QQ Tech and various other sources have reported that Shanda Interactive Entertainment Ltd.((ADR) NASDAQ: SNDA) is about to launch a private beta of its e-book reader product, Bambook.

The product site has already gone live and the private beta will start on August 12. The beta testers will be limited to 3,500 users, who will enjoy a special price of RMB 998 (US$145). Any registered Shanda users can apply to participate in the beta.

Bambook has Wifi built-in and supports all three of the Chinese 3G networks through external expresscards which will have to be purchased separately.

According to QQ Tech the OS will be based on Google Inc.’s (NASDAQ: GOOG) Android, but it also says it’s based on the Palm WebOS — now part of Hewlett-Packard Company (NYSE: HPQ) — which sounds confusing to say the least. When looking through the product specs on the Bambook website, no mention is made of the OS.

Probably the most novel feature is an optional solar charging accessory, which makes the product always available on-the-go. Of course we’ll have to see more details of this accessory to see if it is practical in actual use.

If you clicked on the product site link, you’ll probably notice some subtle similarities in design to Apple’s website. I think the bookstore section reveals the Apple influence even more, as it looks iTunes inspired. The actual content offerings are based on Shanda’s strong online literature presence, which boasts “more than 3 million titles, and more than a million online writers adding 100 million words of original content daily”.

While Shanda is obviously comparing Bambook to Amazon.com, Inc.’s (NASDAQ: AMZN) Kindle in hardware design and features, the offerings are really quite different. Shanda’s online literature properties own rights to some big name authors, but my understanding is they are by and large driven by user-generated content, such as fan-fiction. A casual look at the bookstore suggests majority of the books are such works, which would be updated daily / weekly, so it’s very much a subscription type of consumption.

While there are some classics and some contemporary books by professional writers, the offering seems quite limited. For instance, I did a search for the 14 novels of Jin Yong, arguably the best-selling Chinese author ever, and I only found tons of fan-fiction (maybe they need a better search function). Kindle, on the other hand, is very much about New York Times bestsellers. I do think there’s a fundamental difference in the business model.

Which brings me to the issue of price. While QQ Tech contends the RMB 998 price-tag is much lower than competitors’ offerings, which easily go as high as RMB 4000 (US$ 580), I still think it’s too high. It’s about the same price as the Kindle and Barnes & Noble, Inc.’s (NYSE: BKS) Nook, which means if you look at it in purchasing-power-parity terms, it’s significantly more expensive than the Kindle. Fundamentally, I don’t see people spending RMB 998 to get a single function device with a black and white screen, and which is really only good for reading fan-fiction. Of course, pirated books would be a big use case – but even then, physical pirated books sell for RMB 10 (US$1.4) on the street, so the price gap is pretty substantial – a Kindle is about 15 times the cost of a paperback, while the Bambook would easily be in the 50-100x range. Which is why Shanda is probably doing such a small beta.

Personally, I believe that on so many layers, this topic is really a non-topic. It provides entertainment value, no doubt, in the form of daily tech soap opera (bloggers jumping on every new data point released and typically extrapolating it beyond meaningfulness to arrive at flame-bait headlines). But from an industry analysis point of view, or a company analysis point of view (scrutinizing Apple / Google), the market share comparisons are really just one data point – it’s meaningful, but certainly not to the degree that the blogosphere claims it to be. Apple’s future is not in jeopardy if iPhone loses pole position to Android.

Over at Wired, Fred Vogelstein takes a crack at this topic. His main point is that if you sum up all the iOS devices (iPhone, iPod Touch, iPad), they are still outselling Android, by as much as 42%. While this may be encouraging to the Apple camp, there is no reason we can expect this to hold, especially when other Android powered devices (e.g. Android tablets) eventually hit the market.

I don’t have any doubt that Android devices will outsell iOS devices. If it hasn’t happened already, it will happen soon. There is no reason to believe an OS from a premium manufacturer (Apple) with an extremely limited range of SKUs can outsell, on a pure volume basis, an OS that is free to use and which is backed by some of the biggest consumer electronics companies in the world. On a dollar value basis, it might be a different story, but still not that likely. On a dollars of profit generated basis though, highly possible (Apple generates more profit than rest of mobile industry combined, with only 3% unit volume share).

That said, the main reason people are obsessed with these market share numbers seem to be the underlying assumption that iPhone and its eco-system will lose its draw to developers, and by extension to consumers, if it is relegated to a minority market share. I think there are at least a couple of counter-arguments to make here.

First of all, being the minority market share platform does not translate into a lack of quality apps, to the extent that it will hamper mass-premium consumers’ (Apple’s core segment) interest in the platform. For example, if you flip the argument over the number of apps in the Android vs. iPhone app stores on its head, you may well say that even though Android has a smaller number of apps, the eco-system is already sizable enough, so that for any functionality there will be “an app for that”. Another example would be none other than Macs – what’s the market share that Mac OS holds in all personal computers? Single digits? Do mainstream Mac users complain about the lack of quality apps (note the emphasis on mainstream – specific categories like hardcore gaming is lacking on the Mac, but even that is seeing improvement)? Holding these two examples, I would argue that with the developer community Apple has already amassed, it would be hard to foresee a drastic dying out of quality apps, even if Android floods the market.

