Silicon Hutong

China and the World of Business • China Business and the World

Silicon Hutong - China and the World of Business • China Business and the World

Will Chinese Pay for Content?

Hutong Forward
An undisclosed location
in the American Midwest

1649 hrs. local

Happy shoppers

Happy shoppers (Photo credit: Phillie Casablanca)

A contentious debate about China in the media industry is whether or not Chinese will pay for content. Most intelligent observers would answer no: Early experiments selling music were not encouraging, and with search engine Baidu offering links to free downloads, and later a legitimate streaming service, China’s mostly-young internet users could be forgiven for thinking “what’s the point of paying?”

Indeed, piracy of music has been so rampant that many thoughtful commentators, including Eric Priest at the University of Oregon, have championed the use of “alternative compensation systems” that presume that nobody will pay for the content itself. Like, ever.

At the China 2.0 conference at Stanford last month, there was gloom in the room when the people funding content plays took the stage. Annabelle Yu Long, the CEO of Bertelsmann’s China Corporate Center and managing director of the music giant’s Asian investment arm, noted that China, with a quarter of the planet’s ears, represented only 2% of Bertelsmann’s business, and this after decades of effort. The rest of the money people on the stage – Jenny Lee of GGV Capital, Raymond Yang of WestSummit Capital, and David Chao of DCM – Chinese all, agreed with the simple proposition that the Chinese do not pay for content, ergo they would not ever pay for it. As it is, so shall it ever be.

Getting Beyond ASCAP’s Messages

But as the discussion at China 2.0 progressed, and the panelists exhausted their messages and began to share experiences, a more nuanced truth came out. After talking about music, ebooks, and even movies, one of the panelists summed up by saying that as Chinese users become more prosperous and as quality and convenience become more important, they are  proving themselves willing to pay for music, movies, and even ebooks.

Two days later and an hour away at the annual conference of the Hua Yuan Science and Technology Association (HYSTA), the discussion was more optimistic. Oliver Lu of AppAnnie showed a chart that compared app downloads in China over the past several years to app revenues. Interestingly, over the past three quarters, the rate of growth of revenues has passed – and nearly doubled – the rate of growth in downloads. Chinese are starting to pay for apps. The numbers are not huge – your average Chinese spends 1/12 of the average Japanese user on apps – but the trend is clearly pointing in a positive direction.

Play with Me, Pay for Me

The difference lies in a generational shift – as well as a cultural shift – in consumption and a presumption of value. My generation thinks of content in terms of music, video, movies, and books. China’s post-80s and post-90s generations, on the other hand, grew up eschewing those formats because those were the most tightly controlled and least interesting.

Instead, they grew up playing games, and that cohort is only just reaching the age where they can afford to pay good money for their interactive diversions. Over half – 53% – of the revenue of Tencent, China’s huge portal and social media player, comes from games, which are now a $6.3 billion business in China, more than search advertising and display advertising combined. Ten of the top ten downloaded mobile apps in China are games.

A Future that Pays

That’s great for game developers, you’ll think. But what about everyone else in the content business. But that is exactly a the point. Once you get Chinese used to paying for one form of content (games), the door can then open for them to start paying for other forms. Develop the habit, create a value around legal versus pirated downloads, and you are on your way.

Call me a pollyanna, but it genuinely seems too early for the content makers to write China off. Use models like Eric Priest’s in the meantime if you have to, but lay the long term groundwork so that when your audience has more money than time, you are ready to capitalize on a very different kind of Chinese content consumer.

A Cloud with Chinese Characteristics

Software as a Service

Software as a Service (Photo credit: Jeff Kubina)

In the Hutong
Doctor, Doctor, Gimme some news
0917 hrs.

In addition to the matter of whether China remains a suitable regional headquarters for international firms, the recent government-imposed internet clotting also points to major changes that are taking place in the global topography of the Internet. Despite the long-treasured hope of Internet Libertarians that the ‘net would remain unified and self-governing, Bill Bishop’s prognostications of an internet fragmenting along national lines is looking increasingly likely.

Earlier this year I moderated a panel on the Cloud in China at the 2012 Roundtable on Intellectual Property Rights Protection convened by the U.S. Embassy in Beijing. There were representative of both foreign and Chinese entities on the panel, and while the focus was on the Cloud and its role in either helping or exacerbating the problem of copyright piracy, a few interesting bits came out that are relevant to the recent blockage.

First, the panel understood that there are two Clouds: one for China, and one for everyone else. The reason is not technical, but regulatory: the government has built a policy framework  that hampers access to Cloud-based services based offshore to the point where they are not viable alternatives to local storage. You don’t see very many ChromeBooks in China (I haven’t seen even one,) I can’t get workable access to Amazon Prime Videos, and downloading a movie from iTunes takes 16-20 hours – on a good day.

Second, that international firms seeking to offer software as a service (SAAS) in China must either base their offerings onshore or not bother. As the Google affair made clear to all, however, data based onshore remains particularly vulnerable to local compromise. Why do the cops need to bother with hackers when they can just show up at the door of the server farm and demand access?

Third, all of the panel participants noted a growing willingness on the part of Chinese businesses and consumers to pay for SAAS and Cloud services. There is an irony in that for the foreign SAAS providers, but there is an insight as well. Government policies that restrict access to foreign SAAS providers are functionally protecting local Chinese companies who want to get into the game.

