Shedding Some Light on China Unicom’s iPhone Pricing

The following is my most recent post on Digital East Asia.

The well-connected Chinese business magazine Caijing has acquired some info on China Unicom Limited’s ((ADR) NYSE: CHU) upcoming launch of the iPhone from Apple Inc. (NASDAQ: AAPL).  According to Caijing (link in Chinese), China Unicom will launch the iPhone after the upcoming October 1st week-long holiday, and will offer 4 models: 3G 8GB, 3G 16GB, 3GS 16GB and 3GS 32GB (all with WIFI disabled, per Chinese regulations). This differs from what China Unicom previously showed in its 2009 Interim Results Presentation, as the 3G 16GB was not mentioned.

In terms of pricing, while the article didn’t offer the full details, it was revealed that there will be as many as 8 contract packages (perhaps 2 choices per model?). The most basic package will be the 3G 8GB at RMB2,075 (US$304) for the phone and a monthly contract of RMB126 (US$18) for 24 months. That’s a total of RMB5,099 (US$747) over two years.

According to Caijing’s sources, the lowest monthly contract of RMB126 has been strenuously debated internally and is the absolute lowest price that China Unicom can offer. This is still 3 times the ARPU of China Unicom’s GSM subscribers. Additionally, there was no mention of data plans, so we don’t know what that RMB126 actually contains. It’s definitely a high end offering for the urban elite – the question is will the iPhone be strong enough to lure these customers away from China Mobile Ltd. ((ADR) NYSE: CHL). And perhaps the biggest hurdle is that currently users cannot retain their numbers if they switch networks – this is a deal-killer for business users. China Unicom should be lobbying heavily to get that changed.


Yahoo China to Close SNS Guanxi; More Disruption at Koubei

The following is my recent post on Digital East Asia.

A week after Yahoo (NASDAQ: YHOOsold 57.48 million shares of Limited (HKG: 1688), and a month after Alibaba moved Yahoo China’s local classified listing site to under China’s largest e-commerce site, today Alibaba announced that Yahoo’s Chinese SNS Guanxi will be shut down. The notice on the site states that “due to changes in operational strategy, Guanxi’s services will cease operations on Oct. 30th.” (link in Chinese, my translation.)

Guanxi has barely been in operation for 1 year, having launched in October last year. Earlier this year there were reports of the service being migrated into Alibaba alongside, but apparently Alibaba has decided to adopt a drastic restructuring of its Yahoo China properties. And as a side note on the restructuring, Zdnet China reports today that (link in Chinese) 100 Koubei employees are rumored to be leaving the company as they refuse to be relocated to Alibaba’s Hangzhou headquarters from Beijing.

Going back to Guanxi, the service didn’t seem to have gained much traction within its one year of existence. Being constantly rebranded (first as Yahoo Guanxi, then put under the Koubei umbrella, and more recently Koubei getting integrated into Taobao) probably didn’t help. On the other hand, it would have been interesting to see how Taobao could have leveraged its massive user base to develop Guanxi. Perhaps Taobao has other plans – Guanxi is probably not the right vehicle for Taobao’s own foray into SNS, but clearly Taobao has massive potential. With its user base and the traditional focus it has put on facilitating user interaction (launching its own IM, which currently has 173MM downloads, for instance), it’s not hard to imagine Taobao attempting some SNS play to support its e-commerce community.

Update: I just realized that Taobao has had an integrated SNS since the end of March this year. The account is linked with the Taobao and Alipay accounts. So all the more reason to close Guanxi.


Surprise: Sohu leads the copyright attack on Youku

The Chinese online video space has long been dominated by a number of local youtube clones, among which is a leader. Like so many other web spaces, the international players have not been able to beat their local Chinese clones, mostly due to cultural differences (and therefore quality of localization) and often policy issues (government interference, in the case of Google). In the online video space, the local players have also been much more lenient with copyright infringement. Usually these sites just turn a blind eye (for example I just did a quick search and found episodes of Prison Break on Sina’s video site, the Chinese crowd-sourced bootlegged version with Chinese subtitles), while for PR purposes they may claim to have sophisticated systems to take down infringing material as soon as possible.

Well, headlines today are certainly a surprise (at least for me – I haven’t been following this space closely). Sohu, who has just led the formation of a “Online Video Anti-piracy Coalition” (my translation) with some other web partners, has decided to sue 50-100MM RMB (about 8-15MM USD) for copyright infringement. A quick google search shows that lawsuits in this space have been heating up – earlier this year H.Y. Brothers, the leading local private film studio, sued a bunch of Internet properties (including Sohu and Youku); and before that Youku had also sued competitor Tudou.

