The Seabiscuit of Software

In the Hutong
The Garage
2243 hrs.

“The horse is too small, the jockey too big, the trainer too old, and I’m too dumb to know the difference.”
— Charles Howard, Seabiscuit

CNET today has an interesting profile of South African entrepreneur Mark Shuttleworth who, not satisfied with being the world’s second space tourist and the first African in orbit, has created Ubuntu, the most user-friendly version of Linux yet available for desktop and laptop computers. Shuttleworth is using Ubuntu to take on Microsoft globally, but especially in places where low incomes make paying Microsoft’s licensing fees impractical.

First, Crow is On the Menu Tonight

Those of you who have followed Silicon Hutong for a while will know that I have long been a Linux-skeptic, believing firmly that despite its obvious advantages on servers, Linux would never be in a position to displace Windows on the desktop.

Well, I was wrong.

Shuttleworth and his team at Ubuntu have done something amazing – they’ve created a truly usable desktop operating system that rivals WindowsXP in ease of use and features, accomplishing finally what many of us so long felt impossible – they’ve mirrored the simple elegance of the underlying system with an interface and applications that make it a delight to use.

Personally, if I were setting up a company, a school, or a non-profit organization tomorrow I would use on nearly every desktop and laptop. In fact, I’m running it on my MacBookPro alongside Mac OS X. It’s that good. (I’m not ready to replace OS X yet – I rely far too much on software like NoteBook, DayLite, CopyWrite, Visual Thesaurus , the iApps and a host of others to change. But I’m having fun tinkering, and if I had to give up the Mac for any reason, I’d feel a lot better about it now than I did before.)

Shuttleworth v. Microsoft

So in the brewing battle of Windows vs. Ubuntu, Mark Shuttleworth’s stated belief that “software should be available free of charge, that software tools should be usable by people in their local languages and despite any disabilities, and that people should have the freedom to customize and alter their software in whatever way they see fit.”

If you think that’s all standard Linux/Open Source talk, you’re right. The difference is that instead of trying to convert school systems, governments, and enterprises in the developed world, Ubuntu is attacking Windows in it’s soft underbelly – Africa, Asia, Latin America, and those places around the world where the money for a software license is more urgently needed to feed a kid a hot breakfast every day for six months.

Shuttleworth talks a good game, and I for one wish him well. But the thought that Microsoft will sit idly by and allow something as trivial as a free operating system get in the way of world domination is probably wishful thinking.

Linux generally and Ubuntu specifically may well be sidelined by Microsoft’s newfound largesse in many parts of the world. Suddenly those license fees get real flexible when governments, school districts, and non-profits start to vocally consider open source. Threaten to go Linux, and watch the folks from Redmond get really, really nice.

Suddenly Microsoft is pledging money for IT centers, donating licenses for schools, and providing NGOs with whatever they need. Because this is war, after all, and in Microsoft offices around the world – and here in China – FOSS – Linux is the enemy.

Who Fights The Losing Battle?

In some sense, all of this is good. After all, if there is a definition of “justice,” it is seeing Microsoft break down and give away that for which they have charged so dearly, manhandled in much the same way their competitors and others have alleged they were treated by Microsoft. And if it means that there are schools, foundations, and government offices with computers that would never have had them otherwise, so much the better.

If, in the end, Linux finds its way onto the same plane occupied by the Ghosts of Operating Systems Past, if nothing else we can say it put pressure on Microsoft to moderate for a while its oft highhanded ways, and to cough up billions of dollars in software and cash ($250 million in China alone) to help make owning and using computers a little less costly for a lot of people.

But I wonder how long Microsoft can stick with this strategy. Call it what you will, Microsoft is fighting a war of attrition against Linux, throwing money around the battlefield every time Linux appears to be making a significant inroad someplace. Up to this point, the battles have been few enough and small enough that the costs have not been significant.

At some stage, this is likely to start getting very, very expensive, and Microsoft’s costs are too high to sustain a wide effort for long, and that stage will come when several things happen at once – perhaps when Microsoft gets a bit too aggressive with its “software asset management” program, where companies and institutions are “persuaded” to allow Microsoft auditors into their IT systems to figure out how much more cash Microsoft can get out of them.

Perhaps when computer manufacturers are tired of the hassles involved in pre-loading Windows on their products.