What we face, then, is the development of a parallel Cloud sector in China that will mirror the SAAS business outside of the PRC. That sector will likely consist of two elements: local companies (i.e., Baidu, Tencent, Sina, and service-specific start-ups) that will provide Cloud/SAAS offerings; and international firms who find ways to address the challenges of latency and government access restriction, usually by setting up a subsidiary in China with localized offerings (i.e., Evernote.)

For the international providers, this means figuring out how to operate two separate services while still offering the advantages of a global service to customers in China. This adds yet another degree of operational complexity to an already challenging market.

Yet for the local Chinese SAAS/Cloud service companies, it means a doubling of their home court advantage. Not only are they arguably better suited to offer more culturally relevant Cloud services than their foreign counterparts, they will also be playing inside of an electronic fence built for them (inadvertently or or otherwise) by government policy. Long term, though, this will make the effort to compete overseas more difficult.

Whether the meiosis of the Internet continues beyond the split twixt China and the rest of the world is unclear, but for the SAAS industry, the world now has at least two separate internets, and it needs separate clouds to go with it. Long term, the SAAS and cloud companies that succeed will be those who can thrive in an internet with increasingly high walls.

Hello, Alicloud

Hutong West
Last moments before Sundown
1950 hrs.

Rushing to finish up before I am obliged to go offline for my weekly sabbatical, the news from Alibaba about Aliyun, its new mobile operating system, is out. It is too early for a detailed evaluation of the operating system, but three articles you might find interesting include: my post from May 3rd about the rationale behind an Alibaba mobile OS; this pithy PDF analysis from Deutsche Bank laying out the challenges it will face; and my take on the coming mobile OS battle in China.

 

A Hint of How Bad Things Are at Nokia Product Development

In the Hutong
Re-wired
1904 hrs.

In the January edition of WIRED magazine, in an article entitled “Shanzhai,” Frog Design‘s Jan Chipcase takes writer Bobbie Johnson on a tour of Shanghai’s electronics markets. If Chipcase’s name does not ring a bell right away, you may have encountered one of the articles that were written about him when he was Nokia‘s leading human interface designer and wandering cultural anthropologist.

The Invisible Competition

Chipcase makes great copy. In the course of perusing the fetid underbelly of China’s mobile phone industry, he offers entertaining pearls of insight. Of particular interest was this little chestnut:

Although some shanzhai phones are obvious imitations, others are harder to spot as fakes. Pausing by a stall, Chipchase rolls one example around in his palm, feeling its weight and examining it. Counterfeit phones usually have surprising features: unexpected video cameras, extra ports or unusual connectors. He notes that it’s worth checking for a spare SIM-card slot: many pirate handsets are targeted at consumers who run a second line to get cheap calls by switching between telecom providers.

“Dual SIM is probably the most easy to spot,” he says, pointing to the extra slot. Whereas legitimate mobile companies have shied away from second slots, shanzhai manufacturers were quick to spot consumer demand. “They met it, while the incumbents had trouble meeting it because of their existing relationships.” (emphasis mine)

Indeed?

Motorola, whom I think could be classified as a “legitimate” mobile company, began offering dual SIM phones, MING A1800 and the VE-75, three years ago, and has been selling dual SIM devices in China ever since. One example: Motorola’s XT 800, launched in December 2009, is a dual SIM Android device. (Full disclosure: Motorola is a client.)

We could chalk this up to the reporter not fully understanding what Chipcase meant, or to Chipcase not knowing what the competition was up to (he is, after all, an interface designer, not a sales, marketing, or strategy guy.) Until we read this, anyway:

Shanzhai has shown that there is consumer demand for more than one SIM-card slot. So last summer Nokia announced the introduction of two dual-SIM phones, the C1 and C2. The launch tallied with Chipchase’s vision: manufacturers borrow from each other and quickly iterate, responding to local tastes, while also improving products. Rather than cheap knock-offs, shanzhai represents a radical new model of business innovation.

Whoops.

Out of Touch, or Just Broken?

So, here is the score: either we are to believe that both Nokia and one of its most important, globally plugged-in designers were ignorant of the fact that a global competitor had beaten them to a major design feature by over two years in the world’s largest mobile device market, or that they are being willfully ignorant of the facts.

If the former, the most benign way to read these quotes, this serves as prima facie evidence that Nokia was, as of nine months ago, seriously out of touch with its markets, and it had been for at least two years. The implications are alarming: the people hired to bring essential market intelligence of this nature back to the designers and executives in Espoo were unaware that the competition had already gazumped them on a critical feature.

But even if Nokia and Chipcase knew they had been beaten by a competitor and tried to hide it behind PR spin (apparently effective as far as WIRED was concerned), the dual SIM matter suggests that Nokia’s product development problems go deeper than a smartphone operating system. Even when Nokia is copying innovations from others, it is unforgivably slow in doing so. Think of it: Nokia was two years behind Motorola, whose mobile phone division was distracted at the time by its most tumultuous  upheaval in at least a quarter century.

The Platform Isn’t Just Burning: It’s Structurally Unsound

It is possible that Nokia CEO Stephen Elop understands how deep his product development problems go, and that he is already trying to fix the problem. He may realize that Nokia needs to create an entirely new approach to – and infrastructure for – more market-centric product development, and to stop assuming that simply doing business somewhere and occasionally sending your designers there to take pictures puts you in touch with the market.

Sometime this fall, Nokia will launch a new generation of smart phones to answer the four year old challenge of iPhone and the three year old challenge of Android. The success or failure of those devices, based on Microsoft’s Windows Phone 7, will determine Elop’s future, and possibly Nokia’s. Elop knows this, so we can expect Nokia to unleash an expensive global sales and marketing blitz to support the launch (as will Microsoft.) No doubt, the sheer volume of noise will help initial sales figures.