While it’s clearly obvious that these lawsuits are tactics to pursue vested interests, I feel they are helping to push the industry towards a more mature stage where laws and regulations are properly enforced. One reason businesses like Netflix and Hulu don’t exist in China is because the cost of piracy is so low. Of course, Chinese consumers are spoilt in the sense that they have become accustomed to the fact that almost all forms of home media entertainment are free or very cheap (thanks to piracy), so any movement to enforce adequate copyright laws will be met with consumer resistance. But it should be clear that real businesses shouldn’t be founded in the hope that they will thrive due to the piracy environment – free may be a business model, but piracy isn’t.


Overview of Micro-blogging in China

One of the things I noted when I got to the Bay Area was the pervasiveness of Twitter. It has definitely achieved mainstream here, with many small businesses advertising their twitter links. Of course, only few companies have had effective marketing success with Twitter, but the fact that everyone is aware of it, and wants to maintain a presence on it, is testimony to the service’s mass adoption.

In China, the micro-blogging scene is very different. Whereas in the US a winner-takes-all scenario has more-or-less already happened (as long as Twitter is scaling up rapidly enough to meet the demand), in China the space is severely under-developed. The single biggest reason to this is government censorship. Since July, most of the leading Twitter-clones in China (Fanfou, Digu etc.) have been ordered to close shop, due to government fears that rioters in Xinjiang will use these tools to communicate (Facebook was also banned in China around that time). As of now, Zuosa is one of the remaining twitter-clones still in operation, and it is walking a very fine line. One of the co-founders of Zuosa is Alex Mou, whose Twitter account is Aleksoft. His twitter stream is mostly retweets of saucy tweets on Zuosa (links to hot girls’ pics, for example, the type of borderline porn stuff that passes as “social news” on all major Chinese portals to attract traffic).

Another development in recent months is the entrance of big Chinese portals into this space. Sina’s offering, unimaginatively named “Sina micro-blogging” (literal translation), is currently invite only. From people who have signed up to the service, the discussions are heavily self-censored by Sina, and accounts seem to have been deleted due to sensitive political comments. My feeling is that Sina is walking a fine line here – at invite-only stage, the service is being well controlled in terms of scale, making it less of a nuisance for government watchdogs. And the self-censoring certainly helps keep it under the radar. But that also destroys the service’s value – since this is akin to a self-selection process of content, at the end of which only saucy gossip will remain (since high-value users will have migrated elsewhere).

Which brings us back to Twitter. Despite being blocked by the GFW, tech-savvy Chinese are still accessing and actively using the service. This is also a self-selection process – now the only Chinese bloggers on Twitter seem to be the politically charged activists / dissidents, and a big part of their discussion is about the sensitive stuff. Take Ai Weiwei (Twitter id: aiww) for example. Ai is a famous artist / architect in China, perhaps most famously known for his work on the “Bird’s Nest”, the Olympic Stadium in Beijing. He is also a famously outspoken activist, and his twitter stream is a constant rant against the system in China. And Chinese internet users have devised many ways to go around the GFW block, the result of which, I feel, that has consolidated Twitter’s leadership in Chinese micro-blogging – if this indeed turns out to be the case, then Twitter would join the ranks of a small list of international websites that have taken off in China (whereas Amazon, eBay, Facebook, Myspace, Yahoo etc. have all failed to make a dent in the local market), ironically due to the government’s killing of its major local competitors. But it will also mean that micro-blogging will still have a long way to go before becoming truly mainstream in China.

The Chinese web-space is craving for micro-blogging services, thanks to the artificial control on supply. This is why I have seen very healthy interest in the new Yahoo Meme from Chinese users on Twitter. So, somewhat perversely, the Chinese micro-blogging landscape remains a white-space (albeit a highly volatile one) for players to compete.


Vinod Khosla Speaks at Haas

This evening I attended the Dean’s Speaker Series at Haas. Tonight’s guest speaker was Vinod Khosla, who was, among other titles, one of the co-founders of Sun Microsystems, a partner at Kleiner Perkins, and the founder of Khosla Ventures (his bio here).

Mr. Khosla’s speech is lengthily titled “The Innovation Ecosystem and Its Role in Shaping Our Renewable Future” (or, elegantly titled “Punditry / Invention” on the presentation deck, made by Mr. Khosla’s daughter who was also present). The presentation material had a distinct marketing flavor to it (think Al Gore’s An Inconvenient Truth slides, or Steve Jobs’ keynote slides, as opposed to conservative consulting / banking slides), with most slides containing only a few words or phrases in massively-sized fonts.

