Apple's business model in China

I talked to a friend in China last week, and he is expecting that his friend is going to bring him an iphone from U.S. later. "Could u use it in China?", I asked. "Definitely, a lot of my colleages have been using it for a long time", he said.

The fact that the decoded iphone has become very popular in China. According to unofficial data, there are already 400,000 decoded iphone running on China Mobile's network. Of course, it is illegal, but people seems pretty much enjoy the service....(not sure if all the applications will work, but definitely surfing on the internet is the best attraction).

Speaking of this, Apple and China Mobile are still yet to start the official negotiation. I guess the point is that Apple is stick to the profit sharing model it was using in the collaboration with AT&T or some European Carriers. However, in China, the dynamics between carriers and service providers are not quite the same. And more importantly, China Mobile dominates over 60 percent of the market, which has much more market share compared with AT&T in U.S.

Besides sharing profit with carriers, Apple should focus more on selling the content to users via iphone, such as music or video. In some extent, it's more like printer business. firms make 90 percent of the money from cartridge instead of selling the printers along.

In addition, China is going to issue mobile licenses to fixed-line operators such as China Telecom and China Netcom soon this year. Apple's iphone is definitely a big attraction to customers, which will help carriers increase the user loyalty. Some investment bank in Hong Kong said Apple shouldn't partner with China Unicom, but I don't think it is 100 percent true. China Unicom definitely needs iphone more compared with China Mobile, which may lead to a better deal for Apple.

For emerging markets with more carrier monopoly, Apple should change its strategy to a more user-friendly one. Users are everything, and it's better to provide users service sooner than later. There is also chance to cooperate with small/new carriers in those countries, if Apple could assure the service quality of customer support is the same.

It's always not wise to wait for things to change. Better change something first, my two cents to Apple.

iphone's Chinese sister

You may not believe this, and I don't believe it as well. But according to this website, some Chinese manufacturers developed a phone called Hiphone with the similar interface and application. It is only sold for less than US$125.

First, they have to watch out the certain legal lawsuit from Apple. But I have to admit those manufacturers become more and more innovative and creative. In fact, they have enough ability to develop their own design, instead of copying others. That's why China should implement IP protection regulation strictly. The law itself will help push manufacturers to be more creative, instead of trying to steal sth from others.

Facebook Mobile

I signed into Facebook Mobile last week. It's very convenient to receive and send updates for the Facebook mobile. However, the service is kinda of expensive since my AT&T carriers will not only charge me messages I send, but also messages I receive. I would call the second charging "passive payment", since I couldn't really control on how many updates I will receive from facebook every day. It's a business model which expels customers from using the SMS service more.

That's the situation in the fragmented U.S. mobile market. Since there are many carriers, the interconnection cost is so high that customers have suffered a lot of benefit. In the terms of MicroEconomics(which Amy is studying on), the high price of interconnection(such as SMS between different carriers) have created a dead weight loss in the whole revenue map. Both carriers and mobile users leave money on the table.

Internet could help change all this. There was once a website which has the potential to challenge the whole situation. It is the skype. However, since Ebay itself doesn't have a lot of operating experience in telecom, Skype now becomes something stuck in the middle without any future innovative move.

For Facebook Mobile, I would suggest them learn from Tencent in China, which provide the service of Mobile QQ to customers. (5 yuan per month for unlimited messages between online and mobile chatting service, that's the price I remember). It is the only way to attract users to the SMS service, since we know customers always want to control on how much they gonna to pay.

Happy Chinese New Year

Amy has been busy with her mid-term.......

So forgive me for the late New Year wishes. Hope every wonderful dream will come true in the year of rat.

What could we do?

I remember one thing impressed me most of Stanford Graduate School of Business is its mission to "change lives, change organizations, and change the world". Students come to school with strong feeling about this mission, and they are willing to bear the mission in their mind for the whole life.