So if nothing else, Nokia is buying itself some time. The company’s true test will come later, probably in late 2012, after the market has taken the measure of Nokia’s partnership with Microsoft, and, critically, whether Elop will have built a product development team that can get the company back up to the front of the industry. Or, at least, not 2-4 years behind it.

But it won’t be easy. Apple, Samsung, RIMM, LG, Motorola and the shanzhai guys all have a running start.

China and the Oracle Gambit, or The Coming Softwar with China

Oracle logo at the Oracle headquarters.

Image via Wikipedia

In the Hutong
Still in Uniform
2052 hrs.

Not only I am one of that growing number of believers who expects Oracle to make a bid for a major computer hardware manufacturer, I also think it will be a good thing. Whatever the virtues of the present structure of the enterprise I.T. industry, the average company has so many things to buy (and so many people to buy it from) that setting up, upgrading, or rebuilding a corporate IT system has become more complex than buying a jetliner.

Give Larry a Chance

Even in the biggest of companies, this means that iT managers spend a disproportionate percentage of their time dealing with procurement, a costly distraction that takes away from what IT managers should be doing, which is figuring out ways to put IT at the better service of the company and its people.

(Mind you, there are probably more than a few IT managers who prefer things to be this way. The sheer headache of buying and integrating these systems not only provides gainful employment, it has helped turn an MCSE qualification into keys to the executive washroom. The computer guy has become a Wizard, a Guardian of Data, The Gatekeeper, the Cee-Tee-Oh.)

Yet I would wager that there are a few companies – and CTOs – who would love to have their purchasing choices greatly simplified, allowing them to stop worrying so much about the plumbing and focus on how to better use the water, if you will. I am no fan of Larry Ellison, but if he believes he can eliminate that complexity with the help of Mark Hurd and a checkbook, doing for enterprise information systems what Steve Jobs did for personal computing, I say the sooner he gets started, the better. And let him start by buying HP or Dell.

When I talk to people in the industry about this, their eyes get big, their lips purse, and they say in low tones “whoa – what would Microsoft do in that case?” After having a delightfully speculative discussion about how much Ellison would enjoy becoming Steve Ballmer’s worst nightmare, though, the question comes to China.

The China Response

China probably needs more enterprise IT than any other country in the world, by virtue not only of the sheer number of tech-handicapped companies in the PRC, but also how many still do everything on abacuses and paper or Excel spreadsheets. Experience suggests that a company able to offer simplified, integrated solutions delivered ready to configure for the specifics of each firm would have a massive market in China. And the first one to do it would have the market to itself for some time.

Maybe.

That would first depend on how Oracle would price the offering. There are circumstances when Chinese enterprises have proven themselves willing to pay a premium for a product or service, but the tendency is to look first at price.

The automatic cachet of going with the big global company no longer exists: major foreign IT suppliers are assumed to be overpriced, and have the burden to prove otherwise, especially in the face of local companies offering “almost-as-good” solutions for a fraction of the cost.

Oracle would need to price aggressively to succeed with an integrated offering in China. That sort of thing tends to mean lower overall margins, which I would suggest is the direction things are headed in enterprise IT in China anyway.

Cultivating the Competition

Second would be how China saw this changing the overall competitive landscape in the global IT industry. You can expect China’s regulators would demand the opportunity to review and approve a merger of this size, alongside their European and American counterparts.

What would be harder to gauge is the industrial response, and this is where I think it gets interesting. Many key policymakers in Beijing understand, at least intellectually, that really good corporate information technology infrastructure is going to be essential to China creating globally competitive multinational firms of its own.

At the same time, the idea of exporting boatloads of cash to foreign IT vendors does not sit well with local leaders. If China sees the consolidation of the global IT business as a threat to China’s own fledgeling enterprise IT industry, expect Beijing to raise shields.

Such barriers could take many forms. But if history is a guide, China would want to have their own national champion to serve as a foil to a global enterprise IT giant.

The way I think it would play out would be that China would play for time while looking for ways to build a domestic response to Oracle. An extended merger review would buy some time, and it would allow Chinese regulators a privileged look under the hood of what a New Oracle would look like. Regulators could also modify the procurement law to require SOE and government purchases of IT systems from multiple vendors so as to slow a merged Oracle from taking too much market share.

The end goal, though, would be to create one or two unified Chinese IT firms capable of offering one-stop shops for local enterprises looking to “informatize” (think a merger of Lenovo and local software vendor Kingdee.) Could such a firm hope to match what Oracle offers? Certainly not, at least right away.

But think “Innovator’s Dilemma” here: all the Chinese firm or firms would have to do is offer a “good enough” solution for the middle-tier of companies in China (and then India, Africa, Southeast Asia, and Eastern Europe). Not only would that give the Chinese players ample room to grow, it would let them stake a claim in what look to be the most promising growth markets for enterprise IT.

All of this is build on a deep foundation of speculation: there is no guarantee that Larry Ellison could effectively achieve the dream of a profoundly simplified enterprise IT industry, no matter how compelling the economics. The takeaway, however, is this: China could either be the cradle of Oracle’s next major competitor, or of the company that disrupts the enterprise IT industry.

Scaling up through acquisitions will not change that: it will only raise the stakes enough to invite Beijing in to midwife the birth of a company that can challenge Oracle in some of its most promising markets.