And Mr. Khosla’s argument was as concise as the material he was using. His core argument is that the advancement / adoption rate of technology will always be substantially underestimated – there is simply no accuracy in any forecasts of what will happen 10-20 years in future (examples presented: computer and mobile penetration rates, compared to expert forecasts in the past). He therefore implies that while clean-tech appears cost-prohibitive and unfeasible for massive adoption, there will almost certainly be technological breakthroughs (“black swans”) that completely transform the industry outlook. The conclusion – instead of trying to predict the future through extrapolation of the past (which is a futile exercise), we should simply invent our own future. In Mr. Khosla’s case, he is very optimistic in clean-tech will continue to invest in this area.

I think the takeaways for me from this one-hour presentation are three-fold. One is the concept that Mr. Khosla was selling, the mindset of optimism about change, which in other words is a call for action. Second is perhaps some observations on soft-skills, through his style of delivery and general on-stage presence. Probably the third takeaway is a reminder to myself to be always open to new ideas – personally, I’ve been somewhat of a skeptic on the clean-tech trends, and if Mr. Khosla is such a firm believer in it (he is certainly putting his money where his mouth is), I should probably re-examine my own thoughts and beliefs.


Apple’s major releases today

There’s an Apple event today, and as expected all the major tech blogs have been flooded with coverage from the iPod-only event. I skimmed through the coverage on Techcrunch, Engadget, VentureBeat, Silicon Alley Insider, TUAW etc. The gist of the announcements are these:

Hardware side:

  • New iPod Touches. Pretty expensive at $399 for the 64GB ones. Besides the memory bump, the CPU has also been upgraded to the one used in the iPhone 3GS, which should make this a serious gaming / networking device (Apple made comparisons with the PSP and NDS). The letdown, at least from the tech press perspective, is that the new iTouch doesn’t have a camera. Rumors are flying this is because of a engineering issue, not because of a conscious design choice.
  • New Nanos, with a video camera and FM radio (besides other new features), making this a general purpose portable entertainment device. This is probably the biggest hardware release of the day.
  • New Shuffles. More colors, cheaper.
  • New iPod Classics. Improved storage, same price. This is really more of an afterthought.

Software side:

  • iPhone / Touch OS 3.1. I’ve done my upgrading already. Wondering if it breaks tethering on AT&T, as rumored.
  • iTunes 9, with some new features. Perhaps the most important one for iPhone users is the ability to manage / organize apps on iTunes instead of on the phone (so less dragging apps across screens)

For the details on any of those bullets, just head over to any major tech blog or Apple’s own webpage.

Some thoughts:

The iPod lineup is certainly diversifying and evolving from just music to all entertainment. Apple has been marketing the gaming abilities of the Touch; now the Nano seems to be aiming at Flip’s niche. But really, at this point, the gamers / amateur video directors who will switch to the Apple camp from PSP / NDS and Flip respectively are the casual players. The iPhone and iTouch are great for games, but for a different breed of games – the gaming experience is drastically different (just think of the Wii vs. the Xbox 360 / PS3). It almost feels like that Apple has too many opportunities to explore right now, and needs to make some conscious choices about what to pursue and what not to pursue.

Take gaming as an example. Positioning itself as a serious player in the space is very different compared to a hardware maker which also supports some games. If Apple is actively and seriously considering this space, it needs to be courting developers, and possibly peripheral makers (or consider some hardware functionality add-ons itself, like an external game-pad) – as opposed to just acting as the gate-keeper for apps.

And for the new Nano, if it does turn out to be a major competitor to the Flip, and Apple does care about taking a stake in that niche market, then Apple will have to make customizations and modifications of future models that put much more focus on the video-making aspects of the device.

I guess what I’ve been trying to say, and perhaps repeating myself here, is that I’m a firm believer that any device should have a focused purpose (despite the convergence trend). It’s fine for the PS3 / Xbox 360 to be able to support Netflix, web-browsing etc., but at the end of the day, the device’s main purpose is to play games. In the case of Apple, the iPod line-up is now converging with several other markets (portable gaming / video-making). Apple can either continue its current path of including these extra functionality as additional value propositions, or really start diversifying and entering these separate categories. This is a big strategic choice, and it’s perfectly fine to remain focused on music as the core proposition. Personally I think it would be a challenge to be competing in so many different markets where Apple has little experience. Regardless, it would be very interesting to observe how this develops.