It's easier said to be done, people always say. I feel the same way, especially in the current moment that China is experiencing the worst-ever winter storm in the southern part. (pic from Red Net) It's horrible to see a lot of people suffer from the cold weather. The direct loss already reached 54 billion yuan today. It is so unusual for South China to have snow, since I know a lot of my friends from south China never saw snow before. Now the whole public transportation system, including railway and flight, has been affected, and millions of people may not be able to make it home to celebrate with family for the Spring Festival. The Chinese government spent a lot of effort in securing people and arranging transportation, but the situation has been difficult.

What could I do? It's hard to change the world this time because the weather is out of my reach. It's definitely not an easy call for a MBA student. It feels bad to think in that way, but it is the fact. However, I am now thinking of the reason for the terrible snow storm, and more importantly, what I could do to help in the daily life, such as how to stop a warm earth, or how to reduce the use of "dirty" energy. I believe the effect will be big if everyone on the earth could do a small thing. and I will start doing it now.

I will be involved in organizing a service learning trip of 20 people from Stanford GSB to West China, focusing on environmental protection and clean energy. Let me know if you have any contacts or advice. Thanks for supporting our first step.

Start-ups in the valley

It's amazing to meet a lot of creative and sharp entrepreneurs in the valley. Everyone has a lot of wonderful ideas, and more importantly put them into reality. I met two great enterpreneurs tonight. Amar Goel and Rajeev Goel set up an online advertising agency connecting publishers and ads network, using auction strategy to serve the advertisers more efficiently. I used to think it's hard for Internet people to understand traditional advertising, but I know I was wrong when I met them. People talk about online advertising more like a thief who stole revenue from newspaper and TV, but that's not true. Pubmatic does provide the service that no one provided before. It is easily set up to target at certain users group, and more importantly, advertisers easily know if they get a good deal.

It reminded me of the managerial economic lesson I learnt today. There was once a fish market in Indian that people only trade verbally. The volatility of the price was very high. However, with the cell network coming to the village, the fish men could call around to look for the price, and then trade. The price became stable since then. It's amazing to see how communications change the village. Now, the same thing applies to Internet advertising: every thing becomes transparent, which means more capital will be willing to come in.

So that's the future.

Whistler beauty

It's amazing to see how pretty Whistler is. White mountains, snow trees, an amazing view connecting the sky with the snow. Oh, I feel relieved from the super busy study and business, and fell in love with this pretty place immediately.

It's also amazing to see how many people come to Whistler for skiing. A lot of them are from either U.S. or Vancouver. The canteen on the tops of the mountain is fully packed, which means the occupation rate may possible reach over 90 percent for the whole capacity. Hotels, lifts, private lessons, food, equipment sales and rentals.... seems this is a very health business. Maybe I should buy some of its stock. So I did a little research and found some interesting stuff. The whistler mountain is managed by Intrawest ULC, a Vancouver-based company. Intrawest used to be listed in NYSE and Toronto Exchange, but went private in Oct 2006. An alternative investment group named Fortress Investment bought the whole company for US$2.8 billion. Not sure how they are going to exit the investment, possible doing an IPO again or sell it to another big resort development firm. To me, it is a very good investment, at least from the fundamentals.

My only suggestion is that they should improve the quality of the instructors. Some of them are really bad.

What makes online shopping fun?

One good thing living in U.S. is the convenient online shopping. You could almost buy everything online. My favorite part is to buy clothes. There are a lot of websites selling designer clothes such as bluefly.com. The wonderful interface design made the online shopping very enjoyable. Victorial secret also had a pretty cool online shopping site. I used to believe in going to the real shop to buy clothes, but now it seems not necessarily.

Several days ago, I started to shop ski clothes. My friend recommended the website www.sportsbasement.com. It is founded by a GSB alumni as I overheard. The pricing is not bad, though the quality of those pictures are not perfect. I have to go to websites such as Northface.com to find the high-quality pics to compare different clothes. But it's a great fun, and in fact very time consuming. Now, I got one Northface alpine jacket and a Salomon waterproof pants from them. The bad thing is they don't really update their stock often. So there is a big chance that you buy something online, but they don't have it in stock. It makes a really bad customer experience though they will give a 20 percent discount and free shipping fee.