Secondly, if you take a step back and look at the broader trend in computing, it is definitely headed in the direction of platform-agnostic. Some tech purists would even decry the whole notion of apps – everything should be realized on the browser, over the web. If you look at the desktop space, there is indeed the trend of “fat” clients (local apps) losing out to “thin” clients. Indeed, Google is perhaps one of the biggest proponents of this – its whole challenge to Microsoft is based on the browser. If we believe that the same trend will apply to mobile devices, then the apps craze we are experiencing really is just a transition phase – at some point, most of the apps you want would be delivered to you on the browser, as opposed to an app you download (again, Google’s Gmail mobile version on the browser is arguably better than Apple’s Mail app). And let’s give credit where credit is due – when Apple launched the iPhone in 2007, Steve Jobs’ initial vision was to have web apps (browser-based apps) instead of local apps. The app SDK and the app store only came out a year later, due to popular demand. (So you could say that Jobs had already envisioned an end-game where the browser was the point of delivery for apps, not the app store – his vision was perhaps just ahead of its time.)

If you sum these two arguments together, the bigger point is that iPhone will not lose its richness of apps in the face of Android capturing majority market share – it’s big enough already of a market so that there will be quality apps developed, and apps will be platform-agnostic anyway down the road. As long as Apple continue to bring innovation to its devices, it should not be overly worried about losing market share leadership – its whole strategy is founded on premium products, which implies that it won’t be market leader from a revenue / volume perspective. That’s why I wrote the headline of this post.

PS: Also, for people who continually say this will be a rerun of Apple vs. Windows in the 80s, please pause for a moment and reflect on the Mac’s continual resurgence over the last decade. This is again very indicative of the broader trend. In other words, one could almost claim that the “network effects” so famously championed by Wintel is close to becoming irrelevant, because the Internet has leveled the playing field for the small market share OSes.

PS2: And even if we are to talk of the platform wars of the 80s, we should get the facts straight. The following is my reply on a Quora question (similar topic really) awhile back:

First of all, it’s not really windows vs. mac, but PC vs. Mac. I would say by the time windows 3.0 came out, the platform war between PCs and Macs (at least the first war, not including Mac’s resurgence in recent years) was already over.

If you look at this article on Ars Technica, http://arstechnica.com/old/conte…
as early as 1986 PCs already had over 50% market share of computers, and it over-took the mac platform’s shares a few years before that. So in that sense, there never was a windows:mac war, at least not until very recently.

I think one key distinction between the platform wars of the 80s and android:iPhone is that in the 80s it was primarily driven by b2b, not b2c. IBM was late to the personal computers space, but they were the driving force behind making personal computers legitimate for business – they could go to a sales pitch with a business client with a perhaps inferior product but still sell it, and they could generate serious developer interest in developing for the PC. The killer apps of the 80s were spreadsheets and word-processors, sold to businesses. Apple could have better versions of such products on macs, but they couldn’t sell to businesses as quickly as IBM and clones like Compaq could, which is dictated by company structure and channel strategy – they are positioned as a consumer products company, and the only verticals where they made serious progress were education and publishing (where their products were clearly far far superior). That’s where the network effect kicked in and made Macs a niche.

Flash forward 25 years, and smartphone adoption is primarily driven by consumers, not businesses (blackberries being the exception). This is in Apple’s core area of expertise. It will still be challenging to fend off a group of competitors’ collective efforts (Samsung, HTC etc.), but as long as Apple retain a significant portion of the market, it will be in good shape. Apple doesn’t need to be market leader to be hugely profitable and have a sizable eco-system of 3rd party apps etc. – just look at macs today, as a general consumer you have majority of the apps you need to be happy with it (games being one major exception, which is also therefore a good business opportunity).

So back to your original question, I’d say Android:iPhone will play out very differently compared to Windows:Mac. Android might still end up with a more market share, but iPhone will have enough share and a big enough eco-system so that Apple won’t have to go through the kind of existential challenge it had back in the mid 90s.

There is no doubt that Android has been a success, especially in terms of offering consumers more choices. US consumers now have a perhaps overwhelming number of smartphones to choose from, across the major carriers. This is certainly a great development.

What I want to focus on in this post, however, is looking at Android from the eco-system players’ perspective – Google, the handset manufacturers, the carriers, and the app developers. My position is that while Android is full of promise as a platform, some fundamental dynamics of the eco-system will make it very challenging to navigate, especially in terms of financial gains – at the end of the day, these players are in it to profit.

I would like to start by going through each player’s objectives from participating in the Android eco-system. Starting with Google, its objectives are:

• Gain a permanent foothold in mobile, ensuring Google’s future when the web becomes increasingly mobile-driven
• strategically, prevent dependence on Apple in mobile, limit its bargaining power
• Increase traffic to Google properties, most notably search, which will in turn grow Google’s ad revenue
• Offer users a consistent Google user experience across mobile devices
• “Lock” users into Gmail, Google Maps, Youtube etc. (think Microsoft shipping IE with Windows)
• Develop a mobile go-to-market channel for future Google products

In essence, it’s all about Android being the hook which will retain the user in using Google products.