Or, perhaps, when one of the distributions of Linux – possibly Ubuntu, possibly another – catches and surpasses Windows in usability to such an extent that for a broad base of the computing population Windows is just so old, clunky, and UNCOOL that it gets set aside and forgotten. In the wake of the delays and feature-shrinkage surrounding Windows Vista, is that so inconceivable?

I think that’s what Shuttleworth is working toward. And that’s when the world will have the “free choice” Steve Ballmer likes to talk about.

And wouldn’t it be fun to watch the underdog win a few?

Xinhua: Trying to Save a Dying Monopoly

In the Hutong
Listening to NPR
1816 hrs

The Associated Press is reporting that the Chinese government has announced a ban on the distribution of news by foreign news agencies in China, except through Xinhua News Agency, the government-controlled local newswire. What this basically means is that Reuters, AP, UPI, Bloomberg, Agence France-Presse, Kyodo, and others like them cannot sell news content directly to China’s newspapers, magazines, television stations and websites.

Inevitably, there will be a lot of deep contemplation about what is driving China’s “media crackdown” coming out in the media. This is to be expected – after all, there is nothing the media hates more than the specter of censorship. Apart from the ideological issues, it’s just plain bad for business.

Before we get into a gigantic ideological uproar about how gosh darned wrong censorship is, let’s cool the engines and take a long hard look at what is likely behind this latest announcement.

Deja Vu All Over Again

First, let’s get something straight: while the AP article calls these “new measures,” that’s only about half right. In truth, ever since Reuters signed an agreement with Xinhua back in the 1950s, it has been explicit policy – if not actual law – that all of China’s media outlets are required to go through Xinhua in order to obtain foreign wire service content, and that said wire services could only sell to Xinhua.

All fine and good, of course, until said wire services begin seeing that content showing up in places that a) they are not getting paid for, and b) that do not credit the wire services for their content – all in violation of the agreements Xinhua signed. Said wire services regularly remonstrate with Xinhua and the government, to little or no avail.

So one can understand why on occasion said wire services start doing separate direct deals with other media when the political climate seems to allow that. At some point, Xinhua starts seeing their revenue dropping as a result, and they run to someone very senior in the government or Party to complain, after which a notice goes out reminding everyone that Xinhua is their sole agent in China, and that they have to get back in line.

These sorts of things happen periodically lately. The last one I remember was 1999 or so, but likely it has happened since.

The important thing to remember, however, is that what has been reissued is little more that a reiteration/clarification/amplification of a policy that is already in place.

Hong Kong? Phooey…

What is different about this current policy is the release of news and information in Hong Kong and Taiwan. Setting aside for a moment the fact that enforcing this in Taiwan would be…um…problematic, enforcing this in Hong Kong would be a real challenge. Despite Beijing’s ostensible jurisdiction in the SAR, somebody in Hong Kong (probably the Legislative Council) is going to start bellowing about how this is in some way a fundamental violation of the Basic Law, and this will likely turn into something of a political hot potato.

That is without even going into the question of enforcement. Hong Kong’s notoriously independent and largely unaccountable tabloid-heavy press can be counted on to flip the bird at Beijing on any measure set to limit the sources of legitimate news they can use. Hong Kong has been something of a media free-fire zone – because of legacy issues, because of Beijing’s desire to have a petri-dish for free press, and because Hong Kong’s role as a center for the media industry in Asia has been very good for the SAR and, frankly for China.

Any serious enforcement of this provision (scenes of People’s Armed Police raiding the offices of Apple Daily) would kill the goose with the added gravy of a global uproar. STAR would probably stay, but I can see a caravan of aircraft leaving Hong Kong for Singapore carrying with them the people and accouterment of a dozen or so major news organizations, taking with them Hong Kong’s dying hopes of a future as a regional media hub.

(I really can’t wait to see what Simon writes about this. I’ll bet he’s apoplectic.)

So the Hong Kong thing is liable to wind up in the bin of Really Bad Ideas. This is a classic case of what I like to call “regulatory overreach,” when a regulator gets overzealous in the drafting of some measure or another and consequently finds itself in hot water with other parts of the government. The result is usually a quiet recision of the offending clauses, and I’d bet that’s what will happen here.