Just read from Lightspeed blog that female is the major force in social networks. that's very true. I believe in the online shopping space, it's the same thing. Especially in China, when female has more money and more independence to spend the money. hmmm, good business opportunity.

Google Naps

I had my first tour in Google today, and of course, free Google dinner. (They do have a lot of chefs) but I would suggest better Chinese food. (I tried Italian though)

It is a very casual place, kinda of like a school with a lot of cool gadget, from the almost-real spaceship as well as the massage room. The most interesting thing to me is the Google Naps. It's a little bed(or chair) with a big white round "hat". You could sleep inside while nobody could see you from outside. (maybe they could only see your legs)

Walking in Google, I feel strongly the engineer culture. A lot of cool stuffs, and a lot of smart people. No wonder they are doing something great to change the world. However, the company grows so fast right now, and a lot of workers have to share rooms. For example, three people will share one little room. Personally, I do like a bigger space, because you couldn't have a free thinking in a very limited room. So Google should buy more real estate right now to expand the space, and it's also a good time to invest in real estate in U.S. right now.

Growing from a small company to the world's largest one must be a tough process, and I believe Google is on its way, not easy.

Online Fraud and social network

Hom important is online security? It is very important. Just read an interview with Max Levchin, the cofounder of Paypal. He said the biggest competitive advantage for Paypal is it knows how to deal with online fraud. Now I experienced it in the real life.

I have been doing researching on buying a used car. The site my friend recommended me is Craigslist, which is very popular in U.S. for the listing of various selling stuffs. I look for the cars I am interested and usually write to the email listed in those posts. One day, I found a Lexus car in a good shape but very cheap price. So I wrote to the guy, and got a very detailed email. This guy named Tom sounded very sincere. and the pictures of the car looked perfect. Here is some of the quotes:

"I am now located in London, UK and I feel very comfortable using a service like eBay. I need to know if you are interested to buy my Lexus because I want to use their service. I just moved here a couple of months ago and I can't use it here because it is a left side wheel car. The car is still registered in the States. It might look strange but my price for it is $4, 000.00 in US dollars. If you want it I can arrange a shipping process with Lufthansa (paid by me and my wife) for you to receive it in less than 3 days. Shipping will not cost me that much, as my wife used to work for Lufthansa here and now, although she is not working there anymore, she still has great discounts with the company. That is why i offered to pay for shipping. With all this being said and in order to get this started please let me know your delivery info (where to send the car to) and your full name. "

I almost fully trust him, before I started a little search on Ebay. Since this guy would like to use Ebay, then there must be some post from him already, and I would like to see the bidding price right now. Then something unexpected happened. I found a piece from a U.S. dealer in midwest of the country posted the exactly same pictures of this car. Totally the same pictures from the same angle and in the same places. It means at least someone, either Tom or this Ebay dealer, is cheating. So I wrote to Tom on this, and nobody replied me on this.

So now I got to the conclusion. Tom is cheating. Since there is no feedback on Craiglist, I would never who tells the truth and who is cheating. The only thing I could do is to try my good luck and do more research.

How to solve the problem of online fraud? Paypal uses technology to solve this problem. There is another way, through social network. People will give feedback or even rate the sellers who are honest, and discredit those cheating people. I have the experience in looking for a auto mechanic shop on Yelp.com, and people's recommendation does provide a lot of insightful information. (You could even learn who out of the dozens of repairers you should go to in a specific auto shop). There maybe cheating too, but the power of a wide social network is so strong that you are unable to hide your bad online behaviors. Someone will always point you out.

That's how the real society works, and the same to the "virtual society".

Happy New Year, everyone

It's been a long but fruitful year for Amy. Hope you also had a wonderful 2007.

Now everything is new in the coming 2008. Please do enjoy and have fun.

Here is my best wishes from California. (pic is the beautiful Santa Monica Beach in Los Angeles)

"Walking along the beach, breathe, relax and let your mind wander"

pics for the LA/NY trip

Remember the scene in Desperate
Housewives. It was shot here in
Universal Studio in LA.