What about the handset manufacturers’ objectives?

• Develop handsets that rival the iPhone’s value proposition, capture market share in the booming smartphone segment
• Differentiate from competitors
• Reduce OS R&D costs

And the carriers:

• Retain some degree of control in the device, unlike Apple’s terms with AT&T
• Prevent becoming “dumb pipes, up-sell users on carrier VAS (value-added services) such as mobile video, ring-tones, gaming etc.
• Reduce Apple’s bargaining power
• Differentiate from other carriers

There is one thing all players agree on – counter the iPhone; but beyond that, there are some immediate points of tension. As smartphones seem to converge on the single big touch-screen form factor, hardware manufacturers will find it increasingly difficult to differentiate in shape and design. In that sense, HTC / Motorola / Samsung would very much want to tweak the UI or customize the OS, but that would quickly run into conflict with Google’s wish to offer users a consistent experience; and practically speaking, UI may really be too much a core part of the OS for the manufacturers to customize. Hence, manufacturers face the dreaded prospect of following the footsteps of PC manufacturers – low differentiation leads to low profits.

At the same time, carriers and Google’s interests aren’t that well-aligned, either. Google recently shuttered its Nexus One online store, which was hailed to disrupt the status quo of handset distribution by offering a contract free model instead of the typical carrier-subsidized model. Obviously this did not please its carrier partners. On the flip side, carriers perennial fear of becoming “dumb pipes” drove them to loading up Android phones with hard-to-remove bloatware, which consumers generally dislike and probably is making Google cringe – and just serves as more ammo for Apple’s value proposition of a refined experience.

My point here is that the logical implication of these interlocking conflicts is compromise. Google aggressively wants Android to become the de facto mobile OS – so much so that not only is the OS free to manufacturers, Google is also reportedly sharing search revenue with carriers / manufacturers. (Pretty amazing that you can think of this as almost the opposite of Apple’s original iPhone terms, where Apple got a share of AT&T’s revenue.) Manufacturers will get away with deals such as putting a Baidu search box on the phone, which would obviously go against Google’s interests. Carriers will get to keep their finger in the OS.

Sometimes these compromises result in degraded user experience, such as bloatware. Most often, they call into question the financial returns on Android. It would be a very difficult task to model how much incremental revenue Google will generate by owning Android, as opposed to not owning an OS and just receiving mobile search traffic from all devices. Manufacturers will get to ride the smartphone boom for a while, but then will again be hard-pressed for innovation – again, the PC manufacturers come into mind. The biggest winner from all this seems to be the carriers – especially Verizon – they finally have options other than Apple, and they can keep their old business model.

This is one of the most entertaining Internet stories to come out of China in a while, and it is really full of Chinese characteristics – all the bad ones, unfortunately. Tang Jun, who was once heralded as the “emperor of professional managers” for his high profile roles – former president of Microsoft China (NASDAQ: MSFT) and ex-CEO of Shanda Interactive Entertainment Ltd. ((ADR) NASDAQ: SNDA) – is currently at the center of a massive controversy over his diploma.

QQ has a short summary (link in Chinese) of the event’s development – on July 1st, Fang Zhouzi, a biology PhD who is famous for exposing plagiarism and fabrications in Chinese academia, commented in a series of posts on his Sina Weibo (microblog) that Tang Jun had lied about his education and his patents in his autobiography, “My Success Can Be Replicated” (book name my translation). In the book, Tang had said he held a PhD from Caltech.

Tang initially refused to respond to Fang’s allegations, but on July 6 he stated in public that he has never claimed to hold a PhD from Caltech; instead, his doctor’s degree is from Pacific Western University. Unfortunately, that only fueled the flame, as Fang quickly pointed out that Pacific Western University is a “fake” university with a controversial history and was shut down by the State of Hawaii (check out the wikipedia link) – essentially, this is an institution engaged in the business of selling diplomas and wasn’t accredited. Tang then responded that he went to the other Pacific Western University, the one in California, not in Hawaii; but Fang quickly responded that the two shared the same ownership prior to 2006 (as the wikipedia articles show).

Then Chinese netizens jumped in and started digging out other dirt around Pacific Western University, and in the past week netizens have been circulating “manifests” of notable Chinese businessmen who are rumored to be Tang’s alumni at that institution.

Perhaps also very damaging evidence is Tang’s own LinkedIn profile. Currently the education section lists “Pacific Western University, PhD”, with no timeline attached; but just a few days ago the education section looked like this:

(image courtesy of Dongxi.net – this is an edited version of the screenshot that has basically been cropped to highlight the education section of the profile)

Notice how on the education section it still clearly stated a PhD from California Institute of Technology. A search on Baidu Inc. ((ADR) NASDAQ: BIDU) for the keywords “Tang Jun linkedin” (the name in Chinese) also reveals a whole range of blog posts and discussions which expose Tang’s LinkedIn profile change.

