The difficult Google play in China

Early last month there were some news circulating about Google plotting a return to China. The past few days there were also increased speculation after Chinese netizens discovered some changes to what are being hosted domestically by Google.

So far most of the above are just speculation. But it’s worth doing a quick thought exercise.

First, the market context:

  • In Google’s 5 year absence from China, the smartphone revolution has really taken over the market and there’s arguably half a billion users of Android devoid of any Google services
  • There’s been a big entrepreneurship boom (which may be going into hard times currently), with several cycles of intense competition in a number of sectors – staring with the 1,000 groupon clone wars of 2010, to the more recent taxi-app wars and the broader O2O wars. And of course let’s not forget the home-grown Android vendors such as Xiaomi and the battles in the Android space. From the ashes of these intense battlegrounds have risen a number of companies with $10B+ valuations1
  • The traditional big 3 – “BAT” have extended their empires in numerous directions and continue to compete in multiple fronts. For example, Alibaba has made big bets in film entertainment and Tencent is eager to follow suit
  • Apple has seen major success in China – it has generated over $45B revenue in Q1-Q3 of its FY2015, which is about double of Google’s entire worldwide revenue in 2009, right before it exited China

In short, the 5-year opportunity cost for Google in China has turned out to be huge, which is not surprising then if they are indeed seeking an return.

As an aside – I always thought Google’s decision in early 2010 was an incredibly difficult decision, and one which I have always disagreed with (to the detriment of my friendships with some American friends). Not to be overly sentimental, but one of my biggest points of disagreement was that this decision went against Google’s own company mission – to organize the world’s information and make it universally accessible and useful – with such a mission, how could Google shy away from serving Chinese users? Wasn’t exiting China a cop-out to avoid the really tough choices of operating in that environment?

But to come back on-topic – if exiting China was tough, coming back will be tougher:

  • What is Google’s value proposition to Chinese consumers? Most of its services have been fully replaced by local competitors, who are arguably more nimble and responsive to local user needs
  • What does Google focus on? The rumored Google Play makes some sense, since they should prioritize re-establishing a position in mobile, while desktop search is slowly but surely becoming irrelevant
  • Can Google find any local allies? Out of BAT, Alibaba probably has the least conflicts of interest with Google (Tencent / Baidu both own big Android app stores); in the Android vendor space, it has already partnered with Huawei for a Nexus device, so perhaps Huawei can return the favor somewhat in China
  • How much autonomy / empowerment will the local team have? Can they attract the type of talent they want, given their flip-flopping in China?
  • Fundamentally, how much product experience is Google willing to sacrifice/compromise to meet the government’s requirements?

Given how nasty the 2010 exit was from a relationship stand-point, I suspect Google’s return will be tiny baby steps at first.

  1. Xiaomi, Didi-Kuadi, and the new Meituan-Dianping merger are a few leading examples
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To B or to C, that is the question

Jon Russel of TheNextWeb had this interesting tweet the other day:

 To paraphrase Ben Evans’ excellent post a couple of weeks ago, this is an unfair comparison, but a relevant one.

There are a couple of thoughts that I have on this. Firstly, the clichéd “necessity is the mother of invention.” Asian social media companies have generally been pioneers in the space of monetization via virtual goods, whereas Silicon Valley companies have focused more on ad-based monetization. IMO a big factor is the availability and maturity of advertising dollars – if the US does not have a thriving advertising industry and sophisticated advertisers (the blue chip companies and their global brands), Silicon Valley biz models will look very different.

Secondly, an ad-based biz model (B2B) demands a fundamentally different set of organizational structure and capabilities from a virtual goods biz model (B2C). In Silicon Valley, the former often requires an ad sales force fluent with convincing Madison Avenue ad execs to allocate client ad spend, as well as building the tools and support systems needed. In Asia, the latter model requires sophisticated retail / payments capabilities, such as a distribution network for physical gift cards that consumers can buy to convert to virtual currency (which can then be spent on virtual goods), as well as handling various online payment schemes (or building your own from scratch) and fraud, and also a customer support service that can handle literally tens of millions customers.

