It’s Not The Technology, It’s The End User

The technology industries are normally disregarded by outsiders as a world of geeks, something to be left up, at most, to the CIOs, please-mister-technology-don’t-bother-me-with-your-big-bang-theories type of thinking. This shows both a terrible short-sightedness in this type of outsiders for not understanding the implications of technology in their own businesses, as well as a discouraging disability by the true insider geeks in explaining those implications.

Embracing technology is crucial for disrupted businesses to remain relevant. But it’s the knowledge of the end user consumption habits that is key. Instead of keep trying to build protecting walls around their businesses, legacy industries need to understand this. OTTs already have a huge advantage over those legacy businesses, because they have cared about building up that knowledge. See for example the partnership of Facebook with Datalogix in the US, or the buying of Bluefin Labs by Twitter. All this has happened while the later industries have been too busy crying and claiming more protection from the Governments. Wake up, and embrace the possibilities that technology offers to you! Yes, it will be painful, with even more layoffs and salary decreases, but this is much better than full disappearance. This is not really new, but as technology becomes ever more powerful (big data, analytics, cloud, etc), and as legacy businesses realise that it’s not just a matter of hiply making their Marketing departments digital and Social Media enabled, it won’t be long until these businesses realise they are in the wrong track.

Music was the first legacy industry to be disrupted. And it was disrupted because it was the first one, it was taken by surprise by a supposedly not much relevant newcomer (Apple). Film and TV promised a good ground for disruption and new user experiences. But incumbents became ever watchful, and sticked to their barriers of entry. No wonder that TV has been targeted by so many new players (like Apple, Google). But success has been very relative, and it has come mainly from legal holes (or should I just say leaks in the barriers of entry? I have always marvelled at the capacity of laws not to protect the citizen, but the existing monopolies). Like Aereo in the East coast of the US, that is rapidly spreading to other states. But slowly, trends such as Cord Cutting, or Social TV, etc, all user-driven, are changing the game.

One of the most promising legacy industries to be transformed is Education. Not because of MOOCs (I don’t think these are specially disruptive per se). Or because of any other standalone technology. But because of a combination of technologies, from digital texts, to enterprise social networks, to apps technology, cloud computing, … you name it. The social digital projectbook is how the new generation of students will learn, it’s the future of the textbook. And this does not just make reference to the digitised book, this, just by itself, is really not much more than a way to reduce costs on the publishers’ side. The opportunities in the education market are tremendous and transformative. The way content is used is changing, with e-textbooks and new textbook-type apps leading the way. Interactive charts and graphs, embedded audio and visual media including video, and real-time sharing and live discussions are among the many new ways students will interact with each other, their instructors, and even with their textbooks’ authors. In the future, kids of all ages will expect the content to be live, updateable, interactive and …. social! Textbooks will be replaced by socially-driven projects.

The problem with disruption in Education is, again, the existing barriers of entry. Education is a monopoly of the Governments. Governments make business out of it. If disruption happens, it will come first from those countries that are more liberal in their education webs. For example, a country that encourages teachers to write some of the textbooks, or a country that allows for home-based schooling, like the US, will likely be much more successful than others, where the Government maintains a firm grip, like Spain. But at the end, even in the case of the US, disruption in Education will come from the adoption by the end user, and from the strength of the subsequent demand.

The lesson that I drive out of this is, now that technology will hardly take more overprotected businesses by surprise, the disruption will increasingly come from the end user side. Indeed, innovation is not driven anymore by the industry incumbents. But disruption will not come either just from the technology players (or not anymore). Disruption is driven by the end user, who has become fully wary of the capabilities that technology offers to him / her, of the breaches that technology is cracking in the businesses’ walls. So as long as legacy businesses continue to blame technology for all their harm, instead of their lack of understanding of the end user, they will do wrong.

Carlos.