So go off and buy, Larry, and nurture the dream of making Oracle into the Apple of the Enterprise. Just remember that China is watching.

Seinfeld Won’t Travel. Pity, That.

Starbucks Guomao 1

Coffee shakes are not ice-cream drinks

1134 hrs.

In all of the attention given to Microsoft’s selection of an aging comedian to be its voice to a wider computer and software market whose tastes skew quite young, very little attention is given to a larger question:

Even if Jerry Seinfeld retains relevance and power within the United States, how is this $300 million campaign going to help the company outside of the English-speaking world, in places like China, Brazil, India, and Russia that will decide the future of the company? As Wilson Ng at SunStar Cebu points out, there are more Windows users in the world than there are English speakers.

The Global Windows Appeal

Jerry is a nice guy, after all, but he is not exactly a global icon. Microsoft needs help around the world with the challenges it faces, and that goes beyond dealing with Apple. Granting for the sake of argument that Microsoft will succeed to an extent with its Seinfeld effort in the U.S., the company needs a global consumer campaign designed to win back (or just “win”) the support of consumers around the world. And the company cannot wait for the next version of either Windows or the XBoX to do it.

Naturally, the focus of the campaign will be different, because of the severity of threats Microsoft faces worldwide, and especially here in China:

  • Piracy, or the sale and use of unlicensed or under-licensed copies of Windows. (By under-licensed, I mean the retail re-sale of software meant to be sold only with a new computer, so-called OEM packages);
  • Free and Open Source Software (FOSS) (i.e., Linux, Firefox, etc.), and
  • Localized policy efforts fighting the Microsoft monopoly and what is perceived as monopolistic-rent type costs for necessary upgrades.

In China, Microsoft has focused most of its efforts to date on working with its OEM partners (i.e, computer manufacturers) to get them to purchase genuine OEM packages to install on the computers they sell, and on large organizations to end workplace piracy in massive enterprises and government organizations. They’ve made appreciable progress there, a testament (in my opinion) to the locally-savvy efforts orchestrated by Microsoft China’s Genuine Software czar David Ben Kay and a highly supportive Tim Chen – both of whom have now left Microsoft to pursue other passions.

The Coming Global Consumer Campaign

The efforts David and Tim started will continue, but the gaping hole in Microsoft’s efforts remains with the consumer. But I suspect this is about to end, and the corporate support for the Seinfeld campaign is going to give Microsoft’s marketers around the world the chance to tackle a long-overdue consumer campaign. I’d bet we see something not long after the New Year, possibly even in time for Chinese New Year holiday season.

The cost will not be insignificant. A back-of-the-paper-napkin guesstimate would put the cost of a global Microsoft feel-good campaign at between three and five times the planned spend on the Seinfeld campaign, with probably 20% of that going to greater China. Microsoft has the cash, so the cost really is not the problem.

The problem is connection. If Microsoft turns the Seinfeld campaign into a win, it will be because the company’s decision-makers – the guys with their finger on the budget button – have a superior grasp of consumer marketing and retain something of a psychic connection to the people who use Windows in the U.S. and the other anglophone markets where Jerry might have an impact.

Whether Microsoft has or can build that psychic connection in China and markets around the world, and whether the executives in each of Microsoft’s respective “subs” possess strong consumer marketing skills will determine whether such a campaign has a shot at success.

The Seinfeld campaign is a signal. Whatever needs to happen at Microsoft to get the software development machine back on track will only be the beginning of what they need to accomplish. The other part is turning Microsoft into a genuine consumer marketing organization.

Because the global standard in the technology and innovative industries now lies at the nexus of superior products and powerful communications.

China and the Salvation of Windows XP

Pacific Century Starbucks, Beijing
Dust in the wind
1343 hrs.

Galen Gruman at IDG publication InfoWorld has done the technology industries a community service, building a petition signed by 100,000 computing industry professionals imploring Microsoft to continue selling Windows XP after June 30, the date Microsoft plans to remove the older version of its personal computer operating system from the shelves. Getting 100,000 IT professionals to do anything together without the incentive of a free t-shirt, free software, or an opportunity to meet females is quite a trick, so IDG’s survey is an illustration of how emotional this issue has become for those of us not using some flavor of Linux or Mac OSX (our favs here in the Hutong).

At least, it is an illustration of how emotional this has become outside of China.

While I am certain Microsoft CEO Steve Ballmer would say that the (relative) lack of uproar in China about the impending forced-march upgrade to Vista is due to the fact that Vista is the most loved OS in China’s history, I beg to differ.

I would say piracy is the reason for the silence.

Jack Sparrow, Vista Killer

People are somewhat less worried about the availability of Windows XP in China because they know that XP will be available here for as long as anyone wants, and for a very small price. (Without Microsoft support, certainly, but available.)

Microsoft has made tremendous progress against piracy in China over the past several years. The problem is far from beaten, but the company has more than doubled the percentage of people paying for their Microsoft software.

But by taking Windows off the shelves, Microsoft appears to be creating a perverse incentive for people who might otherwise buy legitimate software to resort to piracy. Indeed, Microsoft appears to be creating the ideal conditions for a thriving market in illicit copies of Windows XP after June 30, and not just in China.

Certainly, Chinese users who prefer Windows XP to Vista will have few compunctions about turning to one of the thousands of enterprising vendors to be found on our city streets for a budget-priced DVD if they cannot find it in legitimate places, like Federal Software or on the hard drive of their new computer.