Follow the Money

So why is this all happening?

The Tea-Leaf readers will look at this, nod their heads sagely, and in hushed tones suggest that this is a part of Hu Jintao’s ongoing effort to deepen his hold over the media as he continues his soft purge of Jiang Zemin supporters left in government. That might be true in part, but as with most things in China, that is at best only part of the real reason (and possibly only a political fig-leaf for the action.)

In reality, I suspect this is as much about money as politics.

The Xinhua News Agency has for a long time been the owner of a dying business model. The agency’s power was its monopoly over wire service distribution in China, but its ability to retain this monopoly has been slowly weakening as China’s media organizations build political power of their own, and as the sheer number of media outlets grows. There are nearly 10,000 publications in China, and some of the parent organizations – The People’s Daily Group in Beijing, The Wenhui-Xinmin Group in Shanghai, China Central Television, and a host of others – no longer feel the need to work through middlemen, and have (they believe) the political air cover to build their own relationships.

Add this to the growing number of Chinese who get their news from online media (many of whom reprint foreign wire service stories from other Chinese publications), and Xinhua is watching it’s biggest cash cow waste away in a dry pasture. Despite Xinhua’s efforts to diversify its business (with the purchase of AFX last year, the rechristened Xinhua Financial News became China’s global newswire), the core business is still its role as a domestic news service, and the most valuable content it (re)sells is what comes in from overseas.

The current policy announcement is thus clearly a Xinhua gambit to regain its revenue stream. The political justification for the measure is mostly a red herring – any news organization in China legitimate enough to deal directly with Xinhua would run a politically sensitive story at its own risk anyway, and the informal sources for outside information available to the media are manifold. Xinhua’s role as a critical filter for sensitive information may have been viable in the past, but it is no longer.

The fact that this was directed at the newswires, and the bold stretch into Hong Kong (the Taiwan thing was also a diversion) together suggest that the primary driver behind this is Xinhua’s revenue stream.

Back to the Smoky Room

When you look at the broader scope of media regulations that have been promulgated over the last 17 months in China, it is fair to say that the primary concern driving the overall direction of media policy in China has been a concern for maintaining political stability.

But in some cases, it is not the only – or even the primary – driver. As is the case with so many policies in China, the drivers are often diverse and complex, and it is not uncommon for entities with both commercial interests and a political mission to jump on a broader policy trend for its own material gain. The media is one sector where these sorts of things happen with regularity, but it is not alone.

To view these moves purely in their political context makes good reading, but when you understand the more subtle and complex motives at play you find opportunities to address the challenges. I suspect that the wire services will wring their hands publicly about this for a while, then get down to the quiet business of finding a way to keep Xinhua happy while keeping their own businesses growing.

Update – A sharp-eyed reader notes that according to an article in the China Daily, the rules would in fact only apply to a Hong Kong or Taiwan wire service operating in China and would only cover the distribution of wire-service copy and photos in the PRC. The same reader suggests that this is a bit redundant, as mainland media doesn’t carry much content from HK news outlets anyway. Clearly, then, the concern is over Taiwan-based newswire services.

That makes MUCH more sense than a play to try to control media in Hong Kong

Update – The AP article linked above was kindly replaced by the WSJ with a much deeper piece by Andrew Browne that echoes our key point above – this is a commercial play by Xinhua, pure and simple. Andrew also noted that this is actually a step backwards in policy, since Xinhua has been quietly allowing foreign newswires direct access to Chinese media outlets since the WTO talks in 2001. Andrew should know – he ran Reuters in Beijing during the late ‘90s and into 2000.

Of course, the nice thing about a policy (as opposed to, say, a statute) is that it’s just like an oral agreement – not worth the paper it’s written on. (With apologies to Samuel Goldwyn.)

Clarification – An eagle-eyed fellow blogger reminds me that Xinhua did not buy AFX but made a small minority investment in XFN, which in turn owns AFX and Market News International, and is editorially independent from its shareholders. Apologies to all for that – I’ll do a Google search next time.

Get a Flack, Na-na-na-na Na-na-na-na-na, Get a Flack

In the Hutong
Loading Out
2039 hrs.

