He was not a perfect person

FIrst off, and just to clear the discussion, Steve Jobs was clearly not a perfect person. He had many issues. He was a jerk a lot of the time, to a lot of people. He liberally took credit for other people’s ideas. If you hated him before, the book will not change your opinion of the man.

But he also had many strengths. He was a natural marketer and negotiator. He was diligent, and learnt through his failures to be a great manager. And of course he was a visionary, in the truest sense of the word. This discussion, however, is not about how much I admire him (or not), but what I took away as key lessons from his endeavors.

“Open” and “Closed” are both valid choices

One of the most straightforward take-aways from Jobs’ work in the past 10 years is that vertical integration remains a valid business model. Tech fans like to frame this debate as “Open” versus “Closed”, and associate all kinds of philosophical and ideological meaning with it; and clearly Jobs himself had some ideological bias towards “Closed”, but at the end of the day, they are both perfectly valid business choices.

As my favorite business school professor likes to say, no company is 100% “open”, nor is any company 100% “closed”. “Open” and “closed” are a set of strategic trade-offs, just like any strategic decision is. For Apple, “opening” up their platform, such as allowing other hardware vendors to make Mac clones (or iOS clones), clearly has major pros as well as cons. The question is does the trade-off fit with the broader set of strategic choices the company has made – in Apple’s case, “opening” its software platforms clearly contradicts with its vertical integration strategy, and causes it more harm than benefits.

Even Apple itself provides a great example of why sometimes it might make sense to go the other direction. Jobs strongly resisted porting iTunes to the Windows platform. His argument was that by bundling iPods with Macs via the iTunes software, he could lead to additional sales of Macs. This argument had some merit, but it also was clearly inhibiting the growth of iPods as an individual product category. In the end, Jobs was smart enough to be pragmatic and allow his team to develop iTunes for Windows – “hell froze over,” as he would say.

This pragmatism, and the realization of “open” and “closed” as trade-offs (rather than which is better in an absolute sense), is extremely important, as an organization would otherwise be limiting its own strategic direction. For example, we should not be at all surprised if after the Google-Motorola deal is complete that Android becomes a much more “closed” offering.

The (revised) 80/20 rule – the 20% that makes a product “insanely great” takes 80% of the time[1]

One of my main revelations from the biography was just how hard it was to get something perfect. For example, it was a ridiculous amount of work for Steve Jobs to get the music labels onboard with selling their music on the iTunes store, and this had little direct relationship with the sales of iPod hardware. But Jobs believed, correctly, that making the entire user experience with mp3s as painless as possible would reap great rewards in the long run.

It was certainly eye-opening to me to see how difficult it can be sometimes to make progress on the smallest things. To execute against a simple strategy, such as “get publishers to launch their books and magazines on the iPad,” it took Jobs and his senior team countless pitches and meetings.

As most companies don’t spend the 80% of work it takes to get that last 20% right, they often look at what Apple has been pulling off and see magic while showing disbelief. That was the industry’s reaction when Jobs pulled off the music label deals for iTunes. That was the industry’s reaction when he announced the iPhone. And clearly, almost two years after the iPad was announced, competitors are still “flummoxed” in terms of a response.

Focus is key

A corollary of the previous point is that focus is critical. (Larry Page should take the advice that Steve Jobs offered him very seriously – focus on five products.) From a management theory perspective, this is nothing new, but few organizations are as relentless as Apple is at its execution.

Apple’s entire product portfolio can be laid out on one table. It is only because of this, that Apple’s senior management can have enough time to make each one of those products great as opposed to good.

On the flip side, the inability to focus is also why incumbents give startups opportunities to establish a foothold in the market. For example, from a pure strategy perspective, there are few reasons why Facebook cannot completely own the mobile check-in space (Foursquare), or the daily deal space (Groupon), or any of the other hot social trends. Or, in the case of Google, why they cannot completely shut out Kayak, Yelp, or any other vertical search providers. Yet both Facebook and Google clearly haven’t been able to do so. Leaving aside many other factors, the 80/20 rule above is one major explanation.