Another way to look at the fundamentally different capabilities required: ad-based biz model is generally about monetizing user data – user behavior / intent that advertisers value, so data aggregation / modeling / predictions would be key tech capabilities; whereas virtual goods biz model is about creating demand for content – “I want to buy that virtual rose so I can express my feelings to my loved one” – and hence requires a content pipeline as well as understanding of what types of content sells.

Thirdly, from a product perspective, “adding advertising to my free service without annoying my users (or not annoying them to the point of churning)” is a very different design goal from “providing value-added services that a (typically small) % of my users are willing to pay for”. Advertising in exchange for a free service is something that users tolerate; getting users to actually pay real cash is generally speaking much harder.

To be clear, I’m not saying that one model is better than the other, simply that two similar services (from users’ perspective) could mean fundamentally different company strategies.

I’ll end this post with another set of examples for comparison: twitch.tv and YY streaming. Both operate online streaming services in the video-games space. Twitch monetizes via video ads (as well as cut of premium subscription fees). YY mostly monetizes via virtual goods that viewers buy to gift streamers in the public chat feed that accompanies the stream – if that sounds bizarre, you really need to see it in action.

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On PRISM and the NSA leaks, part 2

The Edward Snowden story has continued to develop over the past couple of weeks, both in terms of new revelations of U.S. (and allies) surveillance / hacking, as well as Snowden’s personal future.

On the new revelations front, SCMP has been able to claim a series of exclusives, especially around U.S. hacking of China –

Obviously, these stories don’t help the U.S. government’s negotiations with China over hacking that goes the other direction, and not surprisingly some critics of Snowden would label him a traitor in response. However, I think it’s certainly in the U.S. public’s interests to know what activities (legal or otherwise) their government is up to; and furthermore it’s better for the World Wide Web as a whole if we know more of government-sponsored large-scale hacking (and massive intrusion of privacy), regardless of what political system (democratic or not) the government in question employs.

Meanwhile, The Guardian unveiled two new documents that show how the U.S. intelligence agencies filter out data that belongs to people in the States. Or rather, how weak those supposed protections are – for example, if you use Tor or other encryption/anonymity software you qualify as a non-US person and your data can be stored in the intel databases. And certainly all these checks and balances mean nothing for people in other parts of world. It’s also probably a giant step backwards for democracy as a whole, when you can call on your allies to spy on your citizens and vice versa (UK’s GCHQ and the NSA working hand in hand).

Regarding Snowden himself, he’s certainly made the weekend busy for journalists with his flight to Moscow and his asylum application to Ecuador. There was no shortage of popcorn entertainment – The Hong Kong SAR government was happy to point the middle finger at the U.S. in their official statement, while Russia was probably grinning as well; the US apparently made remarks about repercussions to both these governments down the road.

Looking ahead, there are probably some new pieces of classified information with big implications to look forward to, and Snowden’s personal fate will provide plenty of soap opera. However, at this point the broad strokes of the scale and reach of the U.S. government’s cyber-spying has been painted, and I’m more interested in what concrete changes can be made, both in the US and internationally. The pessimist in me says it may just be business as usual (the track record of U.S. politics in recent years on real change is disappointing – just look at Wall Street). But this is too important a topic to be “business as usual” – coming from a country where it’s far easier to witness the dark side of unrestricted surveillance and the lack of rule of law, I believe I can see the end of the slippery slope better than most of my American friends, and it’s not pretty (spoiler – it’s a cliff).

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on PRISM

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

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

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

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

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

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Interoperability as signal of relative market performance

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

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

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

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

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

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How long can content region-locking last?

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

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

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

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

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

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

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

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Google Keep’s reception woes a lesson in community management

Google launched a new product called Keep today, and the tech commentary has been quite negative. What’s interesting about this narrative is how little of it is about the actual product itself. Om Malik’s post is very representative in this regard, with a pun jab in the title. And the responses on Twitter aren’t much better.

The general sentiment is – why should I use Google Keep, when you’ve just shown with Google Reader that you can shut down a product at whim? This may be a valid sentiment to have, and it is also only natural for tech bloggers to seek drama (in the interest of generate page views) – so this should have been something that Google product managers have anticipated in advance. Especially given that the blowback from the Google Reader development has been quite strong (a lot of discussion, petitions, competing products jumping on the wave to draw users etc.) and is still very much ongoing, the Google Keep announcement should have been delayed or tweaked to acknowledge the sentiment over Reader.