Kai-Fu Lee’s high profile new venture: Innovation Works

Following up on the previous post, I wanted to briefly comment on Kai-Fu Lee’s new venture. As has been covered in detail by VentureBeat (article here), former Google China head Kai-Fu Lee’s new venture will be a China focused technology-related startup incubator named Innovation Works. Lee has raised a round of funding (RMB 800 million, or roughly $115 million) from investors such as Legend Group (Lenovo’s parent), Foxconn, W Harper Group, New Oriental Education founder Yu Minhong, and Youtube co-founder Steve Chen.

What I wanted to note, and as has been reported by Chinese media such as Caijing (link in Chinese), is how high profile this new venture is. Besides talking to dozens of domestic and international media since last week (Caijing’s article notes that he has been doing media interviews since 6am this past Saturday), Lee will also hold a press conference on Monday. I would think it quite unusual for a new venture to be receiving such media fanfare, but it “makes sense” in two ways:

  • Firstly, Lee’s celebrity status in China. Lee is very much a public figure in China these days, and he seems to enjoy being in the limelight, so seeking such media coverage is not unusual for him (as noted in the previous post, hosting his blog on Sina’s celebrity blog also confirms this)
  • Secondly, it is somewhat of a recent Chinese tradition for high-profile entrepreneur’s to do massive publicity stunts. Any history of the various boom and bust Chinese entrepreneurs since the market reform of 1978 would confirm this – just think of the health supplement manufacturers of the 90s, who all made various ambitious claims that captured the imagination of a young market economy, rose from rags to riches practically overnight, and then almost all dissolved as abruptly as they had emerged. I’m not saying that Lee will do something similar – it’s just his PR agenda appears to be imbued with truly Chinese marketing characteristics. I hope he will be as focused on his venture as he is towards media.

Kai-Fu Lee Responds to Chinese Media and Web Speculation

One of the biggest pieces of tech news last week was Kai-Fu Lee resigning as the head of Google China. News broke around September 4th (see WSJ article here). Kai-Fu Lee posted a goodbye letter in Chinese on his Sina blog.

The Chinese media & web being the way it is, there has certainly been no shortage of rumors spreading like wild-fire. Proof: Kai-Fu Lee felt obliged to respond to certain rumors, on a new post on his Sina blog (link in Chinese).

Titled “Clarifications on some misunderstandings of the media” (my translation), Lee addresses several specific rumors:

  • His resignation was a fallout from the Chinese government’s severe crackdown on Google China earlier this year (short recap: Google China was labeled as porn friendly by the national television and suffered regulatory punishments). Lee claims that he has met with officials of 3 government ministries in July, where they have acknowledged Google China’s efforts to comply with the Chinese government’s regulations. Lee also posted a (translated) excerpt of a letter from Eric Schmidt, where Schmidt praises the China team for handling the situation well. And Lee further says his resignation was delayed by 2 months as a result of handling this affair.
  • Media speculation around whether he will fully devote himself to his new startup (some media columns seemed to be skeptical of Lee’s stated next venture). To be frank I found it a bit funny for Lee to actually address this – unlike the previous point, which was a natural source of rumors, any discussion around whether someone can be a good entrepreneur or not is just pure gossip. Anyway, Lee says a few things why he’s best fit for his new venture, and also claims that he has been working 20 hours a day for the last week, just to show that he still works very hard (again, a very odd issue to publicly address).
  • Lee also briefly refutes some other speculations, to list a few: tax evasion rumors; Google is considering exiting China; he quit Google because Mountainview doesn’t give him real powers and authority.

My brief two cents:

  • Lee must have been suffering a lot of personal pressure to actually respond to media speculation. This in part has to do with his semi-celebrity status in China, due to both the tremendous career success he has had (as former head of Microsoft Research Asia and Google China) and the very public figure that he maintains (he often talks publicly at universities – I’ve attended one of his “youth mentoring” sessions at my alma mater back in the day).
  • Google China is still at a crossroads. While recent products, especially Google Music (which is a great great product to download music legally btw – the catalog is pretty amazing – though it’s limited to China), has certainly enjoyed some success, Google has only established a beachhead in China. Search market share still trails Baidu by a lot (think Yahoo vs. Google US share). A lot of products still needs refining – Google Ditu (local version of Maps) is subpar in terms of search quality compared to Baidu Map, and the GPS positioning on the iPhone in China is off by about two blocks, to give a few examples. And of course the regulatory environment just makes operating in China a big headache and very risky – as an example, almost all Chinese twitter clones were killed overnight recently (due to tightened control after the Xinjiang riots since July), without any official explanation.
  • As a casual side observation, the fact that Lee hosts a blog on Sina is noteworthy. Sina’s blog platform is noted for “celebrity blogs”, where big real life celebrities host their blogs (one top celebrity, Han Han, has ~20k-50k pageviews and ~3,000 comments for each of his posts). Hosting his blog on Sina is an acknowledgement of how the Chinese web operates (the big 3 portals have immense influence, and Blogspot frequently gets blocked by the GFW). It could also be a sign of friendship since one of Google China’s biggest search deals is to power Sina’s entire website.