Chinese Business Culture Part #1: The Role of Relationships In Making Business

I have spent five years working in a Chinese company. Not just ‘working there’, but really taking the time and effort to understand them, and to establish long lasting relationships. My supervisor and me periodically sat down for hours, while we talked about the differences between China and the West. And I believe that such a ground-field experience grants me some authority in writing and talking about how to deal with Chinese businesses.

Indeed lots have been written about how to do business in China. But very little I have found — if any — about how to make business with Chinese companies in a Western country, with a Western culture.

I recently stumbled on a blog post in Harvard business Review (HBR), one that was written in October 2011, so a bit more than a year ago, about one of the differences in business culture between Chinese and Western companies. As I was reading the post, it sounded to me as a very neat framework for understanding the way in that Chinese people do business.

The article suggests that there is a fundamental difference between Chinese and Western firms in how they approach their business partners. The article suggests that Western firms base their way on doing business with partners on a laws-based culture (antitrust, IP-related, …). Whereas Chinese companies depend on relationships. The difference is between a ‘law-based’ and a ‘relationship-based’ business culture. A ‘law-based’ business culture is seen as one where companies want to ‘cover their ass’ in case of issues between the partners. A ‘relationship-based’ business culture manages the potential issues by confronting them on a personal relations basis.

The article then goes on debating wether one approach is better than the other. And for this, the authors balance the cost of making transactions between business partners.

Chinese people and companies have restricted their businesses to a local practice until recently (my previous company started their Western overseas businesses in 2004), in a world with scarce long distance communications. And the management of their personal relations allowed them to perform well in those circumstances. The transaction cost was low, because the transaction was based on the pre-existence of a personal relationship, and on a limited set of parties to transact with.

I thought here of another article in HBR that I couldn’t retrieve. That article mentioned the case of a Western Harvard-raised executive that wanted to make a deal with a Chinese partner. That executive went to China for some days to make the business. He had to stay for several weeks, much to his exasperation, in fact because he had to build that personal relationship with the Chinese company. When he thought that the deal was almost closed, he flew back. Only to discover that the Chinese company signed with another Western competitor. The executive did not stay long enough in China, and he left when the relationship was not yet cemented, losing the deal.

This is one aspect of the Chinese way of doing business. But what was before a problem that Western companies had to face if they wanted to do business with Chinese partners, has also become an issue for Chinese companies in doing business overseas.

As communications have grown, Chinese people and firms have reached more and more other partners, both in other parts of the huge country that is China, and outside China. The Chinese government increasingly pushed their SOE’s (State Owned Enterprises) to make business overseas. This meant that companies had to build new relationships, and the cost to do that, increased. Not only that, the number of partners to potentially transact with, has grown exponentially.

According to a study by Olga Hawn of Duke University, cross border deals involving Chinese companies are almost twice as likely to break down (15% of the time) as deals involving companies from other BRICS countries (8%) and three times as likely as those involving Western multinationals (5%).

There are many reasons for those failures. But cultural misunderstanding certainly is a major one. Chinese companies start branches in Western countries, and accusations of lack of efficiency, miscommunication, or even bribery, pop up. This post of mine is a case for mutual understanding. For both Western and Chinese firms and employees to build successful relationships. Understanding cultural differences — instead of practising cultural colonialism on either side — is paramount for business success.

Regards,

Carlos.

The Importance of Tim Cook Meeting Xi Guohua

Apple CEO Tim Cook has recently met with China Mobile chairman Xi Guohua, in what constitutes Tim Cook’s second trip to the country in less than a year.

In a country that constitutes just over a third of Apple’s US revenues, this does show deserve strong attention. Certainly as Apple obtained this market share even with reaching only 30% mobile network distribution coverage. Asymco forecasts that China will outpace the US, and will become the largest market for Apple by 2016.

For this forecast to materialise, there are some specificities that Apple must manage in the Asian country, for iOS devices to really become much more than a toy for rich people.