If Facebook focused exclusively on check-ins, or if Google focused exclusively on one or two search verticals, there would be little that these hot startups can leverage to compete. But focus is hard because it means saying no to incremental growth opportunities and leaving money on the table. And when a company feels it is invincible it is hard to say no. It took Steve Jobs ten years in the “wilderness” and Apple 90 days from bankruptcy to realize how valuable having a focus is.

The organization is his greatest legacy

The last revelation I had from reading the book is still to be proven, but it could be the most profound. During Jobs’ second stint at Apple, he had a clear vision that went beyond building great products and making Apple the best technology company globally; he wanted to build a lasting organization.

Ironically, one of the biggest criticisms that people have for Apple is that it is a one-man show. And over the years investors have continually undervalued the stock because of this. Steve Jobs certainly didn’t help himself in this regard, due to his inclination to take credit (as the book showed, Jony Ive was at times deeply unhappy about not getting enough credit). But consequentially this may also make it all the more magical when people realize what a lasting organization he has built.

What is magical about Apple is not its products. Its products are the output of a process, and it is that process (and the organization which embodies it) that is magical.

Wait, critics of Apple say, just wait until it has a flop – Apple is so hit-driven that all it takes is one flop. Interestingly, people said the exact same of that other Steve Jobs creation – Pixar. Pixar has defied all conventional wisdom in the film-making industry, by making hit after hit after hit after hit[2]. Pixar’s process of creating its products has already become textbook material.

Apple’s process is just as powerful. It is a process that defies conventional business thinking (“open” trumps “closed”?); it is a process that combines a passion for perfection with a relentless focus; and it is a process that goes beyond the influence of any individual[3].

Obviously, the jury is still out on this one, but I have plenty of confidence that Apple will continue to surprise and delight us, for many years to come. This will be the biggest test of Jobs, and it will be by far his biggest legacy.

First, Google, not Apple, should be very, very concerned about this development. Amazon has basically taken Google’s engineering resources / output and said “thank you for your free work, we’ll take it from here.” How many times did Amazon mention Android in the device description? Does the device look at all like an Android device? Does it offer any Google services by default? Will Google have to pay to be the default search on a tablet that was designed using Google software (think about the irony in that)?

Second, this leaves most other tablet vendors still scratching their heads about what to do, and this is the best example of asymmetrical competition. I would elaborate, but John Gruber had this excellent paragraph from his post that sums is nicely already:

Attack from a position of strength. Build on your previous successes. That’s what Apple does. That’s what Amazon is doing here. The other guys — the Samsungs, HTCs, Motorolas, RIMs — can’t match Apple’s hardware design, don’t even try to match Apple in terms of original and differentiated software, and struggle to match Apple’s prices because they don’t have the economy of scale advantages Apple does. Those guys can’t match Amazon either, because they have no content to sell. Amazon can give away the razor because they’re already in the business of selling blades. The other guys don’t even have blades to sell.

For one thing, if hardware vendors and distribution partners find consumer interest lacking, Google will have to sweeten the incentives for them to keep churning out hardware and pushing it through retail. Pogue’s review does a very good job summarizing the current issues with the offering, which will likely tank sales; the bigger question is whether Google’s philosophy and vision with Chrome can materialize in the broader ecosystem – that is, a browser as the OS paradigm of computing. This seems quaintly a very desktop centric view of the world; with all kinds of mobile devices gaining broad adoption, why should we continue to expect the browser at front and center of how consumers access the Internet?

There is no destined outcome in terms of the “native” versus. “browser” “war”; this is dependent on how the players in each camp fight for ecosystem support and consumer adoption. And that’s where Google’s own hedge against Chrome – Android – is the second major factor against Chromebook’s potential. The managers running Android and Chrome will probably characterize their respective businesses as in a “friendly competition”; however, when they are competing in anything from internal engineering resources, corporate budgets, to external hardware partners and developer support, it shouldn’t be a big surprise that outsiders will see a lot of conflicted messages, and therefore question the strategy.