The relationship between journalists and PR people is, at best, tenuous. Journalists barely tolerate PR people in the best of times (usually when we’ve figured out how to put ourselves in their shoes), and in the worst of times, they cordially ignore us. They would, of course, much prefer to walk right through us and talk to our clients.

So you know you need a PR person really, really bad when a journalist tells you to go get one.

Especially a journalist like Bruce Einhorn at BusinessWeek.

Bruce is telling Terry Gou of Hon Hai exactly what I’ve said – Gou should fire his lawyers, and hire a very damned good PR agency and – this is critical here – leave his ego in the office safe and take the advice of said PR agency.

A brief piece of advice to any PR agency taking that call: charge and get paid in advance. Take my word for it.

How Deep is the Rabbit Hole

In the Hutong
Listening to the Wind
2209 hrs.

“Here…this big rattler was sleeping in a crate at Cisco’s Junkyard. Right when I was gonna open to see what was in her. Jumped right at my face. Scared me so bad I had to kill him without thinking. Gotta be careful where you go pokin’. Who knows what you’ll find?”
— Wesley Bridsong, Lone Star

Nearly two-and-a-half years after revelations of alleged improprieties at the China operations of Lucent, the U.S. Securities and Exchange Commission has decided to take action against the telecommunications equipment operator. It appears by all accounts that Lucent were very cooperative in the investigation, and that this will work in their favor.

Now, if I were an SEC investigator on this case, I’d be thinking to myself “if, as it has been alleged in the course of this investigation that violations of the Foreign Corrupt Practices Act are common and widespread among technology vendors in China, do I a) close the Lucent case and walk away, waiting till we get a report, or b) go out looking to see if the trouble goes further?”

For those of you who may be reading this and thinking with some concern about what you might have done to get a large equipment order in China, let me put you (partially) at rest by saying I’m not sure the SEC is going to go prospecting anyplace without some sort of cause. Legal ramifications aside, the SEC has plenty to do and probably won’t spend the resources to go prospecting.

The big question, of course, is whether the same applies to the U.S. Department of Justice.

And if the stiff-suited men and women from DOJ did start digging into the collective soiled unmentionables of the industry, what would they find?

Those of us who have lived here for some time regularly hear rumors of shady deals and payoffs, stories of children of prominent Chinese officials setting up technology consultancies to act as bag-men between U.S. tech firms and telecommunications operators. But the specifics never seem to line up, and so one is forced to dismiss the rumors of such Grand Graft.

However, Lucent does not seem to be alone. The Washington Post documented three other cases where the SEC had taken action in the last two years.

Indeed, you needn’t look very hard to find corruption in business in China. A young lady here in the Hutong took a call from a reputable Chinese insurance firm yesterday. The agent at the other end of the phone, mistakenly thinking that the car the woman was responsible for insuring was a company car, offered her a 30% discount on the insurance, and an immediate 20% kickback on the premium to be paid in cash to the woman. This was not an offer between two people well-aquainted with each other. It was done sight unseen as if nothing could be more natural in the course of business.

In the PR industry, it is not uncommon for a local PR agency (and perhaps some foreign agencies as well, but I haven’t heard tell) to pay a reporter on a per-word basis to run positive stories about the agency’s clients. Last I heard, the going rate was about 1RMB per character. Last I heard, reporters were paying kickbacks to the media relations people in those agencies of up to 25% of those fees. That may not sound like a lot, but think of this: major technology players will have a million or more characters per year written about them.

I’m not a lawyer, so I’m not sure if any of the above violates the FCPA. But that’s not the point.

The point is that American firms in China are operating in an environment where not only is corruption pervasive, but where it appears to be a critical part of doing business. It takes an extraordinary organization with committed leadership to resist the temptation to take short cuts, especially when it seems like everyone else is doing it.

So the question – how deep is the rabbit hole? How many cases of corruption are out there waiting to be discovered by an intrepid Washington lawyer with a badge? And how will the prospects for U.S. business in China change when the badges start showing up in offices around Beijing?

But here’s the most important question:

How many executives are going to realize that it’s time to come to Jesus and start cleaning up the nonsense – big and small – that’s taking place in their companies?

Lucent was the warning shot, folks. Time to start taking care of business – before the Feds come calling.

Not Norma Rae

In the Hutong
Talking with the local Party boss
1655 hrs.