First of all, comes the type of usage that is made out of iPhones. In Mar 2012, more than half of the 30 million iPhone users in China have unlocked their phones and were using them on an unauthorized network (China Mobile) that until recently limited them to 2G data speeds. That is both a hinder to the broad use of an iPhone, and a sign that things were not working as expected. This is why, reports mention China Mobile executives saying that iPhone subscriptions would likely come only after the company introduces 4G services, which the carrier hopes to begin operating in the second half.

Secondly, the iPhone is not really made for the texting and use needs of the Chinese people:

“Apple’s U.S.-centric R&D efforts have failed to produce a Chinese-friendly input system. This is a serious problem, because texting is an integral part of Chinese life. Rather than use the laborious system that Apple designed (reminiscent of early Chinese input systems), many Chinese iPhone owners jailbreak their phones and install third-party software that drastically simplifies the process. Jailbreaking is wildly popular for other reasons too. It allows Chinese users to download any of the App Store applications for free and facilitates access to third-party applications, which is important because applications designed specifically for China are few and far between in the App Store. Music and movies also can be downloaded for free and shared with others on iPhone user forums. Siri — the most attractive new feature driving iPhone 4S sales — does not work in Chinese and even struggles in English if you have a strong Chinese accent.”

This is a big problem in a country where the iPhone costs $700, when managers typically make $1,000 a month.

It would come to me at no surprise to see that the agreement between Apple and China Telecom would also include a R&D facility, that deals with the way in which text is input, and the creation of an apps ecosystem specific to the Asian country.

Thirdly, Apple stores give Tim Cook’s company a big advantage over their competitors in China. Microsoft has long tried to boost its sales in China, but the fact that Microsoft had to rely on partners and channels to reach the market, has really made things very difficult. Apple does not have that problem, Apple has much less of a need to partner to sell. Apple Stores also are a big differentiator that is really hard to hack. Will the agreement between Apple and China Telecom also have some consideration as to the stores? I don’t think so, but once the agreement between the two companies settles, it wouldn’t surprise me to see that new Apple Stores pop up.

Apple’s conversations with China Telecom will produce one of the biggest and most impacting news in 2013.

Regards,

Carlos.

China’s Innovation Capabilities

I have just read a report by The Economist, about measuring Innovation in China, and comparing it with the US, Japan, and Europe.

In terms of the number of patents, the report cites that China seems to have caught on the US. But the same report details that Innovation in China seems to be an illusion. The reports reads:

“Hardly any Chinese inventors seek to patent their ideas abroad. Between 2005 and 2009 fewer than 5% did (see chart). In America, the figure was 27%; in Europe, more than 40%.”

This does seem to be in line with a recent post that I have written, about the top 100 innovators list by Thomson Reuters. My remarks about the role of China:

“No any companies from China again this year, certainly because their patents in that country are kept and protected locally, scoring low in their globalisation subindex, with innovators from the United States protecting nearly 50 percent of their inventions internationally, while this percentage in China is just six percent. China leads the world patent volume, and this country is therefore the most flagrant proof that Innovation is not measured by the number of patents.”

While the numbers for the US and Europe differ, the conclusions regarding China are strikingly similar between the two reports: the percent of Chinese patents registered outside China ranges 5-6%, with limited impact in Innovation, although China leads the world patents volume.

Nor Innovation is measured by the number of registered patents, nor China is (yet) innovative. Keep on watching though.

Regards,

Carlos.

RIM and the Potential to Come Back

As I am waiting for the market release of the BB10 in February, I am hearing increasingly more and more buzz from QNX, the embedded systems Real Time Operating System (RTOS) that Research In Motion (RIM) acquired back in 2010 from Harman International.

The latest report came from these days’ CES, where RIM shown off connected car technology with Bentley. It is more and more known that RIM is embedding QNX in cars… well, in fact, RIM’s QNX apparently already is in 60% of the existing cars! Through MTA SpA, Aprilia, Ducati, BMW Motorrad, Ferrari, Fiat, Fisker, GM, Lamborghini, Lotus, Maserati, PSA Peugeot Citröen, Saab, Tata, Volkswagen, and other automotive and motorcycle manufacturers, already embed QNX in their systems.