Fang also raises the interesting issue of the legal repercussions of Tang’s controversy – he points out in Shanda’s F-1 filing with the SEC before its IPO, it states,

JUN TANG has served as our president since February 2004. Prior to joining us, Mr. Tang served as the president of Microsoft China Co., Ltd. from March 2002 to January 2004 and the general manager of Microsoft Asia product support and service and Microsoft Global Technical Engineering Center from January 1998 to March 2002. Mr. Tang holds a doctorate degree in electrical engineering from University of Pacific Western, a doctorate degree in electronics from Nagoya University, Japan, a master’s degree in electronics from Nagoya University and a bachelor’s degree in physics from Beijing University of Posts and Telecommunications.

Obviously, this is another version of his education – the part where it states that he has a PhD from Nagoya University. It doesn’t indicate that in either the current or earlier version of his LinkedIn profile. Fang therefore raises the interesting question of whether Tang is liable for lying to the SEC.

Questions about Tang’s fake diploma and personal integrity aside, what I find to be really interesting is the surprisingly divided reaction of Chinese netizens. Indeed, there’s one camp of people who are vociferously defending Tang, saying “don’t ask about a hero’s roots”, or “you shouldn’t judge a manager by his education background”. As the other camp rightfully points out, we’re not attacking Tang because of his (relatively) poor education achievements; we’re attacking him because he lied about it.

But the drama doesn’t end there. In the past few days, discussions have intensified around the mystery of Tang’s education history in Japan – he went there to pursue a PhD, but according to most versions of his education background, he did not finish the PhD and went to the US instead in 1990. There were immediately speculations that he went to the US to get what Chinese netizens call a “blood card” – a green card issued by the US to Chinese students abroad who sought political asylum from the Tiananmen incident of 1989.

On this last point, I don’t think there is enough data to support the claim, and even if it were true, I don’t see it as a breach of integrity (I think a lot of Chinese people look at such cases as profiting from the bloodshed). But a consequence of such discussions is that there has been a crackdown on Chinese microblogs, for the obvious reason that the June of 1989 is a banned topic. So right now all the major microblogs are running with a big “beta” sign on the front page, and trending topics of Tang Jun are being harmonized (they have resurfaced on Sina).

Interestingly, netizens are now speculating that Tang has used his influence to get the authorities to censor the topic – another conspiracy theory thrown into the mix. I think the censorship is still more to do with discussions of 1989, rather than Tang’s powerful connections. But such are the dramatic twists of everyday Chinese Internet soap opera.

And before I end – the most recent rumor is Tang’s current employer, Newhuadu Industrial, has fired him. Totally unsubstantiated, but I won’t be surprised if Tang does lose his job because of this.

Well, that was a temporary fix, as Google’s China ICP license is up for renewal, and they need to appease the Chinese government. Google is again trying to do so with a half-measure.

The Atlantic has a good summary of major tech blogs’ response. Opinions are somewhat divided on how things will progress, but if anything no one is talking about how moral and upright Google is, this time around. Good. In my original piece back in January I had argued how dubious Google’s stance was:

… a cyber-attack is illegal by any country’s law, whereas what is censored and what is not censored can be different due to country-specific issues like religion or in the case of China, politics. So for Google to use the hacker attacks as justification that it can’t tolerate Chinese censorship anymore is somewhat dubious, since this is not exactly the same issue.

Google’s latest announcement just further confirms my position. It seems that, after all, Google does care about its business prospects in China; but it appears to be too smart for its own good, trying to get away with both being morally righteous and doing business as usual.

Read this together with another piece of news today, which talks of Google’s ambitions for Android in China and India, and I’m starting to feel that Google internally does not have a coherent strategy for China. Obviously, having a row with the Chinese government is not good for business, especially when looked at from the Chinese perspective – nothing had changed in the government’s policy throughout the years of Google China’s existence, and Google’s January fit seemed completely out of left field (again, cyber-attacks and government censorship are very different things).

I remember a few months back, at an investors event in San Francisco, Kai-fu Lee, the former head of Google China, had mentioned in passing how his company – Innovation Works, a early stage VC / incubator – had a few projects that were basically picking up the development of Android in China after the Google debacle (if my memory serves me correctly). Essentially, quite a few Chinese companies are interested in Android, but dealing with Google has become a politically charged issue, so you’d almost have to have an intermediary. This is especially true of the major Chinese carriers – it is unthinkable to see China Mobile do a high profile partnership with Google while this political spat is ongoing.

Google needs to work out its priorities. If it wants business in China, it needs to drop its high talk and start showing genuine long-term commitment to the market – otherwise it will be hard to retain its Chinese business partners, and it will always be a distant second.

Global media attention over Foxconn Technology Group (PINK: FXCNY | (part of Hon Hai Precision Industry Co. Ltd.) TPE: 2317) has gradually subsided, after the company aggressively raised wages and efforts at curbing the suicides have taken effect. Foxconn management hasn’t stopped adjusting their strategy though. Xinhua News Agencyreports (link in Chinese) on June 25 that Foxconn has offloaded the management of its employee dormitories in Shenzhen to two local property management companies.

According to Xinhua, Foxconn employs 450,000 people in Shenzhen, of which 220,000 live in company dormitories, and 230,000 live in rental housing near the production facilities. By exiting the management of the dormitories, Foxconn has largely relieved itself of the responsibility of any future suicides at these dormitories. Foxconn is clearly in the process of reversing its prior strategy of providing a closed environment for workers – its sites are basically self-contained towns, complete with dormitories and recreational facilities.

