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.

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.

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!

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.

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.

We’ve covered the launch of Qiyi.com, a new video site backed byBaidu, Inc. ((ADR) NASDAQ: BIDU). The site imitates a lot of Hulu’s functionality and design, and in terms of business model Qiyi is certainly also looking at advertising. Qiyi’s CEO, Gong Yu, was recently interviewed by QQ Tech (link in Chinese), and while it’s a lengthy piece (with lots of marketing talk), Gong did share some interesting perspectives and stats. I’ll try to blend his quotes with some questions I have for the site.

On content acquisition:

“…Our content comes from several sources… Copyright intermediaries are a major source of content in our procurement… We aim to be the biggest legal video content database in China by the end of this year… Our licensing rights for domestic TV series are usually 1-3 years, with some cases being 5 years.”
– Gong Yu, CEO, Qiyi.com

My thoughts: I think one key difference between Qiyi and Hulu is that Hulu is founded by content companies – NBC, Fox and ABC. Theoretically and quite probably in practice this gives Hulu lower acquisition costs to content. Qiyi on the other hand, is an “outsider”, and Gong has basicallyadmitted they need to go through middle-men to get the content. This will definitely raise its costs.

On revenue generation:

“We see three main models for video sites. The first is user-generated content. The second is short clips purchased from TV networks, usually news and documentaries, to form a news-reporting service. The third is long-form entertainment. Almost all of Qiyi’s resources are used on long-form entertainment. This means the amount of content we have will be less than websites such as Youku which does all three models.

However, of these three models, we see offering long-form entertainment to users for free and generating revenue through advertising as the most healthy model, so we are devoting all our resources to it.”
– Gong Yu, CEO, Qiyi.com

My thoughts: Clearly Qiyi is adopting Hulu’s existing model. However, I have reservations on whether Hulu is as successful as Gong believes, since the news last week on Hulu looking at a premium membership model probably suggests that advertising alone is not enough for profitability. Furthermore, online advertising in China has always been a lesser developed business model, which is the very reason Chinese social networks were so creative in using virtual currencies to generate income – pure advertising based plays just haven’t survived that well in China historically.

On site features:

QQ Tech: How did Qiyi come up with innovative features such as auto resume of the clip last watched and “dim lights”?

Gong Yu: This is due to our positioning and the needs of the market… as a new video site [late-comer to the game] our first step is not how to grow the overall market but how to build a brand in a already established market. The speed and quality of the video is important, but user experience is also very important.

Friendly user experience is in the details, such as the auto resume function you mentioned, it’s to address specific user habits…

… Other features such as the “dim lights” which helps you to focus on the video, and video recommendations based on your mood (“happy”, “sad”), are all to make the site user friendly to users of all ages.

My thoughts: Obviously a lot of these features are straight from Hulu.

On feedback from users through beta-testing:

“Users gave positive feedback on the user-friendliness and uniqueness of the site and its design… Users highlighted the high quality of videos… They also noted that more content needs to be added, but most hit shows from recent years are already available.”
– Gong Yu, Qiyi CEO

My thoughts: Video quality may be a differentiator, but that probably won’t last. And these shows are available on most Chinese video sites. Conversely, the availability of copyright infringing content on competitors’ sites (even a casual search on Sina Video returned episodes of US TV series such as CSI) means that competitors will still have an “unfair” advantage, for as long as they can get by the litigations. If anything, Qiyi will be footing the bill for educating Chinese consumers on copyright – not sure if that’s a viable business model.

In sum, I’m somewhat bearish on Qiyi, 1) the ad-based model it’s trying to copy isn’t exactly a blockbuster for Hulu; 2) content not exclusive (as far as I can tell); 3) Chinese online environment still very liberal for piracy / bittorrent, so lots of alternatives for content.

My biggest takeaway from Chirp was how ambitious the Twitter team is. For a company that has long been under critics’ fire for not having a business model, the core of its strategy remains surprisingly attached to “getting the product right” first. The company’s priorities, according to CEO Ev Williams, is “0. Infrastructure; 1. Friction-free; 2. Relevance; 3. Revenue.” Revenue was decidedly last on the list.

Infrastructure is easy to understand – Twitter has been hurt by scaling pains so many times that it makes sense that the company is focused on coping with the growth first and foremost. Friction-free is about making the service easier to use, especially in the context of retaining new users, which was Ev’s rationale for the Tweetie acquisition. Friction-free is also the thinking behind the @anywhere initiative – so that users can use Twitter anywhere on the web, and not be interrupted by having to open another web-page etc. Relevance is partly about search, and partly about new features such as location and annotations.