With revenue for the fourth quarter of fiscal 2012 having gone down 19% from $5.2 billion in the previous quarter, and down 25% from $5.6 billion in the same quarter of fiscal 2011; and with the company revenue breakdown for the quarter having been approximately 68% for hardware, 27% for service and 5% for software and other revenue, the results of this investment and development in the in-car industry remains to be seen. But this seems a veritable tour de force by RIM to me, it shows a tremendous capability to reinvent themselves. Instead of fighting back face to face with the existing Apple iOS and Google Android incumbents, instead of acting as a follower in the TV space to those same incumbents, and building on RIM and QNX strengths in communications service security and RTOS resilience, RIM may have found a potential backdoor to come back as a major player in the mobile space, as well as the major in-car OS provider to car OEM’s.

Agreed, almost all cars get connected nowadays to Apple devices, to play music. But there is a lot more than music, and Apple had a bit of a problem delivering on maps, as we saw this past summer. And Apple’s app developers’ ecosystem is perceived as being too closed, and there is always a high degree of uncertainty as to the correct interoperability with the cars’ infotainment systems, each time a new iOS or an in-car software version is released.

Agreed, Google has been playing already a lot with their driverless car. And, if there is a leader in the maps industry, it is Google, as the agreement between Apple and Tom Tom blew up on the circumstances. But the time for adoption of a driverless car does not seem to be immediate, plus, there has been a lot of criticism to the potential security breaches that an Android-driven car could have. On top of this, the high fragmentation of the Android ecosystem could prevent that car makers and whatever Android mobile brand assure users the neat integration that they would expect.

On the other side, the potential of a seamless integration between the in-car infotainment software, and the driver’s mobile devices, is a huge point of sale. At least to me. As a previous user of Blackberry devices, I would definitely give away my iPhone for a new breed BB (I would have to know first if my car has QNX inside, and that my car maker assures me the integration, with RIM in its back). This move not just provides RIM with a new market, it’s a stronghold to make non-BB users adopt BB.

There is still a lot of work to be done and agreed between RIM and the car OEM’s, in terms of end user service. And north-american companies usually have a bit of a problem understanding and meeting the product launch timing in the European markets. All this has the potential to annihilate the potential of the RIM / QNX move. But it seems a marvellous move to me. It’s up to RIM and to the European car makers to seize the potential at the same time as their north-american counterparts, not to leave aside the European MNO’s, who would have to bring down data roaming tariffs.

Regards,

Carlos.

An Inflection Point in Chinese Politics?

I have always been very much interested in the relationship between technology and politics. And a recent paper, the Global Trends 2030: Alternative Worlds, a publication of the National Intelligence Council, that points to a series of major political changes from now to 2030, China and the ITU have given me the excuse to write about this growing relation.

The NIC publication reads at some point:

“[...] Social networks enable both useful and dangerous communications across diverse user groups and geopolitical boundaries.

[...] Analysts widely cite Twitter (along with other social network services) as having been a significant contributor to the Arab Spring protests. Protestors used social network services to organise themselves, disseminate information, and bypass government censorship efforts. Some governments
are already deploying aggressive countermeasures, while simultaneously using social networks as a means of gathering information on dissidents. Social networking technologies could allow groups of people to easily communicate outside traditional media and government channels in order to pursue progressive, disruptive, and criminal agendas that can have impact across geopolitical boundaries.

Because social networking technologies are becoming the fabric of online existence, they could become an important tool for providing corporations and governments with valuable information about individuals and groups, facilitating development of robust human social predictive models that can have applications ranging from targeted advertising to counterterrorism.“

Shortly after, we all read about the Chinese governement approving a series of legislative acts that force netizens to identify themselves with their real names, when making use of Internet services (whose providers have now new responsibilities in the selection and elimination of contents, and in the reporting to the authorities).

This would seem yet another episode of the lack of democracy of the Chinese government in the Internet.