Another Chinese newspaper, Economic Observer, also has an interesting article (link in Chinese) on Foxconn’s two wage hikes. The article claims that the first hike, raising Foxconn’s mainland China employees’ wages from RMB 900 (US$132) to RMB 1,200 (US$177) per month, was largely planned to match the anticipated minimum wage increase of the Shenzhen government – in other words, this hike had been in planning for some time, and it was not originally in response to the suicides, but Foxconn made the most of it PR-wise.

What was really surprising though, was the second wage hike just a few days later, from RMB 1,200 (US$177) to RMB 2,000 (US$295), this time specifically for Shenzhen employees. According to the reporters’ sources, this decision was made by Chairman Terry Gou individually, and had not gone through senior management discussion. The thinking behind the move is threefold:

1. First of all, Gou does indeed plan to move production away from Shenzhen and to cheaper locations inland – it is rumored that he will only keep the Apple production site (employing less than 100,000 people) in Shenzhen, and move the whole production of mobile handsets (non-Apple brands) elsewhere. Therefore, the impact of the hike is much more limited compared to if Foxconn would maintain its current scale in Shenzhen.
2. Secondly, Foxconn is trying to maximize its short-term opportunity to re-negotiate contracts / pricing with its clients, thanks to the high profile suicides which is putting pressure on these high profile global brands. The second wage hike would therefore serve as an additional bargaining chip at the table, again from a PR perspective.
3. Third and perhaps most importantly, the hike is an aggressive strike at Foxconn’s major competitors. Foxconn has the financial muscle and the scale to quickly relocate, but many of its competitors are concentrated in the Pearl River Delta region. Foxconn’s second wage hike has started a chain reaction where workers are demanding higher wages, thereby dealing a heavy blow to competitors. As we’ve already discussed in a previous post, economists are speculating whether the end of the Pearl River Delta’s traditional growth engine – low cost labor – is here. Foxconn is in a position to accelerate this macroeconomic shift, to its own benefit.

Still, the second wage hike is a bold gamble. It’s clear that Terry Gou is aggressively reassessing his firm’s strategy to maintain its leadership position in electronics manufacturing. Perhaps an even bigger question is, should Foxconn try to move up the value chain, and try building its own end-customer brand, the same way HTC has reshaped its corporate strategy? Otherwise the company seems likely to always face the issue of razor-thin margins, which would prompt it to try to squeeze its labor force as much as possible – this is perhaps the root of its struggle.

I think when people talk about Amazon Kindle’s competitive position in the market, they usually compare it to two distinct set of competitors:

1. “Direct” competitors, such as Barnes & Noble’s Nook, the upcoming Borders Kobo, Sony’s eReaders etc. The device play is a single-purpose device, hence directly competing with Kindle hardware.
2. “In-direct” competitors, such as Apple’s iPad, and other future tablet devices. These competitors are in some sense “in-direct”, in that reading is just one of many key features, and Amazon can utilize them by providing Kindle apps, which to a large extent nullifies their threat and turns them into distribution channels.

If I may, Amazon’s competitive advantages against these competitors are usually seen as follows, in no particular order:

• Brand power and experience in online retail.
• First mover in driving e-books adoption, and hence enjoys higher market awareness as well as being further along on the learning curve compared to competitors.
• Specifically against the iPad and iBooks, a much better book selection.
• Again perhaps specifically against iBooks, cross-platform availability – PCs, Macs, other mobile devices. Or as some people say, Amazon gets it that it’s not about selling devices, but selling books.

I think people often discard brick and mortar players straight away (“what do they know about digital?”, “they are late to the game”), and then only focus on comparing Amazon and Apple. Probably most people in tech would see iPad as the Kindle’s biggest threat, and in that comparison, Amazon’s “it’s about selling books, not selling devices” mentality clearly gives people confidence in picking them as winners.

Frankly, my biggest concern with Apple in the e-book wars is how much organizational will they have in competing. How serious are they about it? After all, it is just one of many functions. If they are dead serious about it, they can do the following:

• They will probably catch up in the size of the catalog;
• they can definitely make a better user experience, by merit of tight hardware / software integration and far superior application experience;
• They can also try to catch up in making iBooks available cross-platform, which is actually quite straightforward technology-wise since they use the ePub book format, so if the publishers allow it your books purchased in iBooks should be able to be viewed on any ePub reader on any platform – obviously this is the ideal world and there will be plenty of challenges;
• And they can probably make “shady” moves like what they are doing with iAds – block Amazon as it is not an “independent” retailer, in the same way they are attempting to block AdMob because it’s not an “independent” ad network. I’m not suggesting I agree with this last tactic, but if they do something like that it becomes an aggressive device versus device play, which at the current sales rate, the iPad would have a far bigger installed base.

So it seems there’s plenty of strategies and tactics for Apple. Again, my biggest doubt is whether they have the bandwidth and the interest to compete with Amazon.

What about the brick and mortar guys? Well, interestingly there’s plenty of options here too, upon doing some research (frankly, I’ve ignored the Nook completely since its launch). I’ll focus specifically on Barnes & Noble, since in terms of market awareness they seem to be the most serious competitor to Amazon from the physical retail side. What are its competitive advantages, if any?