Count me a skeptic.

The original topic, simply put, is what’s next for Apple? What’s the next product category for Apple that can generate >$10bn revenue a year (like the iPad will easily do this year)? Many people would suggest TVs as a potential category. The living room is at the heart of the digital convergence, and many vendors from different product categories are vying for control of the “smart living room” – TV manufacturers (Sony’s Google TV, Vizio’s Internet TV etc.), cable operators (their set top boxes), game console makers, Internet streaming device vendors (Roku, Boxee, Apple TV), and the niche HTPC makers etc.

Google made big waves last year with Google TV, however their high-profile efforts quickly hit a wall. Of all the current offerings, I think Microsoft is best positioned with its Xbox 360 + Kinect. The Xbox360 already supports many of the features that Google TV boosts, such as Netflix, Facebook and Twitter (the latter two not necessarily that useful, but Netflix is a killer app), and furthermore it has an entrenched install base. The value-add of another box, which offers some overlapping features, is not strong; and from a user experience perspective, adds more complexity for the consumer – another device to hook up to the TV, more cables to sort out etc.

Under such competitive dynamics, it is arguable that to make a big play in the living room, the TV itself is the most strategically valuable product to launch. The TV is the center piece of the living room and the only piece that cannot be displaced (VHS recorders came and left, DVD players came and will leave soon etc.). It is usually the first remote you reach for and the first device you turn on (although in the US it has been hijacked by the cable set top box). The TV offers a strategic point of control on the whole living room – to access your console, your DVD player or your cable, you need the TV remote. Launching a successful smart TV gains you control of the entire living room, and make all other devices your servant.

Strategy-talk aside, what should the features / benefits be for this “real” Apple TV?

• At the minimum, it should be an iOS-powered device and supports apps. This gives the product great extensibility in terms of function, and killer apps such as Netflix / Youtube should be available (or even preloaded) at launch.
• In terms of hardware,
  • Built in DVD / Bluray drive, opening on the side (just like the iMac)
  • If feasible, built in cable tuner so consumers can throw away their set top boxes – this is both about strategic control and simplifying the user experience (getting rid of the cable remote)
  • Large storage to record programs / store apps, photos etc.
  • Wi-fi connectivity
  • lots of USB / HDMI slots for connectivity to other devices
  • Optional components could be card readers etc. (similar to iMacs)
  • And obviously a large shiny LCD…
• In terms of UI,
  • It should support great customization in terms of managing screen real estate. Users should be able to have multiple apps and channels open in a wide range of display setups
  • It can have some simple remote, but users should be able to control it via whatever iOS or Mac device (similar to how you can control you comcast cable using the iPad)
• In terms of fancy / advanced features,
  • TV streaming to other iOS / Mac devices – iOS / Mac devices can open a “TV” app and use the device just like a regular TV screen
  • Interaction among iOS/Mac devices – you can send whatever app you’re displaying on your iPad onto the TV, and vice versa. This leads to interesting use cases like taking whatever channel / show you’re watching on the TV onto your iPad, and carrying your iPad into the kitchen or other rooms and keep watching
• Gaming, which may be where the real value add is (disrupt the console business)
  • TV also functions as a capable iOS gaming device (have to evaluate the costs associated)
  • Again, interesting interaction use cases with other iOS devices – use your iPhone / iPod Touch / iPad as the controller; when playing multiplayer games, say Scrabble, the TV serves as the common display while each player sees player specific info (in this case, their letters) on their smaller iOS screen

Obviously I have not evaluated feasibility (would it be prohibitively expensive? How much software development is needed?), but I’d say the above features are not too far-fetched. The really big question, or missing piece, is if and how this TV disrupts the current content value chain (that’s where Google TV stumbled). Figuring out the content piece is the key to unlocking value; the product I listed here is not disruptive in this regard.