Why the Palm Pre has been subpar

As the inaugural post for this blog, I wanted to summarize some thoughts on why the Palm Pre has not lived up to the hype. There has been recent discussions how the Pre is far from meeting Sprint’s sales targets; earlier back there were also some talks of Palm cutting back on production. This is of course in sharp contrast to the fanfare we’re used to of recent iPhone launches (long lines, stock outs etc. – from personal experience, I had to trade up to the 32GB version of the 3GS as the 16GB were out of stock at the local AT&T).

So what went wrong for a product that, if you recall, had pretty impressive hype just a few months back? Below are my two cents.

  • Poor marketing execution. This is obviously the easiest target of all, since everyone has been talking about these ads that makes no sense (see Fake Steve Jobs’ ranting analysis here). Like Fake Steve says, these ads show that Palm and Sprint seem to be confused about who their target consumer is (female smartphone users? That’s a tiny market), and the execution itself is creepily effective at driving negative PR.
  • Lost PR momentum. Somewhat related to the previous point. The Pre was announced at the CES 2009 in January, and was definitely the hit product of the show. (I remember at the time being very hyped about the phone, and wanting to buy one immediately. The phone and its UI just looked very sexy.) However, as time passed, people’s interest gradually waned – the smartphone industry is extremely competitive with lots of players vying for consumer eyeballs, and Palm is not Apple, with a loyal base of media support (e.g. TUAW). With the benefit of hindsight, perhaps it would have been better if Palm kept Pre under wraps until very close to the launch date (of course there will be info leaks, but that would just help fuel the PR). And certainly it didn’t help that Apple announcing the iPhone 3GS two days after Pre launched in the US.
  • iPhone’s first mover advantage. Namely, installed user-base and scaled up App Store. This is actually a huge advantage for Apple, and appears to indicate a winner-takes-all end-game – the more users, the more developers, and therefore more quality apps, which in turn attracts more users. The primary and only reason that I again bought an iPhone upon arriving in the States (and bearing with AT&T) is the App Store. This is the equivalent of the Windows eco-system on PCs. Competing OSes just lack the richness of the applications available, and for a computing device, it is all about the apps.
  • But most fundamentally, unclear target consumer and value proposition. The Pre’s most innovative feature is the webOS, which supports concurrent applications – a key feature that the iPhone has not yet opened to 3rd party developers. However, the only people who would seriously care about this feature are smartphone power users – i.e. the millions of iPhone users – who can appreciate its benefits. But to convince iPhone users to switch, the Pre is lacking one major dimension: the App Store. There is no point in being able to run multiple apps if there are no apps. So in effect, the Pre’s most talked-about feature was a no-feature.

So what are the things that Palm could do to alleviate the situation?

  • Build up the developer eco-system. It’s cliched, but it has to be done. Palm needs to have quality apps on its phones. This is an uphill battle, but one which must be fought nonetheless. One thing that Palm can do to attract developers is to have an open platform for developers to publish their work (as opposed to Apple’s draconian control on apps).
  • Re-think its marketing strategy. And not just in terms of marketing communication – the entire marketing strategy, i.e. which geographic markets and which consumer segments. We should remember that the US is not the only mobile market in the world (Nokia, which has almost no share in the US market, is still the global leader in every mobile category, including smartphones). It’s probably an wild idea, but if Palm can focus on certain markets where the iPhone has not had such an impact, it could build up some user-base scale. (Again, while Nokia is heavily entrenched in most global markets, their smartphone eco-system – or the lack thereof – leaves plenty of space for newcomers to attack. In such markets as China, it’s more about the hardware and the UI, rather than the apps, and the Pre would probably fare better?)

It’s certainly not going to be a smooth revival at Palm. But they do have a quality product, they just need to realize who to sell it to.