• Perhaps surprisingly, more innovative features, such as the ability to lend a book to your friends (though severely limited, most likely due to publishers), and free in-store reading, to name a few. Obviously these aren’t killer features – yet – but they suggest that at least the Nook team is trying new ideas and not just playing catch up.
• Physical retail presence. On the one hand, Kindle’s adoption has been severely limited by its lack of physical retail presence (which Amazon is finally addressing by moving into Target); on the other hand, B&N can seriously leverage its retail stores to sell Nooks – directly to the device’s target consumers. This is something that Amazon cannot easily match, and if done right, is a huge marketing vehicle – the obvious case study is how Apple uses retail.
• Supporting the open ePub format. A huge fuss was made over this at the Nook’s initial launch – and while it might not matter that much yet (and plenty of proprietary formats have market dominance – e.g. Microsoft Office, or Adobe Flash), it is at least ammunition for marketing, and in the long run, the format wars may actually mean something (more on this later).
• E-book retail experience through the Fictionwise acquisition. Fictionwise has probably been in the e-books business longer than Amazon, and prior to their acquisition was one of the largest independent e-book retailers. The Fictionwise team at least inspires some confidence in B&N’s capabilities in software and all things technology, and may bring them even deeper insight in the market landscape than competitors. And of course, Fictionwise understands how to support multiple platforms and have done so for a long time (much longer than Amazon in this regard? Since the Kindle for Mac app only came out recently) – it seems B&N needs to market this point a lot more.
• Brand recognition. Sure, Amazon is one of the top brand in mind when it comes to online retail, but for book lovers B&N probably means a lot too – especially for mass-market to late stage adopters.

So I would say that from these points, B&N is at least a legitimate contender. Sure, they are playing catch up, and they are currently stumbling on execution somewhat (just from what I’ve casually read), but I wouldn’t discard them that easily. Two minor data points for consideration: the first is the somewhat suspect report from DigiTimes that Nook shipped more units than Kindle in March (via Crunchgear); and the second is the fact that they have released four firmware updates in roughly half a year – of course it means patching up lots of bugs, but you can also read it as the team being snappy and energetic about refining the user experience and adding features. Amazon on the other hand has been somewhat slow (at least in my personal feeling) in rolling out cross platform applications (Kindle for Mac seemed to take forever) and updating the device with new software features – of course, this is just based on my anecdotal experience.

Fundamentally, my problem with claiming “Amazon will eventually win” is that e-books are really just going through early adoption (and perhaps reaching the first stage of mass adoption), and there are still plenty of big problems that nobody has figured out yet. For example:

• Technology wise, how do you address the use case of lending books? How can I lend you the book I bought on iBooks to your Nook? And it’s not just personal to personal lending, but even more importantly, how do libraries shift to e-books – how do they manage their database and support myriad devices? Would the format wars have a huge implication here? I’ve read somewhere someone comparing Amazon’s azw format to Betamax and ePub to VHS – I don’t think it necessarily holds, but it does highlight potential issues.
• Business wise, what are the differentiating factors for e-book retailing, besides price and availability (catalog size and cross-platform support)? If we compare this to the evolution of physical retail, obviously we are at a very early stage: right now players are mainly competing on price and availability, which is perhaps similar to the early days of retail, where the player that had better distribution won – simply because its consumers could access its products. Surely there is vast unexplored space in how to create differentiated shopping experiences.
• What is the function of current physical retail space, when more and more books are consumed digitally? Will players like B&N simply close its shops, or is there room for transforming the stores of physical bookshelves into socialized book shopping hubs (tied to the previous point)? Are there any other functions they could play?
• Also, from an industry value chain perspective, are there alternative models with potential to disrupt? For example, currently players pursue a hardware + software strategy; would we see the rise of independent device makers that can support any e-book retailer (not just multi-purpose devices through apps)? Would we see specialist application developers that support multiple retailers and offer a superior user experience?
• Moving further up the value chain, how do e-books dis-intermediate publishers? Amazon and Apple already support self publishing; it’s not too far-fetched to see them as replacing traditional publishers completely in future. If that happens, we would see a lot more exclusives – e.g. one author’s books are only available on Kindle, another one only on iBooks. And combining this with the previous point, can we envision specialist device makers as the new “retailers” and the Amazon et al as the new “publishers”? Conversely, the existing traditional publishers can obviously step into this role themselves and retain their position in the value chain – if Amazon, Apple and B&N all become cross-platform, it ironically opens up the door for exclusive deals, since the consumers can still get the books they want on their devices, just from different retailers for different books. This is just one of many potential ways retailers can differentiate.

Looking at these open questions, I think it’s safe to say that this market still has a long, long way to go. I do not challenge that Amazon is the leader in this space currently, but I dare say the market is still up for grabs, and different competitors bring different competitive advantages to the table. Amazon is certainly well positioned – hence the conservative title of this post – but to say it’s game over and Amazon will definitely be victorious, well, is premature. And really, critics do it all the time – remember how many doubters of the iPad there were in January? And another one of my favorites – techies talking down Hulu when it was first announced back in 2007. Do people even remember the other online video startup that the whole tech world was going crazy over back then?