I would love to hear any thoughts and feedback.

It’s true that Google has a strategy of commoditizing adjacent markets to turn them into ad-based businesses, which falls into its sweet spot. Many of Google’s most successful products besides its core search are of this nature: email, maps etc. GIving away Android for free is certainly commoditizing the mobile handset market: of the 300k daily activation number which Google touts, people speculate a large portion are what analysts traditionally call “unbranded” or “other” phones. In general this conforms to Google’s strategy; however, the flaw here is that in my view Android is disrupting other branded manufacturers like Nokia / Samsung / Motorola far more than it is challenging Apple and iOS devices. In other words, it may appear that Android is mainly a counter to the iPhone, but in reality it is killing Apple’s main branded competitors.

Allow me to expand on this point, because it probably appears counter-intuitive. Before Android powered smartphones hit the market, Apple was certainly in a league of its own with the iPhone. While it was rapidly capturing share of device profits (the famous 5% unit volume – 40% profit share charts), the incumbent device brands – Nokia et al. – still had the comfortable mid to low end market volumes, which would give them time to develop competing OSes. Now along comes Android, which, while it gave them a quick boost in terms of time to market of credible iOS challenger devices, also opened the floodgates to a whole range of unbranded competitors. These new comers – Huawei, ZTE etc. – play the same volume game as Nokia / Samsung et al. And we know so far Samsung / Motorola have not drastically reversed their financial performance thanks to Android – so what’s the next possible scenario? Would it be possible they continue to slip in unit volume, and be weakened further at the onslaught of the Android clones?

At the same time, I think Apple is sufficiently differentiated from the unbranded players  in terms of value propositions (very different consumer segments), so the Android clones do not pose a significant threat to Apple.

The flaw here is that Google did not limit who could use Android – a complete lack of platform control. If Google’s strategy does indeed include undermining Apple, it should have limited Android to a handful of brands, so they could compete effectively with Apple. Furthermore, I would also argue that Apple’s primary issue currently is not Android, but its own supply chain and distribution restrictions (e.g. AT&T exclusivity). The big fanfare of Android activation numbers have done little to stop iPhone stockouts all over the world – in China where the iPhone 4 is obscenely priced, supply is still tight. Admittedly I don’t have conclusive data on iPhone supply constraints – but if we take this assumption as true (and there are certainly indicators and proxies in favor of this), it would show that Android has done very little to halt Apple, and is causing far more headaches to Samsung etc.

The second fundamental flaw is that going back to the original strategy, carriers still stand in the way of Google’s profit realization, if and when the mobile devices are completely commoditized (the death of Apple and RIM). Mobile network operators have far greater influence over consumers than wireline operators – in most cases, people choose a mobile operator first before choosing a handset (Apple being the prime exception / disruption), whereas you choices over which wireline operator and which computer brand to buy are completely separate decisions. Because mobile operators “own” the consumers, market power dynamics dictate that Google cannot expect to extract substantial profits. I know this sounds abstract, but until Google can demonstrate to operators that “I can make your customers leave you for another operator”, operators could and should squeeze mobile advertising profits out of Google. Again, Google’s lack of control expedites this – Verizon can sign up Bing as the default search on its phones etc, but there also are many other ways to play this profit squeezing game.

Of course, Google could hope for a “Wintel”-like end-game, where they dominate the OS space and split the spoils with the operators; but operators can foreclose that outcome by actively playing one OS off another. I’m sure strategists at the operators are already plotting this out, and I wouldn’t be surprised if Nokia, which has long been an outsider to the US market, is called in by the operators to facilitate a bigger and better OS war.

The original Starcraft was born pre Google, blogs, and of course Youtube and Facebook. Starcraft 2 was developed through the years of the web 2.0 scene. This led to both in-game designs that incorporate web 2.0 (Facebook integration with user accounts), and more broadly, community developments that heavily utilize social media innovations.