But it won’t stop there. Microsoft is almost inviting China to play a leading role in the global anti-Vista backlash. Imagine, if you will, hundreds, even thousands of visitors passing through China during the Olympics, picking up a copy or two of XP to take home.

Imagine IT consultants all around the world continuing to install those copies of Windows XP in new computers – for a service fee.

Imagine computer dealers and manufacturers offering (nudge nudge, wink wink) to install XP in the new computers as an option. It will certainly happen here in China.

Imagine a thriving online marketplace in downloads of Windows XP.

It will happen. Commerce, like love, will always find a way.

What Microsoft would kill, pirates will revive – and sustain.

Inviting a Challenge

In fact, the issue is already causing many people here in China to wonder whether there is a legitimate principle (under fair use or some similar legal tenet) that wokuld support enterprising merchants who wish to sell – or give away – copies of a software product for which there is a continued, legitimate demand after the manufacturer has removed it from sale.

We in the Hutong are no fans of IP pirates, nor are we particularly fond of people who break any law because compliance is inconvenient. We remain firm believers that creators of intellectual property have the right to be rewarded for their efforts. We believe that if you disagree with intellectual property (IP) law, the proper response is not to ignore the law, but to change the law or challenge its underlying principles.

By pulling XP from the shelves when people still want to buy it or use it merely to compel people to spend more money on (what they believe to be) an inferior product, Microsoft may be opening a legal can of tubular invertebrates, if not in the U.S., certainly in China.

The root of legislation is perception, and the perception that Microsoft may be taking advantage of intellectual property laws to hold users over a barrel may be just enough to incite a legal challenge in China not only to Microsoft, but to the core of the relatively young body of law protecting the rights of software companies.

The logical principle is this: if Microsoft stops selling an IP-based and there is still a market, could a case be made that Microsoft has abandoned the product, and that the law should allow for someone else to sell it?

Even Galen Gruman, no man’s idea of a socialist, suggests in his InfoWorld article that the very ubiquity of Windows has made it a public good supplied by a private entity, thus subject not to the normal system of rules regulating commerce, but to those principles that govern utilities like the power grid, phone service, and air transport. Galen’s implication is that the Windows case calls for a suspension of normal rules, if not direct government intervention.

Policy makers in China, who have long watched Microsoft’s growing power with consternation, will likely at some point join their counterparts in the European Union as activist watchdogs over Redmond’s global business practices. Stung by what they see as the America’s overenthusiastic use of intellectual property law to protect its creative an innovative companies, the Windows XP issue may well provide the high ground for China to take a stand against a flawed body of intellectual property laws imposed on China by its WTO accession.

That’s a slippery slope.

Thinking Beyond Vista

No doubt Microsoft wants Vista to succeed. What worries me is that the company’s leaders may well have convinced themselves that Vista must succeed for the company to survive.

It is time for Microsoft’s leadership to take a step back and ask themselves if killing XP to save Vista isn’t a step too far, and to recognize that the unintended consequences of their efforts could have a far more deleterious long-term effect on the company’s prospects than would the failure of Vista (and the continued success of XP).

Solving the cc: Conundrum

In the Hutong
Contemplating my iTunes account
1933 hrs.

Talking with Tay Kuan Yan over at Hoffman Singapore the other day got me thinking about how lazy people are with e-mail.

Instead of really thinking about who needs to see what, most of us simply pile on the names in the To: and especially the CC: fields, hoping to ensure that everyone who needs to see the thing – or who eventually may wish to see the message and its contents – gets a copy.

On the receiving end, not only does this mean having to slog through an interminable list of emails that people send to you just to cover their posteriors, it also means that you are expected to be responsible for the entire content, even if it was just sent as an FYI.

People and corporate politics such as they are, we have to wake up to the fact that the CC list will be the bane of most of our lives for some time to come.

There is, however, a way to make all of this a little better:

Tags.

The problem is that the “To” and “CC” fields don’t convey enough information. E-mails have to be rethought to convey at a glance not only the importance the sender assigns to the message, but what he expects in response.

Sure, you could say “gee, Dave, why couldn’t you simply include this information in the body of the text?” Sure you could. But that’s cumbersome, and it underestimates the power of the tools we have in our hands today.

That’s why I like the idea of tags that are specific to each recipient, and are simple to choose from.

An open system of email tagging, similar to the priority/urgency tags that come through, that tell each person receiving an email how much attention he needs to pay to this. Each time you add a person’s name, you simply select from a pop-up menu of options such as “For your action,” “read and be aware,” “for your records,” “keeping you in the loop,” and other definable tags of that nature. In that way, each person knows how you expect him or her to handle the email.

The other approach would be to add additional address fields, but that would make the header of the mails extremely complicated and larger than they already are.

Anyone who takes on that idea would be a huge help to those of us who run our working lives – and our businesses – via email.

eKarma: Have a Little Virus, Pirates

Third Ring Road East
Breathing deep the inversion layer
1022 hrs.

Steven Schwankert of Village Grouch fame wrote an excellent piece for IDG (picked up here in The Washington Post) describing how Chinese fans seeking to download illegal copies of Ang Lee’s excellent film “Lust, Caution” are finding on their hard drives not a copy of the film, but with software that pops a nasty little trojan virus into their systems.

There are several interesting aspects to this story.

Virus? What Virus?

First, it was apparently found and addressed by Kaspersky Lab and Rising Software well before it came up on the collective radar screens of Symantec, McAfee, and TrendMicro. One wonders why this is the case, particularly given that Symantec and McAfee tout the value of their software in part based on their global scanning for viral threats. I am especially concerned about TrendMicro, who have a huge presence in China and who make a great deal about their expertise as an “Asian” security company.