After Doug’s piece reviewing the year’s events atFoxconn Technology Group (PINK: FXCNY | (part of Hon Hai Precision Industry Co. Ltd.) TPE: 2317), I wanted to comment on some of the broader implications for the Chinese economy and the Chinese worker.

CHANGING ECONOMY – CHANGING WORKFORCE

I want to call attention to a series of recent articles in Chinese media. The first comes from economist Andy Xie’s latest column (link in English) on Caing.com, the hard-hitting Chinese economic news outlet. Mr. Xie’s basic argument is that the Foxconn suicides, and the Honda worker strikes, signify that the new generation of Chinese migrant workers – unlike previous generations – are no longer content with income levels that cannot sustain an urban way of life. While their fathers’ generation were culturally willing to accept low wages to support their families back home, the new generation is more individualistic in their dreams and aspirations. In turn, Mr. Xie argues that the wage increases that have occurred en masse in recent years will drive the collapse of the growth model of the last two decades in the Pearl River Delta region – economic growth fueled by aggressively suppressing labor costs.

The logical question, if we accept Mr. Xie’s point of view, is what’s next? The new cover story (link in Chinese) of New Century weekly, the publication under Caing.com, is on this very topic. The lengthy article first argues that unlike its smaller counterparts, Foxconn is actually relatively well-positioned, in that it has turned the incidents and the wage hikes into a bargaining chip to renegotiate with its clients. In the face of the huge media scrutiny, it would be really hard for a western company to say “we won’t accept your modest price increases, which were caused by the wage hikes to prevent employees from killing themselves.” In the case of the smaller manufacturers, they have lower profits (due to smaller scale), and less bargaining power.

TRANSFORMATION: FROM LABORERS TO INNOVATORS

The much talked about shift of production to inland areas or to cheaper countries such as Vietnam is not exactly feasible either, at least in the short run. While western and central China have much cheaper labor costs, they are geographically far from both the suppliers and the markets (in the case of electronics, the export ports). That means extra costs and time to ship components and finished goods around. While in the long run the whole industry value chain will be migrating to lower labor cost areas, that transition takes time. This is why it’s not entirely surprising that Foxconn has told the Wall Street Journal that it “will expand ‘extensively’ in China, both at its existing locations and in new ones, dismissing recent media reports the firm might pull out of the country.” (Perhaps not exactly contradictorily, the above New Century article states that there is a temporary hiring freeze for Foxconn in Shenzhen, since May 29.)

The New Century article ends with a discussion on how manufacturing in the Pearl River Delta region will undergo transformation. Similar to Mr. Xie’s viewpoint, it forecasts the end of the current business model, and sees analogies to the past growth transitions of other Asian economies such as South Korea and Taiwan. Essentially, China will have to move up the value chain, competing on innovation as opposed to cheap labor.

Personally, I feel that while these articles offer interesting analyses and insightful takeaways, the actual development will be painful. It does seem that China is at a very precarious stage of growth – on the one hand, it has strong incentives to keep doing what has made it successful in the past few decades, especially in light of the global recession; on the other hand, it is clear that the old model is getting out of date and perhaps creating more problems than wealth for society.  Add to this the myriad political complexities (central and regional governments have different interests, for example, which stifle the implementation of a national policy), the social grievances, the lack of welfare and the host of other issues, and suddenly it’s really hard to be bullish about China’s near-term prospects. The next decade will be an incredibly important and tough transition for China, and perhaps in future history books, the Foxconn suicides will be one of the signature events that mark the end of an era and the beginning of a more prosperous future.

Related Digital East Asia posts include:

• FOXCONN SUMMARY: Chinese Authorities Seek to Quell Rampant Speculation on Suicides – June 14th, 2010
• Foxconn Suicides May Impact the Bottom Line; Company Suspends Stock Trading as it Announces Wage Increases – June 8th, 2010
• The Chinese Internet Rumor Mill is in Full Swing as Stories of More Deaths at Foxconn Spread– May 28th, 2010
• Foxconn Suicides: A Solemn Timeline – May 28th, 2010
• A Solemn Count Goes Up Again – 11th Suicide Jump at Foxconn Warrants More Questions – May 25th, 2010
• 10th Suicide in 2010 at Foxconn; Incidents Finally Begin to Gain Wider Media Coverage – May 22nd, 2010
• An All Too Familiar Story: 9th Suicide Jump at Foxconn this Year – May 16th, 2010
• Suicide Jump Number 8 at Foxconn This Year – May 12th, 2010
• Another Death at Foxconn; That Makes Five in Just 4 Months – May 8th, 2010
• Third Death at Foxconn in 3 Months; Should Apple, Sony, Nokia and Others Be Concerned? – March 30th, 2010

Just hours after Terry Gou, the CEO of troubled manufacturer Foxconn Technology Group (PINK: FXCNY | (part of Hon Hai Precision Industry Co. Ltd.) TPE: 2317), concluded a large PR crisis management effort which included a tour of their Shenzhen plant for close to 300 journalists on May 26, Xinhua news agency reported that there had been another death.  This piece of news has already been widely covered in the media globally, such as this WSJ opinion piece.  Furthermore,news has spread of another (unsuccessful) suicide attempt, in which an employee had cut his wrist.

