Business models Reengineering in China

Innovation & Business Models
Re-Engineering in China

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Benjamin Joffe | CEO, Plus Eight Star Ltd.
Startup2Startup| Beijing, 2010.05

Benjamin Joffe I’m not Chinese.
I’m not even Asian…

4 years 1 year 5 years
(Japan) (Korea) (China)

…but I have been researching digital innovation in
Asia for 10 years and built a company doing just that.

Those are some of the things +8* has
been working on for some time.

What I do Now
• CEO, Plus Eight Star | www.plus8star.com
• Digital Strategy & “Innovation Arbitrage”
• Best practices from Asia’s web and mobile

• Partner, Cmune | www.cmune.com
• World’s First FPS game on social networks
• Facebook, MySpace and Apple.com

• Founder | Mobile Monday Beijing
• Monthly forum for mobile professionals
• 35 events, 120 speakers, 3,000 participants

• Angel Investor, Advisor, Speaker
• Asian startups with global ambitions
• 50+ events, 13 Countries

Why it’s hard to understand
how China innovates
And why talking about
“Copy-to-China” only
does not help…

Our Challenges

• We are old Those challenges are
mine too.
• We are not local

• We are not users

• We have (lots of) cultural stereotypes

• Things have been pretty good this way so far

General assumption #1

Everything from USA is great

General assumption #2

Everything from Asia is weird
(and sometimes funny)

2000

2001

2002

2003 Japanese like texting on mobile
2004

2005 Because they have small fingers

2006

2007

2008

2009

2000

2001

2002

2003
Asians like avatars
2004
Because they watch animations
2005

2006

2007

2008

2009

2000

2001

2002

2003
Chinese like ring-back tones
2004

2005 Because they go to karaoke a lot

2006

2007

2008

2009

2000 (The fun never ends)
2001

2002

2003
Chinese like Farm games
2004

2005

2006 Because of their agricultural history
2007

2008

2009

PHOTO: MOBILE PHONE, BEIJING, APRIL 2010
© Benjamin Joffe / Plus Eight Star Ltd.

Dual SIM, Music
Player, Photo…

…and some unclear
Windows-like icon


But did you notice that?


This is a “FarmVille” button

There is a link to
check your QQ Farm


QQ Farm (or similar)

You don’t get that much
on your phone but still…

Highlighting the world’s
rich farming history

Quiz
Who Created the First Farming Game?

• Game MAU Dev. Country
• FarmVille 61.6M Zynga USA
• Farm Town 18.6M Slashkey USA
• Country Story 8.1M Playfish UK
• Barn Buddy 6.8M TheBroth USA
• Happy Farm 2.5M 5 Minutes China
• Happy Harvest .6M Elex China

Source: Appdata and Facebook, 2009.10.26

Answer: “It’s Complicated”

1. Five Minutes (China)

2. Slashkey (US) “culturized” it

3. Zynga (US) copied Slashkey

4. Playfish (UK), Elex (China), followed
If you have other sources let me know!
benjamin@plus8star.com

The Mother of all Farming Games?
or “where is the innovation?”

• Harvest Moon (1996)
– On Super NES, by Victor Interactive
– Inspired Happy Farm

• Sim Farm (1993)
– On PC, by Maxis

• Where is the innovation?
– Not in the game concept, but in
viral & social mechanics

Innovation Models in China

• Innovation Model: 5C’s of Innovation

• Simplification hurts

• Innovating in and from China

The First Part

5C’s of Innovation™

We are strategists – we can’t
help creating acronyms!

5Cs of Innovation™

1. Copy
2. Competition
3. Constraints
4. Combination
5. Context

1. Copy

Entry barriers Many web
businesses have
low tech and
capital
Technology? requirements
Capital?
Talent?
Intellectual Property?
Censorship?

1. Copy

Entry barriers

Technology?
Capital?
Talent?
Intellectual Property?
Censorship?
IP issues and Censorship are issues that
all companies have to face, so at least it’s
more or less on par… (though not ideal)

2. Combination

Will it blend?

IM + Avatars +
Games +
Payment via
mobile or
scratch cards…

Tencent
(US$1.8bln)

2. Combination

Will it blend?