It also suggests that the malware threat in China is growing and diversifying. From dorm rooms filled with budding software engineers, to the challenges facing the country’s law enforcement teams, to the quiet but rapid growth of China’s cyberwar military-industrial complex, the country has become as much a haven and spawning ground for creators and distributors of Malware as the United States or any other country. This would seem to argue for greater investment by the computer security vendors in local labs who can not only find but anticipate new threats.

As an aside, it would also seem that companies like Symantec are destined to become major defense contractors. But we digress.

The Empire Strikes Back

Second, it seems that Hollywood (including the music and TV people as well as the film side of the business) and the software industry may have inadvertently discovered a way to slow online piracy and perhaps even the growth of downloaded content. All the studios – or, better yet, the MPA and the Business Software Alliance – need to do is hire a few good hackers to come up with some particularly nasty viruses and spread them around online disguised as illegitimate digital copies of random applications, movies, and music files.

Sure, the viruses would not deter the most determined or careful downloaders, and the anti-virus companies would inevitably come up with fixes. But imagine, for a moment, the fear, uncertainty, and doubt this would wreak among the less-expert. The mere possibility that these files would include viruses would be enough to drive a lot of marginal downloaders away from illegitimate downloading (and probably a few away from legit downloads as well).

Naturally I would expect clearer heads in the PR and legal departments of these organizations to prevail, ensuring that neither Hollywood nor the software industry would ever actually subsidize – or even publicly condone such practices. But you can easily imagine how such an option must tempt some people in places like Redmond and in the Black Tower.

Indeed, if the matter of digital rights management has proven anything, it has proven that Hollywood and many large software concerns believe that extremism in the defense of intellectual property is no vice, and that goodwill is readily sacrificed in that battle. If anything will keep hackers from high-powered lunches at the Ivy or the Fulton Fish market, it is the fear of court costs.

Nonetheless, it is fascinating, if not a bit disconcerting, to think that there is a commonality of interest between the creators of malware and the creators of movies.

Engineer, Engage the FUD Pump

What I do expect is that the IPR-driven industries will kick into gear a semi-coordinated propaganda effort to ensure that stories like the “Lust, Caution” become as widely known as possible, so that the threat is seen as being far larger and more serious than it really is. This costs them little, supports their goals magnificently, and enables the studios and developers to position themselves as defenders of the public interest.

Which, frankly, is the smarter way to handle it. You steal, you pay. Or, you pay, we protect.

For all the failings implicit in Hollywood’s approaches to the IPR issue and digital entertainment, let’s not lose sight of the most important fact – downloading illegal files is theft, theft is wrong, and anyone who does so willfully probably deserves a hard drive filled with malware.

Windows and Hoops

In the Hutong
Slowly decompressing
1456 hrs.

As Tim Chen makes his move from the leadership of Microsoft China to his new chair running the NBA here in the PRC, everyone seems to be asking two things: how badly will this damage Microsoft, and why is Tim doing this?

To answer the first question, you have to look at why he was brought into Microsoft in the first place.

The People Artist

When Mr. Chen arrived at Microsoft four years ago, the company faced challenges on all fronts. They were seen as distant and arrogant by consumers and the channel, all of whom ; manufacturers resented the company and brazenly shipped computers loaded with pirated copies of Windows; the government was making noise about Microsoft’s perceived monopoly and was openly supporting Linux and other free and open source software; the company was getting no credit for its research and development efforts in the PRC; and, to make things worse, relations between Microsoft’s own people in Redmond and Beijing were hardly optimal, fraught by misunderstandings on both sides.

Certainly from an outsider’s point of view, all of these things were getting worse – so much so, in fact, that many of us wondered if Mr. Chen had taken leave of his senses by leaving the rapidly-recovering Motorola to go to work for a sinking ship.

As it turned out, the move was a good one for all involved. The company’s own press release suggests how things are getting better, but there is more to the story than Microsoft is giving away.

(Note, before I go on, that I am not what you would call a Microsoft fanboy, nor do I consider myself a particular Friend of Tim’s. I’m speaking with an outsiders perspective here.)

Turning a Corner

In the space of four years, Mr. Chen ensured that the company reversed its slide with all of its critical audiences, not by micromanaging, but by catalyzing change in each problem area through personal attention and careful appointments of key managers.

Across China, the company began rebuilding its reputation with consumers, enlisting deeper support among the channel, getting key manufacturers to begin paying for pre-installed copies of Windows, reinvigorating its relationships with government across all portfolios and all levels, and making significant progress in its fight against piracy. The government’s outspoken efforts to drive the adoption of Linux have faded, and the company is getting more credit for its R&D.

Internally, Mr. Chen pulled the company together by installing experienced, China-savvy leadership in each department. He built a bridge between Redmond and the “sub” in Beijing through increased contacts and an all-out effort to educate headquarters in the challenges – and opportunities – the company faced in China, while at the same time proffering solutions rather than making excuses.

After Tim

To credit Mr. Chen alone with all of the improvements in Microsoft’s fortunes in China over the last four years may be stretching the point. But as my father was fond of pointing out, a fish stinks from the head. At the very least, Mr. Chen was a critical agent of change, applying effort and attention in those places where he saw that properly-applied effort would help turn specific problems around.