Shooting in the corner of a street in LA















New York Time's new fancy building. shot after the meeting with Bill Keller, one of the most important news person in U.S.















Five Horrifying Women, Picaso's most inspiring arts work, gave me a different angle to enjoy the modern arts. (Shot in Museum of Modern Arts in Manhattan)

Link to our media trip to LA/NY

Finally our crazy-busy media trip finished, but it will stay in everyone's memory for a long time. I wrote the blog for the trip, which could be seen here

Media is a huge asset in U.S. After talking to creative Hollywood writers/producers and the critical media such as New York Time and Newsweek, I got a sense on how the media has shaped the American culture. People in media pursue independence, creativity and fairness in producing their works. A lot of them consider it as a life-long career and a hobby. We see how Disney changed people's view towards the world, and how New York Times generated daily topics on the table.

Also, the media industry changes very fast, while no one could predict the future, even including the executives in big media companies, which has made media industry a quite fun place to work in.

It's difficult to run a media organization in this stage, but there are still a lot of smart and hard-working people working on this. I am sure media will go back to the central stage very soon.

Visiting Hollywood

Amy is on the trip visiting Hollywood. It is very impressive to see how passionate people here work on their production. Intellectual Property rights should be well protected everywhere, including China.

Studios here are very amazing, such as Sony Entertainment and Walt Disney. With over one hundred year history, Hollywood is not only a brand, but also a resource of creativity. It is from the creativity that global audience gain. There are a lot of models that China could learn from, and there are a lot of things China could do to tell about Chinese culture to the world. Hopefully we will have our center of Chinese creative business later.

Winter is coming?

When everyone outside China is enthusiastic on the opportunities in China, some candid Chinese enterpreneurs said they are preparing for the winter's coming. Here are some quotes from the 6th China Enterpreneur Summit held in Beijing on December 8(in Chinese).

Ma Yun, the president of online B2B portal Alibaba.com, who just raised $1.5 billion from its IPO, said:

"The reason why Alibaba is preparing for a listing is to prepare for the winter. In 1999 and 2000, the Internet suddenly turned into winter when everyone was still talking on its exciting future; the same is happening now while something is going wrong with so many concept of web 2.0 or 3.0. So I want an IPO now to be ready for the winter".

Liu Chuanzhi, the president of Lenovo Group, whose private equity fund got over 8 times return in the past three years, said:

"We are doing a quick research on our industry investment now. We are not afraid of the coming winter, and we will do what we should do in the winter. The most important thing is what will happenin the winter and what we could improve to adjust the winter."


I don't really care when Wall Street Journal and Financial Times say winter, because it is always the media's job to give critical view. But if the "winter" comment is from two of the most respective and successful enterprenuers in China, I give a lot of credit on this. It is a good thing that they are still rational, and working on what they are due to do, instead of what they are imagined to do.

Li Ka-shing bought facebook?

Every move of Li Ka-shing is news. so did this one. Wall Street Journal reported that the Hong Kong billionaire has acquired 0.4 percent in facebook for $60 million, following a $240 million investment by Microsoft in October. Financial Times reported that Li is going to buy the shares through Li Ka Shing Foundation, his charity vehicle. FT commented "Buying a stake in Facebook through the foundation, rather than one of his companies – such as Hutchison Whampoa, Mr Li’s global conglomerate, or Tom Group, Hutch’s internet and media unit – suggests that for the time being he intends only to salt his Facebook shares away."

Li's Tom Online, a media company based in China, may benefit from this move in China's growing social-networking website. We see News Corp's Myspace already got a high-exposed market access to China, a threatening move for Tom Online. Now Tom Online's alliance with facebook will create a nose-to-nose competition in China. At least, facebook hasn't got a Chinese version.

But the point is only a few, if none, of the U.S. Internet companies could be very successful in China, including Google, Yahoo and Ebay. The user habit is very different, the reason for those foreign firms to get a local partner. Facebook will not be an exceptional. Alliance with Tom is a smart move, but still needs effort to beat thousands of "Chinese facebook" which already started years ago.