We published a detailed
report about this company.
Check www.plus8star.com

Tencent
(US$1.8bln)

3. Competition

What happens with
Lack of
competition make 4 Facebook
companies slow at
innovating… 4 YouTube
5 Match.com
3 Yahoo
4 Twitter

?

3. Competition

What happens with

4 Facebook
4 YouTube
5 Match.com
3 Yahoo This is not a
4 Twitter problem China has…
(in many cases)

?

Artists set 4. Constraints
themselves
constraints to be
more creative.
Low GDP/capita

Limited advertising

No credit cards

No legacy industry

4. Constraints

Low GDP/capita

Limited advertising

No credit cards
Why not
entrepreneurs?
No legacy industry

Large scale, or very high urban 5. Context
concentration can help

Scale / Geography / Demography
make some services viable

5. Context

Scale / Geography / Demography
make some services viable

So can a younger Internet base

After spending
The missing C’s more time in
Silicon Valley we
added a few “C’s”
to highlight what
was missing in the
startup ecosystem
1. Copy in China
2. Competition
3. Constraints
4. Combination
5. Context
5. Collaboration
6. Culture
7. Comedy

The missing C’s

1. Copy
2. Competition
3. Constraints
4. Combination
5. Context
Culture stands for “ability to 5. Collaboration
tune to other cultures” (the
US is not that great at it, BTW) 6. Culture
Comedy is about creating
emotional connections
7. Comedy

Business Models Re-Engineering

The second part

Box vs. Online Games

• Box games
– Traditional retail model
– Virtual goods in US: 1 billion in 2009

• Online games
– Copy-proof
– Virtual goods in China: 5 billion in 2009

Taobao vs. eBay
This is how Taobao,
entering the market in
2003, overtook eBay
• eBay who was #1 in China
– Commissions
– Don’t want buyer-seller direct communication

• Taobao
– Free listing
– IM welcome
– BUT no crawling by search engines

Tencent vs. AIM / Facebook

• Facebook
– Advertising model
– Social graph / Social web

• Tencent This is showing the
– Virtual goods fundamental difference in
business models between
– Closed system Facebook and Tencent

Zhenai.com vs. Match.com

Most Match.com
copycats in China don’t
make much money.
• Match.com Zhenai does!
– Advertising
– Subscriptions with self-service

• Zhenai.com
– Value-added subscription: Matchmaking Manager
– 300+ people in call center to help your dating!
– 3,000 rmb (450 USD) for 6 months

China’s Tech Stocks

This is a side note but
might interest you. The
list is not exhaustive.

Market Caps Quiz
• Tencent 33.4 bln USD
– Time-Warner 33.9 bln USD

• China Mobile 188.4 bln USD
– AT&T 144.36 bln USD

• Alibaba.com (~20% of Group?) 9.2 bln USD (x5?)
– eBay 27.9 bln USD

• Netease 3.87 bln USD
• Shanda 1.64 bln USD
– Activision Blizzard (WoW, CoD, GH) 12.75 bln USD
– Electronic Arts 5.32 bln USD

Quick word on Yahoo
• Yahoo’s market cap 21.5 bln USD

• China
– “Alibaba.com would represent about 20% of the Group value”
(David Wei, CEO, Alibaba Group)
– Total group value = 40+ billion USD?
– Yahoo’s share = 16 bln USD?

• Japan
– Yahoo owns 34.79% of Yahoo Japan, JV with Softbank
– Yahoo Japan market cap = 19.8 bln USD
– Yahoo’s share = 6.85 bln USD

• Total Asian assets >22 bln USD?

Ask your usual vendor for financial advice.

China’s Internationalization

You did not expect
Chinese champions to
just sit there, did you?

Chinese Companies Going Abroad
• Mobile companies
– Yicha (mobile search) | Japan
– NetQin (mobile antivirus) | Russia, etc.

• Software companies
– Antivirus | Japan
– Office suite | Japan

Things change and
China’s Assets are case-by-case but
as a macro view in IT,
this is my opinion.
• Skilled IT workforce

• Expertise in several IT sectors
– Gaming, virtual goods, scalability, etc.

• Good execution

• Lower cost (fraction of US for a social game)

China’s Hurdles: Soft Skills
Building

• Fundamental vs.
Incremental Innovation

• Design Companies
(especially foreign
• Product/Project ones) train many
Management staff in this, though.