And this is where things start to get interesting. For a long time, Twitter itself did not have an inbuilt search function; a number of 3rd party developers offered competing Twitter search products. The leader of these products, Summize, was eventually acquired by Twitter; but as Ev described it at Chirp, it was more like a merge of equals (size of team etc.). While the Twitter team didn’t talk a lot about search, I felt the key to the service’s relevance, and future business model, would be search – how do you organize this world of information (to paraphrase Google’s mission) stored in the billions of tweets, so that value can be extracted?

This is by no means an easy task. The distinctiveness about Twitter is its timeliness – you can literally find out what’s going in the world right now. However, this also makes search, or any other type of data organization, technically complex. Annotations and other types of meta-data helps reduce the complexity, as well as efforts to understand the users’ intent – are you looking for info on a specific location or event – but it will still be a daunting problem. (Google and Bing has had access to Twitter’s data-stream for a while now, but whether it’s for lack of trying or the complexity of the issue, their current use of Twitter data in their search results seem largely inconsequential.)

Still, if the Twitter team can crack this nut, then they may have on their hands a truly blockbuster product. The beauty of Twitter is how many different usages people have come up with for it – as a communications tool, it is simply an enabler of numerous services. If they can make their information much more organized through search, then the value of the communication tool is enhanced, as well as the services built on top of it. The recent story of how Twitter can be used to predict box office success is just one example of the potential value.

(This post was written over several days so the thought-flow is somewhat broken.)

When I was interviewing for my summer internship, I got asked the question “if you had funding to build a new search engine, what would you do?” My response was you can either tackle the existing search problem through a drastically different algorithm, or focus on specific verticals (e.g. travel) or new markets (mobile, location). If we change the phrase “search engine” to “method of organizing information”, then certainly both Twitter and Facebook are taking on a differentiated approach from Google. While the three companies may at face value be in very discrete markets, they are on a unavoidable collision course in terms of competition. While Google is all about indexing the static web, Facebook and Twitter are built on the social web, and they may well grow to become the Google killer that many have been searching for.

This is not as far-stretched as you may think. Think about the last time you performed a search. Did you ask any friends first? Was it only when they said “I don’t know” that you replied, “don’t worry about it. I’ll just Google it.”? Google search is powerful and hugely useful, but only to the extent of how useful the static pages it indexes are. When you do a search on a specific question, you often have to tinker it a few times. Click on a few different search results. Read through them. Often the pages won’t have the answer to the exact question you have, but enough info to give you pieces of the puzzle so you can piece it together. This is still much, much more efficient compared to doing research at the library, but the power of the social web is that you are not confined to static pages and information – the odds are that there is some person out there who knows exactly the answer to your question, and the power of the social web is that it enables you to ask that person directly. Quite a few of the people I follow on Twitter use it as a magical search engine – you pose a question on Twitter and your followers answer it.

Of course, this is just one specific scenario where social web services such as Twitter and Facebook have the upper hand against Google (and for the many, many instances where you need static information Google is still the better option – e.g. what is the year that the US was founded); but it does highlight Google’s key vulnerability – its lack of presence in social. Be it Orkut, Wave or Buzz, Google has repeatedly shown its inability to come up with a competitive social networking product. Maybe Google simply doesn’t have the social genes in its DNA – which is fine, as for the foreseeable future they will still make a killing in Adwords/Adsense. But the danger for Google is that search gets demoted from a primary instinct into a secondary instinct, the same way that Kayak / Mobissimo / Bing Travel and other vertical search engines have made Google irrelevant in travel search. It will still be a huge market, but only a less efficient/user-friendly alternative. And it’s clear from Facebook this week and Twitter last week that these companies have huge ambitions too in organizing the world’s information – hence the competition will be inevitable.

One last note – while Facebook has seemed to garner much more attention and praise with its announcements, Twitter’s efforts, especially in mobile shouldn’t be disregarded. The news today that Twitter has acquired SMS service Cloudhopper may sound insignificant to those of us who are used to iPhone apps and 3G networks, but in the grand scheme of things SMS is still such a viable and active method of information delivery. It will be interesting to see how Twitter uses SMS to its advantage.