Not all the community building is done by Blizzard. There is the obligatory Facebook fan page and Twitter account, but I wouldn’t say Blizzard has done an outstanding job at either (50k followers on Twitter is nothing to boast about, I’d say). What’s really interesting is the self-motivated and extremely enthusiastic gamers who are creating vibrant media content on top of the game.

For example, a number of “shoutcasters” have emerged as celebrities within the community (shoutcasting refers to live commentary on spectator video games, similar to sports announcers). One of the most famous such shoutcasters, Sean “Day[9]” Plott, even hosts a “Day[9] Daily” show, where he does hour-long shows announcing games and teaching strategies. Another shoutcaster, “HuskyStarcraft”, has quietly amassed over 100MM views on his Youtube account and has over 300k Youtube subscribers. He’s even branched off from pure shoutcasting to do the following parody music video, which has 3.5MM views:

Further more, gamers have strongly embraced streaming technology to livecast community competitions, or even just self-casting (where a player – usually a very good one – casts himself playing Starcraft 2). At any given point in time, video games are generally some of the top-viewed content on Justin.tv, ustream.tv and livestream.com. For Starcraft 2 fans, Teamliquid.net (the website of a professional Starcraft team) offers a convenient one-stop shop to see what streams are live at any time. Teamliquid also hosts a wiki site where players can view and document advanced gaming strategies. There have also emerged dedicated gaming streaming sites (own3d.tv), and dedicated Starcraft 2 casting sites (such as ragequit.tv, glhf.tv).

What I find interesting is that for sites such as Justin.tv and ustream.tv, which are usually popularized by pirated content (illegal rebroadcasts of live TV), gaming streams offer an attractive type of fully legal content. (Well, at least until the game studios start banning such gaming streams, which at least currently they are not doing as it’s free promotion for the games.) More importantly, such community media will strongly reinforce the popularity of the game, and help maintain its relevance. If Starcraft could last close to 14 years now and still be played around the world (a dinosaur of a game by video game industry standards), then Starcraft 2 could certainly hope for the same type of longevity with such community building.

The Game

Starcraft 2 officially launched at the end of July this year, but really, gamers have been beta playing starting February of this year. Going further back, development was officially announced in 07, but had been in stealth mode since 2003 – making it a game 7 years in the making. That’s actually quite dangerous territory in video game development, since technology follows Moore’s Law – you may easily end up in vaporware territory like Duke Nukem Forever, the granddaddy of vaporware jokes. But Blizzard is probably in a league of its own, and has always been known for pushing back release dates. And if they think the game is going to flop, they just cancel it, which is why they have a perfect track record of hits.

Anyhow, the most interesting thing about Starcraft 2, from a content perspective, is in terms of the learning curve. For any Starcraft: Brood War veteran, the sequel is immediately approachable. I would say roughly speaking about 50% of the game is the same as before, in terms of buildings, units and spells, and even the hotkeys have not changed that much. So a Starcraft veteran can start playing instantly and feel very comfortable. But that’s deceptive, because the other 50% of the game which is new completely throws off the competitive play. Few battle-tested Brood War tactics still work in the sequel, and a lot more thinking has gone into the dynamics among units – which units counter which, which work well together. It feels familiar but it really is a new game – very well designed learning curve.

In terms of sales, Blizzard announced 3 million copies sold in the first month, which is a cool ~$200MM in terms of retail value. However, Starcraft 2 is not going to be beating video game sales (except for its own RTS category), since its tied to the PC platform (PC+Mac), whereas the mega box office hits (like Call of Duty Modern Warfare) are really cross platform on the Xbox 360 and PS3 consoles. Back in the day, RTS games have been ported to consoles, but they never really work out well in user experience – perhaps you really do need a mouse sometimes. It will be interesting to see how the new generation of input devices (Kinect etc.) inspires game development – can we see an RTS using a Minority Report type of input any day soon?