• Quality

China’s Hurdles: Soft Skills
Building Selling

• Fundamental vs. • Culture
Incremental Innovation

• Design • PR
“Designed by XXX
• Shenzhen”, for
in
Product/Project • Country “brand”
Management
instance, is not
fashionable yet • Partnerships
• Quality

Thanks for your
Thanks!
attention!

More about “Innovation Arbitrage”

www.plus8star.com

benjamin@plus8star.com
+81 | Japan

benjamin0123 +82 | Korea

+86 | China
http://twitter.com/benjaminjoffe
Telecom & Internet

www.linkedin.com/in/benjaminjoffe + Added Value

* High quality
www.slideshare.net/plus8star

About +8*
This is more detail about +8*
• Innovation Arbitrage
– “Bringing proven best practices and business models from Asia”
– +8* (Plus Eight Star) is the leading cross-market consultancy on mobile, telecom and Internet
in China, Japan and Korea.
– We work with large companies, SMEs, investment firms and governments worldwide to bring
them strategic advice and the best practices from advanced Asian markets.

• Our expertise
– Internet: our work covers
social media, communities,
ecommerce, online gaming
and virtual worlds.
– Telecom: we have extensive
experience with mobile and
telecom services (e.g. mobile
marketing and advertising,
mobile commerce, mobile TV
and mobile communities).

There are more ideas
outside of your country
than inside.
Tom Kelley
Author, The Art of
Mobile & Internet Innovation © Copyright 2010. All rights reserved. www.plus8star.com
Innovation Arbitrage 55 | 9

Our Clients

EUROPE
USA

We work with large and small
organizations around the world

ASIA

Most of our
projects are
custom-made

Mobile & Internet © Copyright 2010. All rights reserved. www.plus8star.com

Selected References

• Adidas | E-commerce and mobile commerce market analysis and strategic
recommendations for China, Japan & Korea

• Bouygues Telecom | Cases studies of leading Asian Web 2.0 services and virtual
worlds

• Deutsche Telekom / T-Online | Benchmark of Korean mobile & Internet
convergence strategies

• EU-China Information Society | Research on e-commerce and virtual worlds to
support the regulatory dialogue between the EU and Chinese authorities

• Microsoft | Analysis of Japan’s key players and market catalysts for mobile
commerce market positioning in China

• DeNA | Benchmark of leading SNS in China and South Korea (DeNA operates
Japan’s leading mobile social network)

• China Mobile | Benchmark of Korean leading online communities

• Sands Capital Management | Evaluation of investment opportunities in social
networks in China

• MIH / NASPERS | Analysis of leading online verticals in China (MIH is the largest
shareholder in Tencent, China’s leading online community)

• IMVU | Benchmark of monetization and engagement best practices in Asian virtual
worlds & SNS (IMVU is a leading US-based 3D virtual world & chat)


Customer Testimonial | IMVU Inc. A Silicon Valley
reference for
TC readers 
COMPANY: IMVU Inc.
Lee Clancy, VP Product Management & GM of Direct Revenue
August 2009

Q Has the service performed by +8* met your expectations?
A The consulting services provided by +8* met IMVU's expectations. Benjamin and his team showed a deep
understanding of major Asian virtual worlds and gaming companies, as well as their potential implications
for IMVU. In our communications with them, they were very responsive to our follow-up questions and
completed their final deliverables on-time.

Q How have you used or plan to use this research within your company?
A Only a few weeks after +8* delivered their findings to IMVU, we had already identified and roadmapped
various product enhancements that were a direct result of our learnings from the +8* study. What is more,
we have since launched pilot versions of those new features that have received extremely positive feedback
from IMVU users (e.g., "My Pets" mode). Additionally, +8*'s comprehensive report is an invaluable
reference that I consult often when considering new product enhancements.

Q What decided you to hire +8* for this project?
A We chose to hire +8* for this project because 1) they had a strong professional track record, which we
confirmed with representatives from several blue chip clients of theirs prior to the study; and 2) we felt that
their area of expertise and past studies were strongly aligned with our research needs.


