Lessons from Asia for Tech Sector

							Lessons Learned from Asia

How Beijing, Tokyo and Seoul are relevant to L.A.
Benjamin Joffe, CEO | Plus Eight Star | Santa Monica, 2009.07

Here is the plan
0. 1. 2. 3. 4. 5. Introduction How Asia can innovate China | 5Cs of Innovation Japan | Mobile Galapagos Korea | Ultra-broadband laboratory Closing & Questions

0.
Introduction

Benjamin Joffe ベンジャミン

벤자민
本杰明

4 years
1 year 4 years

www.plus8star.com

Innovation Arbitrage
China | Japan | Korea

What we do
– Worked with mobile SNS in Japan in 2003
• With avatars, virtual goods and GPS!

– Advise leading companies worldwide
• Microsoft, Adidas (E-commerce / Digital strategy) • IMVU (US | 3D chat / Virtual World) • MIH (China/S.Africa | Largest shareholder of Tencent)

– First commercial report on Tencent “Inside QQ”

– Partner of 3D social gaming startup Cmune
– Co-Founded Mobile Monday in Beijing

Our clients
EUROPE USA

ASIA

1
How Asia can innovate

Claim #1

The biggest barriers to understanding are our assumptions

General assumption #1
Everything from USA is

great

General assumption #2
Everything from Asia is

weird

(and sometimes funny)

Two examples

Movie 1

Magnificent Seven (1960)

Seven Samurai (1954)

Movie 2

The Matrix (1999)

Ghost in the Shell (1989/1995)

Using best scripts & Talent
• Adapted from Asian movies
– Fistful of Dollars – Star Wars – The Ring – Shall We Dance? – My Sassy Girl – The Departed Yojimbo Hidden Fortress (id.) (id.) (id.) Internal Affairs

• Asian movies succeeding “as is”
– Kungfu movies, Crouching Tiger, Hidden Dragon…

Old Boy – Made in Hollywood

Directed by Steven Spielberg Starring Will Smith In theaters in 2010

Who came first?

Leveraging best practices

Claim #2
Innovation is a consequence of

Talent Market size Infrastructure Investment

Internet 1.3 billion

Mobile 3.3 billion

Source: Morgan Stanley, 2007

Digital Population

Country Population Internet users Mobile users

USA 300 mln 225 mln 260 mln

China 1,300 mln 340 mln 650 mln

Japan 130 mln 100 mln 100 mln

Korea 50 mln 35 mln 45 mln

IT Infrastructure
100% 80% 60% 40%
C hi n a Avg. 4 Mbps
www.plus8star.com

Avg. 7 Mbps

Avg. 15 Mbps

3G users

20%
0% 0%

20%

40%

60%

80%

% of Internet connections measured above 5Mbps (Source: Akamai, 4Q08)

Alexa Quiz
#1 #2 #3 #4 #5 #6 #7 #8 #9 #10 USA Google Yahoo Facebook YouTube MySpace MSN Live Wikipedia Craigslist eBay China Japan Korea

?

Alexa Quiz
#1 #2 #3 #4 #5 #6 #7 #8 #9 #10 USA Google Yahoo Facebook YouTube MySpace MSN Live Wikipedia Craigslist eBay China Japan Baidu Yahoo JP / SB Tencent FC2 Sina Google JP Google China YouTube Taobao Rakuten Netease Livedoor Google Ameblo Sohu Mixi Youku Wikipedia Yahoo Goo Korea Naver Yahoo Daum YouTube Google Cyworld Nate Google KR Live Facebook

Alexa Quiz
#11 #12 #13 #14 #15 #16 #17 #18 #19 #20 USA AOL Blogger Amazon Go CNN Twitter Microsoft Flickr ESPN Photobucket China Soso Ku6 Kaixin001 Mop Live PCOnline 56.com Yahoo CN Sogou Tom Online Japan Korea Google (error) MSN Tistory Nicovideo JoongAn Ilbo Amazon JP Chosun Ilbo 2 Channel MSN Nifty Gmarket Yourfilehost Paran Biglobe Auction Geocities JP Blogger Infoseek JP Friendster

Claim #2
Innovation is beyond technology (it’s about services ^_^)

Technology?

e.g. LAMP stack
(Linux / Apache / MySQL / PHP) + HTML / Flash / AJAX…

Largely commoditized…

2
China

Claim #3

China is innovating more and more because of five key factors

5Cs of Innovation™

a. Copy

“Benchmarking” “Inspiration” “Best practice”
“If I have seen farther it is only by standing on the shoulders of Giants.”

(Isaac Newton)

Pragmatic Entrepreneurs & Investors

Innovation ROI? “Blue oceans”

Entry barriers
Technology? Capital? Talent? Intellectual Property? Censorship?

The Underpants Gnomes

Business Plan

Copy can backfire!

Japan: Mayonnaise

China: Whipped Cream

Copycats often die

• Market not sustainable • Business model does not work

b. “China”

Scale / Geography / Demography make some services viable

Already in 2007
(We even published a report…)

...$1 billion do not appear overnight

Attention Threshold = 1 billion dollars?

Market Capitalization
(June 2009)

3-15 bln?