Product is the key

What's the most important criteria to be a CEO?
The answer given by Paul Otellini is "be a product person". His argument is that a good CEO has to be very familiar with the products from every perspective because product is the key to the company's success.

Talking about leadership, we always think about various factors, such as personality and communications skills. But the most important factor is the company's success. It's not rare to see some jerk CEO whose company is making a good profit.

Yesterday's big news Edward Zander, the CEO of Motorola, was forced to quit because of the company's worst-than-expected performance. Zander had been with Motorola for four years, while he saw the successful sale of smash-hit Razr cell phone. Now with the decreasing sale of Razr and no successors, the firm has been facing pressure from Wall Street investors.

So being a good leader may not be hard. Trying to be a good sales person first.

How many online friends could you have?

Wall Street Journal has an interesting article this Friday on the online social network. The column The Numbers Guy citied the research work from an Oxford professor, Robin Dunbar, saying there is a natural limit to a friendship circle, 150 as a ceiling on our personal contacts. But the research is based on the real-life experience. So will online social networking sites help users to burst the numbers? The column said there is possibility since humans have developed this technology to surpass their physical limits on speed, strength and the ability to process information.

I have a little doubt on this. If the research is true, it means we could only maintain 150 friends even if we only live in a small town, while friends could meet and talk everyday. Now even with the new technology, the friend circle will only be like the one in the small town. Those friends are the ones your mind could keep in touch in a frequent basis.

Speaking of this, it depends on how we could define on the friend circle. Will someone who you only met once be called friends? or the ones we could speak everything? If it is the first choice, then our friend circle is definitely enlarged by the Internet. Count my facebook, I got 40 contacts; count my MSN, I got over 200 contacts. But I don't consider all of them friends. So maybe I am still within the 150 circle.

90-second pitch

Pitch to venture capital is a hard one, especially in a short time like 90 seconds. Today, in the 4th Annual Entrepreneur Bootcamp held by Hua Yuan Science and Technology Association, the biggest Chinese VC association in Silicon Valley, ten teams did use 90 seconds to pitch their business idea to get selected by four venture capital firms. They covered industries including health care, online advertisting, gaming platform, custom-made suit and etc. 90 seconds are really short, and it is more based on the presentation skills to win over the others. But this is the valley, and you have to differentiate others in a short time.

Speaking as a whole, the ideas from those teams are very practical, such as ERP software for small manufacturers. Maybe I am too optimistic. but I really want to see some big ideas, at least some big dream to do something to change the world, such as Bill Gates' "making everyone have a PC", or Google's "download the whole web". Without thinking big, I don't think a small start-up could last long. Only dreaming of being bought by a big company is not enough.

Spin out or not, that's a question

We've seen a lot of newspaper setting up their websites to upload the content. I had some discussion last week with classmates on if the websites should be spinned off from the newspaper.

I argued that it should be spinned off if the newspaper didn't consider the online business as a long-term plan. Management of the newspaper are always forced to consider the profitability of the online business before the investment. To me, that doesn't make sense. Competitors of those websites, Google, Yahoo or small start-ups, are all funded by venture capitalists targeting at a break-even of at least five years. How could a newspaper website targeting at a one-year profitability compared the other websites targeting at a five-year break-even? That doesn't make sense.

Newspapers still want to leverage their existing resources. However, that's not very true. There are three different dimensions. First, the content is very different between the online version and print one. Online verson focuses more on its quantity, while print one should be more selective because of the space limitation. The second different thing is the advertisement. Advertisers have certain appetite on print and online business. Big ones still prefer print media because of the brand, while smaller advertisers prefer online ads due to budget concern. The third dimension is the content supply. Print media has all its content produced by reporters and editors, while online media should rely more on the grassroot journalism, allowing freelancers and readers to contribute more.

So to me, leveraging the newspaper's resource to set up a online brand is not very attractive. Online readers are too spoiled to be loyal to one brand. That's why Google and Yahoo News are more popular. Online readers need more news portals or news filters, instead of a newspaper brand. So spining off the online business from a newspaper, and developed it creatively, is one of the options to be able to stay in media business.

Of course, my point is debatable.