Will this stop there? I don’t think so, it seems to me that we are moving towards a definitive inflection point in Chinese politics, allowed by technology. Things seem to be getting worse.

It’s true, Chinese netizens are finding ways to elude censorship. But there are growing signs of discontent., almost on a per-day basis (i.e. read today about the escalation of the confrontation between Chinese media and censors). As the NIC’s states in their report about geopolitical 2030 trends:

“[...] The Chinese Government and several others will likely severely restrict any [social network] services that threaten their control over information flow.”

Indeed, the Internet is providing “an entire operating system”, that enables an increasingly number of moves towards democracy in China.

As The Economist reports, “China’s new leaders are nervous of demands that they move faster to loosen the Communist Party’s grip. Most worryingly for them, some of the boldest calls are coming from within the establishment”, claiming that If systemic reforms are not carried out, it says, public dissatisfaction will escalate to a “critical point” and the country will “fall into the turmoil and chaos of violent revolution”, signalling to a possible Arab-style upheaval.

The only way in that I can think of that the Chinese government can mitigate all those changes is by making the international community give them the means to ‘externalise their internalities’. That’s why I rejuiced when dozens of countries refused to sign a new global treaty on internet governance in late 2012, as the treaty, crafted under the auspices of the International Telecommunication Union (ITU), would have given the Chinese government pernicious powers to meddle with and censor the internet, and thus to avoid changes in their political system.

Regards,

Carlos.

Thomson Reuters’ Top 100 Innovators List: China | South Korea | Google

Thomson Reuters has released again their Top 100 Innovators for 2012, ranking both countries and corporations.

And again, Thompson Reuters rates: (a) the success of patents (the ratio of the number of publicly-published-but-not-yet-granted patents over granted patents), (b) their global reach (the number of quadrilateral patents, including the chinese Patent Office, the European Patent Office, the Japanese Patent Office, and the United States Patent & Trademark Office), (c) their influence (the number of times a patent is cited by other companies), and (d) the number of “innovative” or “basic” patents (defined as the first publication in a patent document of a new technology, drug, business process, etc).

The report outlines the positive impact of these top innovators in their countries:

• The Top 100 Global Innovators outperformed the S&P 500 in terms of market capitalized weighted revenue by three percent (15 percent versus 12 percent)
• The Top 100 Global Innovators outperformed the S&P 500 in market capitalized weighted R&D spend by four percent (11 percent versus seven percent)
• The publicly-traded Top 100 Global Innovator organizations had a 15 percent increase in cumulative stock value comparing the end of 2011 to mid-October 2012
• The Top 100 Global Innovator organizations added 124,214 new jobs year over year

In terms of countries, I note the following:

• South Korea substantially increases in representation there year over year, with four new entrants
• No any companies from China again this year, certainly because their patents in that country are kept and protected locally, scoring low in their globalisation subindex, with innovators from the United States protecting nearly 50 percent of their inventions internationally, while this percentage in China is just six percent. China leads the world patent volume, and this country is therefore the most flagrant proof that Innovation is not measured by the number of patents
• Europe loses comparative ground, with France increasing its ranking, but with Germany, Liechtenstein, Sweden and the Netherlands all dropping in their representation on the list

In terms of top ranking industries, it’s worth noting that:

• The most prevalent industry within the Top 100 list is Semiconductor & Electronic components, showing how critical this industry is to many items used daily, from smart phones, to computers and automobiles to more. Top countries are the US, Japan, South Korea and Switzerland
• The next most prevalent industry is computer hardware, due to the explosive growth in the need to manage and store big data, and showing the lead of Japan and the US

Finally, in terms of type of corporations, it’s worth noting that, for the first time, two universities are now included in this Top Innovators ranking, both universities from South Korea, by the way.

Note also that Google enters the top 100 innovators list for the first time in 2012. Indeed, Google was not present in the 2011 list. And this raised some concerns, as there was no question that the Internet search company definitely was one of the biggest innovators globally.

Regards,

Carlos.