Our Party Chief here in the Hutong was talking with me about the unionization of Wal-Mart and Foxconn, and she brought up an interesting possibility that I had (stupidly, I now think) not considered before.

She noted that since, in fact, the unions in China are part of the government, they should be seen as an extension of the government’s regulatory infrastructure. She said that the WMT unionization process will be watched with great interest. It should not come as a surprise if the government began to see unionization as a disciplinary tool against foreign-invested enterprises (and private local firms) who are seen publicly as being unfair to their workers.

“Be good to your people, or we’ll unionize you.”

Not that any smart boss should need that threat these days. Even in a place like China, the costs of constant labor turnover are far higher than most leaders calculate, whereas the value of building a stable workforce in terms of both efficiency and the potential for process innovation could be substantial. But we digress.

The implications of the use of forced unionization as a disciplinary tool are huge. This would compel a lot of companies to re-evaluate their human resource policies, their costs, and indeed whether or not to build a facility in China. It would also significantly alter the tactics of international labor activists in their “workers’ rights in China” campaigns.

Not to mention create a gigantic opportunity for regulatory malfeasance….

And We Think Media are Bad in China…

In the Hutong
Packing up the Office for The Grand Renovation
1639 hrs.

The coverage on the Katie Couric debut as anchor on the CBS Evening News should embarrass every medium (apart from CBS) that covered it like a big story over the last three months.

Credit CBS for creating a reality-distortion field around Ms. Couric that gave her debut as a prime time news anchor the importance of a major global event.

Too bad Miss Katie’s actual debut is turning into an anti-climax.

Here is the awful truth: slotting an overage cheerleader onto the evening news anchor slot at a declining network in a declining medium amounts to way too little, way too late. CBS News continues to exist on a life support system made up of its past (not insubstantial) glories. It can become the Tiffany Network again, but by giving its correspondents a bigger role, not by blowing its limited lucre on a talking head regardless of sex.

It’s the news. She’s a girl. Get over it.

The Brazilian Job, or, The Law of the Jungle Jets

In the Hutong
Looking for the 11th Five Year Plan
1723 hrs.

Brazil’s Embraer is using an interesting tactic to get the Chinese to buy their jets.

CAAC had apparently been sitting on an order for some Embraer regional jets. Embraer, who had built a factory in Harbin with the expectation that China would be a gigantic market for regional jets, is apparently finding things a bit rough going for its China operations, as the Harbin plant is apparently all but idle.

So the guys at Embraer make it known that they’re going to shut the doors in Harbin due to a lack of orders.

This clearly struck someone in the civil aviation bureaucracy as a bad idea. It would have been a step backwards in China’s efforts to attract foreign airframe manufacturers (and build its own airframe manufacturing industry), and it would destroy the rationale for local player AVIC to develop its own regional jet.

So, next thing you know, Embraer scores an order for 100 of its puddle-jumpers from HNA Group, the parent company of Hainan Airlines, Xinhua Airlines, Chang An Airlines, Shanxi Airlines, Yangtze River Express, and bizjet operator Deer Jet.

Without arguing the merits of the deal for HNA (frankly, I think they’d be better off putting their money into larger planes), you have to give Embraer a ton of credit for playing the game by Chinese rules in China – and winning.

Why China is Growing and GM is Shrinking

The Risk Pool” by Malcolm Gladwell in The New Yorker, August 28, 2006

Every now and then an article or book comes along that gently but insistently challenges your assumptions. Malcolm Gladwell, whose thinking and work has been much maligned by the buzzwordification of his brilliant book The Tipping Point, pops up with this little beauty of an article in last week’s The New Yorker, thankfully made available online.

(NB – Speaking very late last night to The Village Grouch, we both agree that between The New Yorker, The Economist, Harvard Business Review and a handful of similarly insightful publications, we’d have to give up our jobs just to keep up with our reading. We also agreed, however, that it would be a worthy sacrifice.)

Gladwell uses the article to zoom in on a single demographic statistic called “the dependency ratio,” which is essentially the ratio of people who aren’t of working age (children and retirees) and those who are. Citing a range of examples, both national (Ireland, China, India and Japan) and corporate (GM and Bethlehem Steel, and Google), he convincingly makes the case that comparative advantage is in no small part dependent on demographics.