What he left behind was a company heading in a far different direction here than it was when he found it, with the people and systems in place to continue that momentum. Assuming Microsoft can choose a successor (whom, for the moment, remains The Player to be Named Later) with a vision that will ensure Microsoft continues to address its problems and grab its opportunities in China, the company’s future in the PRC looks bright indeed.

After Microsoft

By all rights, Mr. Chen’s efforts at Microsoft should have won him greater rewards and opportunities inside the company. In all likelihood, that was not in the cards. Growth for Microsoft is now a matter of adding and acquiring new businesses, and the company’s senior leadership is fairly set in place. Mr. Chen’s growth opportunities at Microsoft would probably have been largely limited to growing the China business incrementally. That’s not a bad opportunity, but it’s probably not the sort of thing to keep a guy with solid entrepreneurial/intrapreneurial instincts happy for long. Having to fly economy class on trans-Pacific business trips probably didn’t help.

The NBA makes great sense. While people closer to Tim than I have joked that he was making the change to get Olympics tickets, my bet is that he is even more excited by the scope and depth of opportunity open to the NBA in China specifically and Asia generally:

• First, the NBA is seriously ramping up current activities, and they go way beyond player recruitment, licensing, and the occasional exhibition game. The NBA China Games, NBA Madness, NBA FIT Camp, Jr. NBA, and the NBA Cares Tour, plus all of the work with the Olympics, Special Olympics, and Paralympics should keep Mr. Chen busy for a bit.

• Care and feeding of sponsors like Haier (the official HDTV of the NBA), Lenovo, (the official PC Partner of the NBA), DHL Express (the offical Logistics Partner of the NBA in the Asia Pacific region) will be important, as will cultivating new sponsors the NBA wants and needs for its broadcasts and live activities in the region.

• Deeper licensing opportunities, extending past the NBA to include teams and individual players, would benefit greatly from someone like Tim with his experience fighting IPR violations.

• There are a host of unspoken opportunities implicit in cloning the NBA in China. The NBA’s partnership with the Chinese Basketball Association has a lot of room to grow.

Plus, let’s face it: the NBA is more than sports, it’s show business. Hopefully, Mr. Chen will have a lot of fun.

Congratulations, Tim.

Dell Picks Ubuntu

Purely beyond my evangelism around Ubuntu Linux as my second-favorite Windows Alternative (Mac OS X being first), there is something kind of cool about a huge Texas computer manufacturer selling computers with an operating system underwritten by Africa’s first astronaut…

First, let me lay aside for a moment by DellSmacker and say “great job, guys” for taking a seemingly small but significant step toward offering users a wider choice of operating systems by offering new Dell computers preloaded with Ubuntu. In all of the years Dell has sold computers, you could change anything about the things, including the type of processor, but you could never change the fact that your computer would ship with Windows.

Now comes the question: can they actually market this, or will it just go onto the options page and die?

We will get to that after we have had a chance to see. In the meantime, credit where credit is due. Kudos, Dell.

Update: Actually, Dell DID offer Red Hat before, in 2000-2001. They stopped selling it after a year. It just went away. Industry watchers suggest it was pressure from Microsoft that caused them to stop.

Which, again, all points heavily to the question: how much is Dell going to put into supporting this. And how much is Canonical?

Gates Blows Out Windows for Kids

In the Hutong
Growing sores on my tuchas
2114 hrs.

Apparently deciding that getting $3 per computer in schools was better than nothing, Bill Gates announced in Beijing last week that Microsoft would sell a version of Windows called Microsoft Student Innovation Suite at said price to government customers buying Windows-based PCs to primary and secondary school students.

The timing was more interesting than people think, and had nothing to do with his trip out this way.

See, at the same time Gates was announcing his 99% discount on Windows for schools, Canonical software was launching and offering for free the newest version of the company’s extremely-user-friendly version of Linux, Ubuntu 7.04 (Feisty Fawn to its friends.)

Now, I’ve extolled the virtues of Ubuntu 6 as a better alternative to Windows XP. By all accounts (I haven’t been able to get my hands on a copy yet), Ubuntu 7 is a leap forward in ease of use, to the point where many people – myself included – would never think of going back to Windows.

Whether the guys in Redmond admit it or not, in countries around the world where large chunks of the population live on $1 a day or less, Ubuntu is in a great position to squeeze Windows out of some pretty lucrative markets. Bill’s $3 gambit is not about stopping piracy. If it were, he’d make the deal more broadly available. Bill’s $3 gambit is about stopping Ubuntu.

Which of course, is free (as in “free beer,” and “free disks mailed to your home or office“), and comes with all kinds of excellent software. I can say now with conviction that if I were ever to be forced to give up Mac OSX, Ubuntu can do anything I need to get done.

Let the battle begin.

SAP: Choosing the Future

In the Hutong
Choking on a Centrum
1923 hrs.

Renee Ferguson over at eWeek wonders whether Shai Agassi’s departure from SAP signals that SAP will “sink back into stodginess.”

I’ve spent a little time working with the folks at SAP on stuff here in Asia (though not anymore), and I think both the markets (SAP dropped 2.4% at one point following the announcement) and eWeek are making a big deal out of nothing.

A Team of Leaders

Sure, Shai Agassi loves to jump in and mix it up a bit in press conferences and the like. Agassi stood alone among SAP’s leadership in his willingness to talk trash about the competition, especially Larry Ellison and the rest of the San Mateo Mafia. That kind of stuff makes for good copy, and tech journalists like Ferguson understandably like good copy.

I think what eWeek is worried about is not SAP’s stodginess: she’s worried about finding somebody colorful to write about.