Read more about our timeline of the suicides at Foxconn so far this year.

But to make matters even more worse, Chinese “netizens” are spreading stories on Chinese microblogs, bulletin board systems and other forums of “14th”, “15th” and “16th” attempts.  As Chinasmack, a popular China blog, reports, the current rumor is that the “14th” and “15th” had jumped together; and that the “16th” was in a standoff on the roof (with a blurry photo attached as evidence).  As of now these rumors have not been validated by any major media outlet.

Foxconn has taken drastic measures as of late to control the “suicide cluster”.  It got into a bit of a PR firestorm with its alleged “non-suicide pact” with employees (full translation of the documentavailable at Shanghaiist).  It was also reported that they were erecting 2 meter (6 feet 6) high walls on top of buildings and installing safety nets; one twitter post claimed that insiders were saying windows were being locked down (only able to open about 10 centimeters, or 4 inches).  And employees were being urgently organized into small groups.  There were also reports (link in Chinese) that Foxconn was considering 20% wage increases, which they claim had nothing to do with the recent suicides.

On another note, noted Chinese intellect and blogger Hu Yong urged in a blog post (link in Chinese) for the public to stop using “xx consecutive jumps” to discuss the incidents.  He said this was inhumane and also as if people were expecting “records to be broken”.  Leading Chinese blogger / writer Han Han, who came in 2nd on the Time 100 poll last month, also wrote a new blog post (link in Chinese) on Foxconn.  Han’s main point seems to be (if I may summarize) that for the “ordinary people“ of China, who can’t afford the ever-increasing housing prices and barely make a living on their meager incomes, there isn’t hope for a better future.  They are the “low cost” that fuels China’s growth, and it’s not really surprising that when they see no hope they see suicide as a way out.

Reuters and many international media are reporting the latest death in the string of suicide jumps at Foxconn Technology Group (PINK: FXCNY).  The incident occurred on the morning of May 25, and a 19 year-old employee fell from a building in Foxconn’s Shenzhen base.  While police have not ruled out the incident being an accident, Xinhua news agency reports that there was a suicide letter in which he apologized to his father.  The employee was reported to have only been working at Foxconn for one and a half months.  He came from Central China and graduated from a vocational school.

There are not a lot more details about this most recent incident in Chinese media, although I noticed two news articles of interest.  The first article (link in Chinese) describes a group of Chinese “netizens” teaming up to do their own undercover investigation of Foxconn’s labor conditions.  The netizens started the effort via postings on the popular BBS (bulletin board system, discussion forums hugely popular in China) Tianya.  According to the lead organizer, over 100 people phoned him, and 8 traveled to Shenzhen.  They met up with 4 Foxconn employees to form a group of 12, all of which are migrant workers.  In terms of profession, 2 worked in human resources, 5 were ordinary workers, 2 were in legal, 1 was a teacher, and 2 were “other”.  The average age was 28.

The 8 external netizens all applied to Foxconn, and 3 were hired.  The 5 un-hired did interviews around the production base, while the 3 hired worked for 3 days.  They self-published a report on the Internet of their findings (attached in the article linked above).  In sum, they found Foxconn toprovide good facilities for its employees and observed most Chinese labor regulations (insurance etc.), and paid wages on time (delayed payment is a huge issue for Chinese migrant workers).  They also highlighted several issues that had been pointed out by other commentators previously – Foxconn employees routinely worked more than the 36 hours of maximum monthly over-time mandated by the law (though Foxconn claims employees worked over-time voluntarily, and signed such a contract as proof); Foxconn enforces a “semi-military” management style in which supervisors often verbally (or even physically) abused employees; the lack of a union to protect employee rights; Foxconn’s use of its shady security force (which assaulted a Reuters journalistearlier this year).

The second article, reprinted by QQ Tech, reveals that there had been two other deaths at another Foxconn plant earlier this year.  The incidents happened in Foxconn’s Langfang (in northern China, quite close to Beijing) plant.  The first death was on January 8, and Mr. Rong Bo fell from dormitory building A06; one and a half months later, Ms. Wang Lingyan was found dead in her dormitory bed.  In the case of Ms. Wang, at the time of death she was only 16, so by Chinese law she had been working under-age.  She had used another person’s (Ms. Wang Lingfeng, 22 years old, presumably a cousin or other relative) ID card to apply for the job.  If I read the article correctly, Ms. Wang had only been at Foxconn for a few days and hadn’t even started work before her sudden death (doctors declared her to have suffered a heart failure).

According to the article, Foxconn had communicated with the local government to “control the news”, which is quite common in China.  They settled with Ms. Wang’s family, for a sum of RMB 110,000 (US$16,109), which roughly equates to 5 years of salary at RMB 2,000 per month (US$ 293), although Foxconn tactfully termed the payment a “donation” instead of “compensation”.

I think these reports confirm that while Foxconn might be mostly complying with Chinese labor law, it is not enough due to the scale of their operations; and in some cases, there are some questionable practices and at least a lack of proper oversight.  I hope as these reports continue Foxconn and other companies in China can drastically improve their labor conditions.