21 bln
REAL MARKET CAP

Maybe simply not looking?

c. Combination

Will it blend?

Tencent (1998)

d. Competition

“Survival of the fittest”

(Herbert Spencer)

What happens when you have 4 Facebook 20 YouTube 10 MySpace 5 Match.com 3 Yahoo 4 Twitter

?

Hard spots
“Concepts”
Sociology Psychology

“Execution”
Marketing Business models Payment

e. Constraints

“Necessity is the mother of invention” (Plato)

Low GDP/capita
Small transactions / making millions from cents

Limited advertising
Alternative business models / B2B to B2C

No credit cards
Alternative payment systems, mobile, virtual currencies

No legacy industry
(is it a constraint?)

Leading Companies
mln USD
www.plus8star.com

Mobile content

Web Portal

IM

Portal + Games

Online games

Search engine

Online games

Only B2B e-commerce part

Gaming Profits in China
80% 70% 60% 50% 40% 30% 20% 10% 0% 0 100 200 300 400
www.plus8star.com

500

600

Note: Net Profit and Profit Margin for Tencent game and NetEase are the ones of the whole company.

Battlefield by Electronic Arts

Quote from EA???
When we started two years ago, there was a real question mark: Can the freeto-play model work as it did in Asia? The answer is an emphatic yes.

Ben Cousins General manager Battlefield Heroes team Electronic Arts

More innovation

Lihua | Order food over IM

Alimama | Ad exchange + Micro-retail

Babytree | Vertical for young parents

Huica | Mobile coupons

PPLive | P2P Internet TV

Hozom | Address book + SNS

iNezha | RSS-to-IM

Qifang | P2P Micro-lending

Digu | Twitter + Pics + Celebs

Lakoo | Appstore for non-iPhones

2
Japan

Claim #4

Japan is the world’s most advanced mobile market AND Too isolated for its own good

Most advanced
• Over 90% 3G users • Over 50% mobile TV • Over 50% NFC • Micro-payment since 1999 • “App store” since 2001 • Mobile music, mobile advertising, mobile commerce all ahead…

Mobile Market
• Mobile content | 4.3 billion USD in FY07
• Mobile commerce | 7.3 billion USD • ARPU
– Content = 40 USD/year – Commerce = 70 USD/user/year

Before & After 3G
2004 2007 1,140

1,200
1,000 800

1,186 1,091 862

Million USD

600 400 200 0

568 419 204 0 225 185 108 229231

500

Galapagos Syndrome

• No foreign mobile is strong in Japan • Too complex to survive abroad?

Some examples that work

“Social Networking Is Not a Business”
MIT Technology Review July/August 2008

And more (April 2009)

Mobile Social Networks?

Social Networks

Company Reg. users Usage Revenue 2008 Profit margin From users Market capitalization

Mixi 15 mln 2/3 mobile $120 mln 31% 5% $500 mln

DeNA 14 mln 100% mobile $320 mln 40% 80% $1.4 bln

GREE 8 mln 100% mobile $60 mln 63% 75% $1.2 bln

Mobile Game Town

Revenue Breakdown

Japan Game Market

[1 billion JPY = 10 million USD]

More successes

Golf Digest Online
• What is it?
– Golf online vertical

• Numbers
– 1.37M registered users – 128M USD, 6.9M USD profit, Listed

• Business models
– Ads, e-commerce (booking, products), subscriptions

Cookpad
• What is it?
– Cooking focused vertical

• Numbers
– 6.67 M USD rev., 1.76M profit – Profitable, IPO

• Business models
– Ads, subscriptions, lead generation

So-Net M3
• What is it?
– “Medecine” “Media” “Metamorphosis” – “Social network for doctors” / Vertical site on medical products

• Numbers
– 177,000 doctors – 85 M USD rev., 24 M net profit, Listed

• Business models
– Advertising, subscriptions, surveys, jobs

Various Virtual Worlds
• Services
– Nicotto Town (250K) – Ameba Pigg (350K)

• Content & business models
– 2D – Virtual items – Avatars and spaces

3
Korea

Claim #5

Korea is a window into the future of broadband AND Foreign companies leverage Korea’s ideas better

Online Games
• 1 billion USD market
– Larger than Japan with 1/3 population and 1/2 its GDP/capita – 1/3 of China’s

• Pioneer of
– Online gaming! – Virtual goods model
Kingdom of the Wind (Nexon, 1996)

Cyworld
• Real-name SNS • Beats FB and MySpace • Virtual goods
– Avatars – Page skins – BGM – Fonts!

• … since 1999!

Naver
• Google & Yahoo’s nemesis in Korea • Innovations
– “360 search” – Yahoo Answers – Since 2002!

• More
– Knowledge shopping, etc.

Alternative Media Models
• Citizen journalism | OhmyNews • Video Jockey “VJ” | Afreeca.tv • Online education | Megastudy

• Various smaller services with innovative concepts.

Contacts
www.plus8star.com benjamin@plus8star.com
+81 | Japan

benjamin0123 http://twitter.com/plus8star www.linkedin.com/in/benjaminjoffe www.slideshare.net/plus8star

+82 | Korea +86 | China Telecom & Internet + Added Value * High quality