Overall, the Google Reader situation and the Google Keep launch timing shows a general passiveness on Google’s end to engage with its user-community in online dialogues. It is very interesting given the overwhelming strategic emphasis on Google+, why aren’t Google’s product teams using Google+ and/or other social media to engage their end-user communities? Is there a forum where Googlers regularly interact with end-users? How often has various Google teams done Reddit AMAs (or something similar – it seems a few Google teams have done AMAs on Reddit the past couple of years)?

These questions may be somewhat unfairly overweighing the importance of these community engagement channels, since Google primarily provides a utility-like service (search, email), and alas, most consumers don’t find it interesting talking with their gas, electric or internet provider. However, Google also maintains the image of a bleeding-edge innovation company (Google Glass, self-driving cars etc.), and in that regard it is crucial that Google effectively engage and manage its community, especially the early adopters and vocal advocates.

In the past Google has been seen as the company that does no evil and could do no wrong. It had a golden brand and it could dependably rely on a host of external advocates to defend itself and push its world-view. That has obviously changed, and Google needs to start showing sensibilities towards its end users. Addressing the ongoing complaint towards Google Reader would be a good place to start – it doesn’t need to change its decision, but it should at least provide more context over how the decision was made and perhaps make some compromises / compensation to appease the community.

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How the West was Won (or, another round of “open” vs. “closed”)

John Gruber posted a critique of a Tim Wu piece in The New Yorker. The ideas in the Gruber post are nothing new, but it’s interesting to see this topic come up time and time again.

Wu’s basic argument is “open beats closed,” with the modifier that “closed can beat open, but you have to be a genius.” Unsurprisingly, he enlists Wintel and Google as supporting evidence for why open beats closed.

Gruber specifically disagrees with Wu’s logic for why Windows defeated Mac in the original PC platform wars of the 80s-90s. In Gruber’s view, Windows won not because it was more open, but because Mac innovation had stalled, allowing Windows to catch up. He uses Mac’s brief period of allowing 3rd party licensing as evidence that being more open did not help Apple grow the Mac business; quite the contrary, after Jobs came back and closed off Mac licensing, Apple begun its resurgence.

Over at Techcrunch, Michael Arrington chimes in by stating that the Internet was the unmentioned factor that leveled the playing field for Macs – because the Internet became the core application, it mattered less that Macs had far fewer compatible software.

To me, the question to ask is (and has always been) why did Wintel win in the 80s/90s, and why was the Mac able to stage a come-back in the 2000s. Open vs. closed is simply a popular variation on this core question, because it has been twisted by folks such as Wu to be the critical success factor. It is not.

Wintel was immensely successful due to its leverage of network effects – i.e. the utility of the product grew as more people used it. Microsoft Word is powerful because everyone uses it, and the .doc format is near ubiquitous; if only one person used Microsoft Word, it wouldn’t be that useful outside of creating documents to print.

Wintel was also a two-sided network made up of both hardware/software vendors on one side and consumers on the other. This further reinforced the network effects on the consumer side.

The fact that Wintel chose to be “open” at the hardware layer (can be installed on any IBM-compatible PC) certainly helped drive adoption, but does not itself create network effects. The simple counter-argument is iOS – iOS is certainly “closed” at the hardware layer (exclusive to Apple’s products), but that does not prevent iOS users enjoy the network effects of iOS-exclusive apps (such as Instagram, which for a long time was iOS-only; another example is iMessage, which will probably always be exclusive to iOS).

Pre-Internet, the core application of computers were productivity applications such as Office, and Microsoft Office was (and Lotus 123 etc., before Office) exclusive to Wintel. In a sense, it is a bit of a chicken and egg problem – Wintel’s “openness” to hardware vendors drove OS market share, which in turn amplified network effects of the most popular applications on this platform, which in turn lead to more OS market share. It was a great, virtuous cycle.

It’s hard to say what choices Jobs would have made had he stayed at Apple in the late 80s; it’s a convenient side argument that Apple lost the 80s/90s platform wars due to poor business leadership, however I find this side argument to be often distracting.

