expand one country at a time, while they carefully negotiate their rights; this is also why you can only watch Hulu from the US.

However, in the online / streaming world, the hoops required to jump through to pretend to be a visitor from the US (and therefore acquire the content on Netflix/Hulu) is dramatically lower vs. the offline / physical world (where you literally had to buy a plane ticket to go to China to enjoy the low cost of content). And service providers such as Netflix and Hulu thereby have a real issue of enforcing their rights management vs. harming the user experience of the primary users they are trying to serve. The monthly cost of getting a VPN that offers a US IP address is usually less than $10 – unless Hollywood can get regulators to regulate VPNs, it is hard to see how they can avoid a continued in-flood of global traffic to Hulu (as more content is put online, the value of VPNs will rise further, and more people will adopt VPNs), which undermines the entire premise of region-locking.

What’s even worse than global traffic flooding to Hulu is the fact that there are more and more content being put online legally outside the US. As US TV series have caught on in China (in a big way) in the past 5-10 years, the leading Chinese video sites are coming to Hollywood to acquire content. On sites such as Youku and Sohu, top programming from AMC such as The Walking Dead, Breaking Bad and Mad Men are all legally available (usually in a few hours after they air in the US) to users from a Chinese IP address, all free of charge. There will certainly be entrepreneurial efforts in the US to arbitrage this discrepancy - after all, why should you buy/rent these shows from iTunes when you can access them from Chinese providers with a free Chrome extension(search “unblock youku”) or a Chinese IP VPN?

This certainly begs the question – is it legal to get a VPN to enjoy content that was licensed to a certain region? I am not a legal expert, but even I can see that this easily crosses into net neutrality territory and is a legal mess for rights owners to try to enforce. Furthermore, there are so many legitimate uses of VPN tech (prime example – bypass censorship) that it seems unfathomable that VPN providers would comply to limit/monitor/block VPN traffic when it comes to video. And while services such as Hulu can be pressured to improve their tech to try to block VPN IPs (is that legal?), or add more screening measures (e.g. you must create an account with a US credit card, or show you are living in the US via a utility bill statement), all these would certainly hurt the user experience – after all, I’m just trying to watch some TV, why do you need my identity?

At the end of the day – getting a US VPN to watch Hulu is a lot better than going to thepiratebay.se to download the same show. At least in the first case Hulu generated ad revenue from the visitor, which rights owners should get a % share of. The question is how mainstream such activities can get, and how fast – if an entrepreneurial VPN provider tries to make a marketing push by highlighting the rich content available in overseas markets, will rights owners be able to effectively respond?

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By Bayjinger – March 27, 2013

App Store “10x” download speed boost in China

A bit of news that has got minimal English coverage in the past couple of days: Apple seems to have rolled out a CDN update for their App Store in China, with folks talking about as much as a “10x” download speed increase for end-users.

This is the type of unsexy but critical infrastructure work that at the end of the day will make a big difference for the user experience, and therefore, a company’s top line (and bottom line). I tried updating some apps while in China a few weeks ago – it was painful to say the least. Hopefully this dramatically changes things. And this is also the kind of stuff local entrepreneurs in emerging markets need to agonize over – how do you make do with poor infrastructure, be it broadband penetration, availability of credit cards (and other payment methods), or just poor end-device computing power (cheap PCs).

I think this story is interesting for potentially another angle – I’ve always wondered how much of the iPhone sales in China are driven by luxury goods buyers, the type that are usually late tech adopters. I’ve noticed anecdotally that many owners of early version iPhones in China were the well-to-do who used it as a status symbol – I doubt these folks likely explore the App Store that much. On the other end of the scale, there was and has always been a active scene of sideloaders, and I suspect iPhone jailbreak rates are much, much higher in China. These two opposite groups of users both have little use for the official App Store – and that could be why they’ve put up with slow App Store speeds for so long.

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By Bayjinger – March 21, 2013