Frankly, SAP’s management team has plenty of colorful characters. I continue to be a big fan of Henning Kagermann, the current CEO, who comes off as friendly, professorial, and brilliant. His quiet, strong leadership is probably best likened to that of Reuben Mark, the anti-celebrity CEO of Colgate-Palmolive who eschews the limelight in favor of – get this – actually leading the company and driving performance.

People also may not realize that Leo Apotheker is a no-nonsense guy who is every bit as capable as Agassi of colorful talk. That he keeps it restrained is more of a reflection of SAP’s desire to avoid dancing on the heads of competitors. The company was born as an underdog, and triumphalism does not suit them. Watch Leo in an SAP sales conference, however, and you get the feeling that the troops adore him.

What Plays In Peoria

Finally, most of the Valley crowd has yet to figure out that the sort of broadsides that Ellison likes to hurl tend to backfire outside of American – and perhaps European – culture. For all of his Japanophilia, Ellison seems to have trouble with something the SAP team seems to know instinctively: in the enterprise software business, you sell to the world, not just to Americans. The remarks that bring guffaws in New York and San Francisco can elicit little more than shaking heads in large parts of Asia. One man’s F.U.D. is another man’s silly trash-talk. As any company in the enterprise software industry will tell you, Asia is where the growth is, both in licensing and service. Over here, strong, silent, mature confidence wins over more decision makers than dissing – or suing – the competition.

Here’s my question: what happens if you match up, man-for-man, the leadership teams at Oracle and SAP? Which company – lawsuits and recent forecasts notwithstanding – looks like the better bet in the long term?

SAP should be applauded for being ready to sacrifice such an important executive to something far more important – the long term stability of the company and its products and services, which together form a platform on which many of the worlds biggest (and smallest) businesses depend. Journalists and analysts must remember that in the end, SAP made a choice that put its customers ahead of the stock price.

Ubuntu 2006 is Red Hat 2000?

In the Hutong
Work Avoidance Detail
1335 hrs.

CNET has a decent article by Stephen Shankland about how Canonical, the company behind Ubuntu Linux, plans on building a global business by giving away its software and selling service. The article takes a rather dim view of the approach, questioning whether that’s going to make it for Mark Shuttleworth and his band of South African software revolutionaries.

Guffaw on, CNET, but in China I don’t think anyone would laugh. As the nice folks over at Microsoft and the Business Software Alliance will happily tell you, it’s proving exceptionally hard to talk people in China into paying for software that can be downloaded in a zip file or shrinkwrapped and sold at a counter. I’m not sure it’s going to get any easier.

It’s the Service, Stupid

When I look around China for companies who are managing to make money in the software business here (with the exception of those who use strong-arm tactics to get users to cough up licensing fees – and we all know who we’re talking about – or who have captive audiences), nearly all of them are doing so on the basis of delivering value that goes beyond the software itself.

You won’t find very many people knocking off SAP, Oracle, or IBM’s db2 (or Lotus Notes, for that matter). All of these have a built-in service component, and frankly, the reasons a Chinese enterprise would buy something from SAP would be a) the industry-specific nature of the product, and b) the implementation process compels a company to adopt international practices that are going to make it globally competitive. When you can sell something that carries a value that is built into the process of adoption, for which help is needed, then you have something to offer.

Salesmen of China’s local ERP software like UFSoft and Kingdee have been selling their software at cost, and making their profits on the service involved in customizing the software for a specific company. The value, UFSoft likes to point out, comes from the service. The software is a loss-leader. The product is sold as a part of an overall package that includes customization, implementation, and support. Indeed, UFSoft likes to say that while the rest of the world began in The Age of Hardware (IBM as leader), evolved to the Age of Software (Microsoft as leader), and is evolving into the age of service (ERP, ASPs, and the like, no leader yet), China is leapfrogging the software age, going directly from the Age of Hardware to The Age of Service.

In other words, if you plan on making money in software in China, chances are you’re going to spend a lot of money on lawyers and lobbyists on the road to profitability, and you may never make it into the black if you stay on that course.

Give Away the Razor. Sell the Blades.

This brings us back to Ubuntu. Will anyone make money on this? Absolutely. Look, just to play with Ubuntu on my Mac, I’ve laid out $15 for a copy of the software from Ubuntu, because I didn’t have the time or patience either to download it or go and chase somebody at the Beijing Linux User Group for a copy.

I then bought two books – Beginning Ubuntu Linux by Kier Thomas and Ubuntu Linux for Non-Geeks by Richard Grant. There was some overlap, but Thomas focuses more on getting Ubuntu configured for your computer and providing a step-ladder to more complex stuff, like command-line work, while Grant is much more focused on using Ubuntu to get stuff done. Altogether I’m out around $90, and I haven’t had any tech support (this also doesn’t take into account the $79 I spent on Parallels to allow me to run Ubuntu in a window on my Mac.

If I were running a business, would I pay $250 for 18 months of support per seat? Definitely. That would still give me a lower cost of ownership than Windows.

At the same time, I think Canonical has to take a little page out of Microsoft’s book if it’s going to do well in China. Apart from offering superb local language guidebooks, Canonical should also run Ubuntu courses for everyone from users to CIOs, offer certifications on each version for local consultants, and offer custom implementations of its other products, thin-client focused Xubuntu Linux, and primary-education focused Edubuntu.

Unfortunately, Canonical has yet to even open an office in Asia, much less begin to understand what it can do to drive itself forward in China.

Come on, Mark. Cough up some cash and get your feet on the ground over here.