Clearly demographics are not the only issue – if dependency ratios told all, Africa would be an emerging economic superpower capable or rivaling Asia. Gladwell’s point, however, does have broader implications:

• For U.S. companies, who in the face of GM’s long slow meltdown must see pension and medical benefits as a time bomb;

• For the U.S. government and electorate, who now need to reassess the wisdom of allowing corporations to handle social benefits programs;

• For European and Japanese governments who now must revaluate the sustainability of their immigration and social policies; and

• For China, who needs to look beyond the current 11th Five Year Plan Guidelines and see that beginning in about 20 years they’re going to have an immense mass or retirees to support.

Chewy stuff.

Foxconn: A Union Label on your iPod?

In the Hutong
Admiring my MOTOSLVR L6g
1825 hrs.

Will over at the ImageThief has done such a superb job covering this whole Foxconn trainwreck that I’ve shied away from saying anything. The fact that I know (and once worked with) several of the people on the front lines has caused me to hesitate. However the Foxconn case is just starting to get interesting.

One example:

Over the weekend, the government announced that Foxconn will be compelled to allow a government-supervised union into its shop.

Here’s the big question: will Foxconn succeed in coopting the union and turning it into a fig-leaf for its practices, or will it actually do any good?

I’m taking bets…

In the meantime, Fons suggests (correctly I think) that Foxconn is entering a period of legal activism, in the apparent belief that it can protect its reputation and trade secrets in the courts. I wish them luck. They may not get the chance to use other means if this one fails. And clearly, Foxconn’s vaunted chief executive seems to think that “PR” stands for “Press Release” or “Pillory Reporters.”

Update: Foxconn has dropped its legal case against the two reporters.

Memo to Foxconn management: Fire your attorneys. NOW. They’re causing way more damage to your business, your reputation, and your brand than you could ever hope to recover. And your rivals are lapping it up.

It’s the People, Stupid.

“Power not socialism is today’s Chinese ideology,” by Richard McGregor, The Financial Times, July 25, 2006

Going back through the archives (going on vacation with the family can be murder on your reading,) I picked up an article written by Richard McGregor in the FT on July 25 in which he cogently argues that China is about power, not about socialism.

By itself, that’s no stunning revelation – if anything China’s cadres, bureaucrats, and even soldiers seem daily to give greater credence to the belief that you needn’t scratch any Chinese very hard to find a capitalist. Richard’s suggestion is the suggestion that ideology in China is (cynically) little more than a convenient fig leaf to protect those in power is, similarly, an acknowledged truism.

Government v. Business?

But what really tickled my frontal lobes was his use of the recent rejection of the draft property law as an example of the kinds of decisions made to keep the party in power as opposed to keeping the economy moving forward.

The issue Richard really wants us to understand is this: the increasingly powerful economic forces in China, represented by Big Money (the global financial establishment, including the mandarins at the People’s Bank in China) and Big Enterprise (the leaders of the reformed SOEs and medium-large local and foreign companies whose success is driving the economy,) are not the constituency to whom the Party and the government play.

As befitting a publication like the FT, McGregor portrays this as a growing conflict between single-party rule and growing private interests in the PRC. That’s one way to look at it, certainly, especially if (as McGregor does) you reject the idea that any Marxist concepts have pervaded the thinking of the Party.

Power of the Pitchforks

I don’t see it in the same way. I think the point is that the implicit forces driving decision making in Beijing remain a concern for the perceptions of those who wield the latent power to end the Party’s rule – the workers, farmers, cadres, bureaucrats, taxi drivers and shopkeepers who make up what we all affectionately know as the lao bai xing.

And they should be afraid. Take a nation where popular upheaval to is a time-honored means of governmental transition, and add in an incomplete economic development process with mind-boggling and growing inequality, and things start to look very touchy indeed.

Strong, stable, pluralist societies are built on a foundation of ubiquitous property ownership – when your life is invested in an asset you cannot move, you have a pretty powerful compulsion to safeguard the system that assures its value.

But when you have a society in transition, where there remain tens of millions of people in abject poverty with little to lose in following mystics and demagogues, even the appearance of playing to Big Money and Big Enterprise is a dangerous proposition.