The Korean Pro Scene, and Blizzard vs. KeSPA

As said before, the biggest pro gaming scene is to be found in Korea, especially for RTS games. Interestingly, Blizzard used Starcraft 2 as an opportunity to regain control of the Starcraft “platform”. What had happened previously was that KeSPA (the Korean eSPorts Association) had been a driving force in pushing the commercialization of Starcraft in Korea, e.g. establishing the pro-leagues and handing out the TV distribution rights. Meanwhile Blizzard seemed to had taken a passive stance (it didn’t co-invest, but it didn’t charge licensing fees / royalties – it allowed KeSPA to use the game for commercial purposes, including TV broadcasting).

The growth of the sport in Korea probably surprised / delighted Blizzard, except for one thing – they weren’t getting any direct revenue from it. KeSPA had established such a strong control, to the point that pro-gamers needed licenses from KeSPA to compete in KeSPA competitions, and these licenses included some very restrictive terms (e.g.what types of commercial activities and matches the players could participate in, see this recent controversy over an exhibition match in Germany) – essentially, KeSPA was monopolizing the talent and therefore the entire market.

Blizzard saw Starcraft 2 as a chance to negotiate with KeSPA over royalties / licensing. Apparently the talks fell apart, and Starcraft 2 at one point got a “mature – 18+” rating in Korea by authorities (which people speculate as a retaliation move from KeSPA). Blizzard eventually struck a deal with GomTV, which seems to have had clashes with KeSPA before (the enemy of my enemy is my friend). One big implication, though, is that the best Brood War players will probably stick with KeSPA for a while, since that’s where the real money still is – although we have seen legendary players such as “Boxer” and “Nada” join the Starcraft 2 scene.

GomTV launched Season 1 of the GSL (Global SC2 League) in late August, and Season 2 is currently in full swing. Each season has a series of pre-season qualifiers, while the main season is a straight 64-player tournament. The total prize money for the 3 seasons planned this year is about $500,000. As expected, the tournament is dominated by Koreans, with non-Korean players collectively referred to as “Foreigners” – in Season 2, I think a total of 3 “Foreigners” qualified for the main tournament.

The Pro-Scene Outside of Korea

There are many semi-pro competitions organized via Battle.net globally, and players compete in the comfort of their own homes. The pro-scene has and probably always will be about big offline events (however Blizzard hampered that with the decision to remove LAN gaming from the game, which means even “offline” events are now actually battle.net gaming). In the US, the MLG (Major League Gaming) promotes a range of games (e.g. Halo3, Tekken 6) and has incorporated Starcraft 2 as of their Raleigh event in late August. In the recent MLG DC event, the top Starcraft 2 player walked away with $2,500, which indeed is exponentially lower than prize money of the Korean scene (and anyone can register, for $60, so not really a strong pro-scene). In Europe, ESL (Electronic Sports League) has incorporated Starcraft 2 into the Intel Extreme Masters competition.

To be continued…

In the next post, I’ll (finally) talk about the community and the social media related to Starcraft 2. Stay tuned!

I plan to cover this in a series of posts. This first post will give a quick overview of “esports“.

Overview

Gamers have played competitively since the inception video games (the wiki article linked above gives a historical perspective). Commercialization began in the late 90s, thanks to the popularity of First-Person-Shooters (FPS) such as Quake (which I think gave birth to a lot of the gamer vocabulary today – such as pwnage). But where commercialized gaming really took off, as most people probably knows, is South Korea. The common catalysts quoted are that Korea had great broadband infrastructure, and during the Asian Crisis of 97-98 many people took on Starcraft as a way to kill time (though this second one sounds more unlikely). Anyhow – Starcraft, the Real-Time-Strategy (RTS) from Blizzard, really took off in Korea, and starting from around 2000, Korea has had professional Starcraft gaming, involving professional teams, full-time players, television broadcasting, and around the year tournaments.