Speaking Engagements Our presentations are
based on our research…
• Regular keynote speaker & moderator in IT,
Media & Investment events.
• Engagements in 2008/09/10
• Echelon 2010 (Singapore , Upcoming) • Infinity Ventures Summit (Sapporo, Japan)
• CHINICT (Beijing, Upcoming) • LeMobile 2.0 (Paris)
• Global Mobile Internet Conf. (Beijing , Upcoming) • Asia Venture Capital Forum (Hong Kong)
• Startup2Startup (Beijing, Upcoming) • Graphing Social Patterns (Washington, D.C.)
• Ignite Shanghai (Shanghai, Upcoming) • iGaming Asia (Macau)
• Virtual Goods Forum (London, Upcoming) • Unite Conference (San Francisco)
• Dell Online Summit (Beijing) • China Mobility International Summit (Beijing)
• Microsoft Entrepreneurship Lecture Series (Beijing) • 3G Summit (Kunshan, China)
• Mobile Social Networking Asia (Hong Kong) •
…but generally only
Red Herring Asia (Hong Kong)
• Stanford University (Entrepreneurship) • China Internet Forum (Beijing)
• Berkeley University (MBA) • Media’08 (Sydney)
• SXSW Interactive (Austin) •
scratch the surface
China Internet Forum (Beijing)
• PICNIC (Amsterdam) • Wireless Developer Forum (Beijing)
• Virtual Goods Summit (San Francisco) • Open Web Asia (Seoul)
• Inside Social Apps (San Francisco) • XMediaLab: Virtual Worlds (Seoul)
• eComm 2010 (San Francisco) • Mobile Monday Global Summit (Helsinki)
• eComm 2009 (San Francisco) • Mobile Monday Global Summit (Kuala Lumpur)
• Ad:Tech (Beijing) • EU-China Virtual Worlds Conference (Beijing)
• Ad:Tech (Shanghai) • EU-China eCommerce Regulatory Workshop (Beijing)
• Ignite (Amsterdam) • Startonomics (Beijing)
• Ignite (Beijing) • UnConference (Singapore)
• Ignite (Paris) • BarCamp (Shanghai)
• Mobile Asia Congress (Hong Kong) • La Cantine (Paris)
• Lift Asia (Jeju, Korea) • Mobile Focus (Stockholm)
• ITU Asia (Bangkok) More information at www.plus8star.com/presentations/

Media Coverage Various media that quoted
our work or views…
• Media Coverage
– Our research and views have been quoted by numerous media outlets on topics ranging
from Telecom and E-Commerce to Social Networks, Gaming and Virtual Goods.

– Selected media: Forbes, The Economist, The New York Times, International Herald Tribune,
The Guardian, Advertising Age, VentureBeat, TechCrunch, ReadWriteWeb, Gamasutra, etc.

More information at www.plus8star.com/press/

Event Organizer & Advisor We also help the
community 
• Founder & Organizer: Mobile Monday Beijing

– Mobile Monday is the leading network of mobile industry
professionals, counting over 50 chapters around the world.
– We founded the Beijing chapter of in 2006 to support the ecosystem.
– Results: 35 events, 125 speakers, 3,000+ participants (avg.100).

• Co-Organizer

– Startup2Startup (Beijing, May 2010)

– Geeks on a Plane (Beijing, May 2010)

– Startonomics (Beijing, May 2009)

– Startup2Startup (Beijing, May 2009)

– Open Web Asia (Seoul, October 2008)

• Advisor

– TEDxBeijing (November 2009)


Contact
To get in touch
• Benjamin Joffe, Founder & CEO
– 10 years experience with Telecom & Internet in Asia.
– “China’s Top 100 mobile industry influencers” in 2007 & 2008.
– Senior Expert for the EU Delegation to China.
– Regular speaker at events on mobile and Internet in Asia.
– Fluent in English, Japanese, French with working knowledge
of Mandarin, Korean and Spanish.
+81 | Japan
• Contacts
– benjamin@plus8star.com +82 | Korea
– benjamin0123
+86 | China
– http://twitter.com/plus8star
– www.linkedin.com/in/benjaminjoffe Telecom & Internet
– www.slideshare.net/plus8star
+ Added Value

* High quality
Beijing Office (HQ) Tokyo Office
Sanlitun SOHO A-710 Flat Hagiwara 2D
Chaoyang District Setagaya-ku 6-36-8
100027 Beijing, P.R. China Tokyo, Japan Zaijian!
Tel: +86 (0)10 8447 7985 info@plus8star.com


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