Moving on to the late 90s, Arrington is correct in stating that the Internet leveled the playing field. Specifically, as the Internet became the core application, it removed the network effects exclusive to Wintel thanks to Office and other Windows-exclusive software. (Jobs’ successful negotiation to get Microsoft to develop Office for Mac is also Apple’s attempt at leveling the playing field.) And ever since then, network effects have had diminishing influence on PC platform wars – this is the underlying reason why Macs could stage a come-back from low single-digit market share; the beautiful execution (consistently excellent hardware/software iterations) also certainly helped.

As a corollary of this observation (diminishing network effects due to the Internet being the ultimate cross-platform application), we can predict that in the mobile platform wars, despite the seemingly dominant positions of Android and iOS, it is certainly possible for a late-comer (such as the new Firefox OS, and/or other new entrants) to enter the market and capture significant value. However, the success or not of those mobile OSes will not be determined by whether they are “open” or “closed” – by that measure, we can certainly already declare Firefox OS as the winner. The next few years in mobile will be very interesting.

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Engadget reviews Pixel (or, how not to design for real-world users)

http://www.engadget.com/2013/02/25/chromebook-pixel-review/

Sums up what I think of the device nicely with these two sentences:

For an MSRP that is on par with some of the best laptops in the world, the Pixel doesn’t provide anywhere near as much potential when it comes to functionality. It embraces a world where everyone is always connected and everything is done on the web — a world that few people currently live in.

Essentially, a product that was designed for Googlers, not for real-world users. This is not the first time Google has committed this mistake. It’s good that Googlers are passionate about what they work on; it’s bad that they equate themselves as good samples of real-world demand. And to be frank this is a very common mistake to make, and this is why at my work-place one of the most common phrases I hear is “I know I’m not real player[don’t represent a real user], but this is how I think about this feature…” so that at least the internal feedback is explicitly qualified.

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2012 / 2013 tech thoughts

Here’s a quick and dirty post to capture some of the thoughts that I’ve been brewing.

2012 to me was a year of continued trends in tech. Looking back, I couldn’t name any major disruptions in the major consumer-facing sectors of tech. The continued trends that I see are:

  • Rise of tablets vs. decline of PCs in all form-factors. The “tablets as cars vs. PCs as trucks” metaphor seems to be materializing everyday
  • Continued penetration of smartphones
  • Within smartphones, the platform wars mostly continued previous trajectory. Apple maintained, if not grew, its overall market share and leadership in the higher end segment. Android market share continued to be fueled by low-end devices (essentially, Android-powered smartphones at price points that replaced feature phones, and probably used as feature phones, if the mobile web usage data is any indication). Blackberry / Windows Phone remain on the fringe, while there continues to be new platform entrants (Tizen etc.)
  • In terms of apps and services, perhaps I’ve not been paying close attention, but there wasn’t really a defining new service that broke out (would Pinterest count? I don’t use it enough to comment). (Obviously not every year would there be a new Google / Facebook / Amazon / Twitter)
  • For buzz-words, “cloud” / “big data” are not new concepts by any measure, but they have gone more mainstream
  • crowd-funding (Kickstarter) got a lot more mainstream, but I personally would lump it together with the rise of angel investing a few years back as niche alternatives to raising capital. It’s a compelling alternative for very specific teams

Looking ahead to the rest of 2013, these are the things that I think may define the year:

  • Intensified competition to be the “center” of the living room, from all angles. Maybe Apple will do a real TV. Current TV brands will also further their “smart TV” offerings. There’s also a whole host of set-top box alternatives, anything from dedicated streaming boxes to new gaming consoles such as Ouya / the “Steam Box”
  • Related to the above, will this year be the year that the mainstream TV content model first see major disruption? There’s been a storm brewing for the past few years, but we’ve yet to see what the storm actually looks like. With every year more and more pieces seem to be coming together though
  • In mobile, I don’t expect smartphone landscape to change much, but it would be extremely interesting to watch how Android vendors compete against each other. Would Motorola stage a comeback / would Google become more determined to own more of the mobile value via hardware sales? Would Samsung make major platform decisions in response?
  • In tablets, I also don’t expect the big picture to change much, but would be interesting to watch how Android tablets continue to materialize and compete against Apple (as well as each other)

 

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