Globally, various organizations have attempted to create major global tournaments (the Olympics or World Cup of gaming). Two competitions that I believe have had good longevity are the World Cyber Games (WCG) and the Electronic Sports World Cup (ESWC). Total prize money for WCG has steadily risen to around $500,000 from $200,000 a decade ago, split over 10 or so games. This is by no means a huge jackpot (for majority of pro-gamers it’s not a sustainable career), but the growth has driven up the popularity of e-sports.

Major Game Genres

Judging by the prize money involved (check out the above links for WCG / ESWC, for prize money per type of game), FPS and RTS are by far the dominant genres, though there are a few up-and-comers such as MMORPG (World of Warcraft) and DotA (a custom map on Warcraft III, which really doesn’t fall under any major genre). Other popular genres including guitar hero, fighting, racing and sports simulation (football etc.).

Interestingly, by and large most of the competitive genres are solo play (one-on-one). While most games, such as Starcraft, support team-based play, the major competitive format has been solo gaming. This has given rise to a series of individual stars over the years, most of which only enjoying celebrity status within the community, but a few who have actually made legitimate money and fame (again, mostly Koreans – look up the Wiki entries on “Nada” Lee Yun-Yeol and “Boxer” Lim Yo-Hwan, probably the two most famous professional Starcraft players ever).

In contrast, the only major team-based genre is FPS, and especially the hit game Counter-Strike. Counter-Strike popularized the 5v5 format, which has been adopted into DotA. Of course, many FPS games are competed in solo, such as Quake.

Major Countries

In terms of where most pro-players are, this is heavily biased by game genre. Korea by and large “owns” RTS, especially Starcraft and now Starcraft 2. The Korean pro-leagues offer the highest prize money (the recent first Starcraft 2 pro-league, GSL Season 1, featured a ~$90,000 cash top prize) and attracts the best players globally, however most of the top players are Korean.

Warcraft III, another popular RTS, is slightly more diversified, with good European and Chinese players alongside the usual Korean suspects. My personal opinion is this is due to Starcraft’s overwhelming popularity in Korea, which has kept many great players away from Warcraft III.

In FPS, the scene is very different, heavily dominated by North American and European teams and players.

Business model of professional teams

Again probably pioneered by the Koreans, the professional team setup involves a manager (who also acts as the agent for his players) and anything from a handful to dozens of players. Players earn salary and are often provided accommodation and food; any prize money won is split between the player and team (I’m not sure of typical ratios).

Teams get income from competition winnings and sponsorships / advertising. Typical sponsors are major IT manufacturers (Intel, Samsung etc.) as well as specialized gaming equipment makers (e.g. Razer, which offers professional gaming grade mice / keyboards). Teams may be based out of a Internet cafe (which sponsors the team), which offers an environment to train in.

Growth Issues

There are several major issues with e-sports / pro-gaming that have hindered commercialization efforts. First of all, outside of Korea, where Starcraft is a national past-time, core gaming remains a subculture in society, mainly followed by adolescent males – the demographics base makes a big media play (such as a dedicated gaming channel on cable) very difficult. Furthermore, this base of core gamers are further segmented by the types of games and the specific games they play (again in contrast to Korea, where most of the commercialization revolves around Blizzard RTS games, such as Starcraft, Warcraft III, and now Starcraft 2). This limits the total advertising dollars and overall market size.

Secondly, the inherent short product life-cycle of video games goes against the needs to build stable spectator sports. New games, even sequels such as Starcraft 2, need to innovate on the gaming mechanics to sell; this however makes following the games harder (imagine if football or any other sport had major changes to its rules and therefore strategies every 2-3 years).

Thirdly, the steep learning curve for a spectator who has not played the games also blocks market growth. Most of these core games are incredibly complex, for example any RTS would feature 30 or more different types of units, each with unique attributes and mechanics. Also, the mechanics of certain games makes spectating boring at times (in Counter-Strike, there is usually pro-longed periods of stalemate with short bursts of intense action).

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.