This is not about the Party vs. The Money. This is about recognizing that an ironic way, the power of China’s leaders actually does come from the people. Business and finance interests will have limited say in China until such a time as nearly everyone in the PRC is vested in the success of the system.

For Big Money and Big Enterprise in China – and for any group borne of commercial concerns – this means that when your agenda operates in opposition to the improvement of the lot of the Chinese people, your agenda has no hope, and that the best way to get your way in China is to make improving the lives of “the masses” an implicit part of what you do here.

Why Printed Phone Books are a Non-Starter in China

In the Hutong
Sorting through piles of paper
1449 hrs.

When I was a kid growing up, our idea of a really crude ethnic joke involved China and phone directories.

“Hey, how come there are Chinese phone books?”

“I dunno. Why?”

“Well, cause, there are so many Wings and Wongs that you’re liable to Wing the Wong number.”

Politically incorrect? Certainly. Juvenile? Absolutely? Is there a grain of truth here? Damn straight.

In fact, one of the things that kills the prospects for phone books in China is that, with only around 100 or so surnames, looking up a person by his or her name in the directory for a modest sized city (not to mention a place like Beijing) would likely give you a less-than-even chance of getting the right person on the first try. Add this to the problem that only a small percentage of China’s homes have a phone, and that most of us use mobile phones (where numbers can change every couple of years), and the value to the consumer of a white pages director is questionable.

And for your environmentalists out there – yes, the thought of circulating 125 million additional slabs of pulp every year must indeed cause you palpitations.

The problem is that the need for both a yellow pages and a white pages is growing as the number of phone users grows and small businesses grow. The logical answer is something electronic, and something that allows us to go beyond the simple listing paradigm.

Lyn Jeffery at Virtual China, a project of the Institute for the Future, calls our attention to the Xuntu digital map site and hints (but doesn’t quite say) that listing services are about to get a whole lot smarter, and the logical interface is not a ten-pound wad of paper but the mobile handset. Xuntu is actually a good start, but it needs to go further. We need listings that are comprehensive, geographically based, and subject to more advanced searching.

You’re looking for Mr. Wang. You know he lives in the Chaoyang District outside of 3rd Ring Road, and you know he’s a carpenter by trade. You should be able to input those facts in a search and come up with a narrower list than a normal white pages would give you. It should give fixed line, fax, and mobile listings, and you should be able to download a v-card. All of this would happen with a subscription.

For businesses, you should be able to call up a given area and get a complete listing of businesses by name, by type, or by proximity to you. You wouldn’t have to pay for a thing – advertising would support the entire effort.

This is not rocket science – it’s all doable now. However I think Lyn is right – we’ll probably need to wait for the operators to make a huge investment in 3G before they’re ready to think this creatively.

If they can’t get off their tails, though, this is a superb opportunity for a well-capitalized wireless value-added service provider.

Rule of Metcalf’s Law

In the Hutong
Planning the renovaton
1348 hrs.

An outstanding article in July’s IEEE Spectrum (which I’m just working down to in my pile of reading) takes a good hard run at Metcalf’s Law and finds it wanting. This is not just an academic quibble: the authors make a point that refutes a major assumption underlying investments in the telecom industry in the U.S. and elsewhere, in particular China.

Metcalf’s Law, if you will remember, is the proposition that the value of a communicating network grows as the square of the number of users attached to it. In other words, if the value of a network with 10 users is, say $81, then the value of a network with 100 users is $10,000. This is also referred to by buzzword aficionados as “The Network Effect.”

The article’s authors, a researcher at BT, a professor of mathematics at the University of Minnesota, and a programer at a successful dotcom, propose an alternate formula that they suggests captures a more modest, realistic value for networks. Their conclusions are compelling, even though their formula is a simplistic as Metcalf’s (which they admit.)

But the underlying point is important – investors, venture capitalists, and companies in the communications industry continue to value technologies, projects, and ventures using Metcalf’s law as a guide, and down that path lie bubbles.

Looking at the results coming out of China’s fixed-line telecommunications providers (assuming they’re true and not manipulated as a gambit to push the government to issue them mobile licenses), the article provides some good perspective. Anyone holding a stake or considering an investment in the Chinese telecommunications industry – whether investing in fixed-line operators, mobile operators, value-added service providers, or online services – would do well to read the article and step back and review their assumptions.