Whom do the idols idolize?
Lei Jun, the CEO of Android handset and OS maker Xiaomi, is arguably the face of tech entrepreneurship in China as a long-time angel investor and serial entrepreneur behind companies like Amazon-acquired Joyo.cn and the recently IPO’d YY.
He’s been called the “Steve Jobs of China” in the sense that Xiaomi is an integrated hardware and software maker that has altered Android for Chinese tastes. They sell high-end Android phones at or slightly above the cost of materials and profit through accessories and eventually, software and services. While the country has been known for lower-end hardware makers, Xiaomi is pushing the idea that world-class products can be both made and designed in China.
The company has its own fanboys to prove it. Just two years after launching their first device, Xiaomi plans to sell 15 million devices this year, bringing the company $4.5 billion in revenue. Last year, they sold 7 million phones. Sales in batches of 200K to 300K phones on their website regularly sell out — sometimes in less than an hour.
But Xiaomi also has incredibly high expectations to realize; the company’s valuation is not just predicated on raw hardware sales, but also on the idea that Xiaomi will eventually be able to monetize software services — something it has yet to prove against giants like Alibaba and Tencent in the ridiculously competitive Chinese market.
While founding the company three years ago, Jun thought about the history of Chinese business and entrepreneurship to find role models.
“What kind of company in China can last for a century?” he asked at the GMIC conference in Beijing this week.
He said he ultimately looked up to two companies: a 340-year-old traditional Chinese medicine company called Tongrentang and hot pot chain Hai Di Lao.
He said Tongrentang’s mission taught him two things — never produce lower-quality products for the sake of cost and never spare any effort in creating the best quality products.
Hai Di Lao, which is indeed a delicious hot pot chain (yes, I’ve tried it), taught him about the value of customer service. In a separate interview, co-founder and president Lin Bin suggested that I order items not on the menu or even praise the dishware in the restaurant.
“They take customer feedback very, very seriously and always leave you with a surprise,” Bin said.
In a way, Jun is critical of the prevailing business culture in China. “There’s a big problem with integrity in China,” he said. “People sell pigs but you’re not eating pork,” he added on-stage, alluding to recent health scares where rat meat has been marked as lamb.
Paired with this focus on high-quality parts is a marketing model that’s unusual for any handset maker globally.
Xiaomi sold 72 percent of its phones directly through its online store last year, bypassing the costly logistical headache of dealing with brick-and-mortar retailers. Right now, they have two models: one that retails for 1999 renminbi ($326) and a more basic version that goes for 1499 renminbi ($245).
They can do this because the company has cultivated a unique participatory model of designing phones. Every week, the company releases a new version of its customized Android experience: the miUI.
Of their millions of customers, there are a few hundred thousand “hardcore” fans who do the teardowns, scrutinize every spec and offer suggestions on how to change the phone.
“Chinese consumers are actually very critical in the sense that they compare not just the build and look and feel of phones, but also everything that goes inside — the CPU, memory, speed, the specs,” Bin said. “They are pretty savvy about the money they pay for these phones.”
Jun uses Weibo, the public Chinese social networking platform that sometimes draws comparisons to Twitter, to solicit advice and communicate with Xiaomi fans. He’s offered different levels of hard drive storage based on user feedback. He said they even added a sound recording app at the behest of a reporter.
“We co-develop the phone,” Jun said in another interview. “I’ve used more than 70 phones in the last couple years. I have lots of suggestions, but will they change their phone? Even Nokia? Most likely not. So I created a model where I’ve invited all of my fans to be involved in designing the phone. It’s one of the most exciting things for them.”
He says this is a key part of why Xiaomi spends less than its peers on marketing.
“If you invented a feature in the Xiaomi phone, will you tell your classmates and friends that you invented a feature? Most likely you will.”
Their approach ties into a big trend that is fueling a hardware Renaissance globally: the ability to feel out product-market fit through social media before a capital-intensive manufacturing process — be it through Twitter, Weibo or a Kickstarter campaign.
Through that feedback and Xiaomi’s own in-house engineers and designers, miUI includes improvements over the standard flavor of Android. Jun says that they’ve tweaked how applications run in the background so that a Xiaomi phone can go up to six or seven days without a recharge. (I’ve been carrying an older Xiaomi around and it has held up for a few days at a time, unlike my iPhone, which needs to be recharged every day.) There are also lots of UI flourishes that are, frankly, Apple-like.
While Xiaomi has done well at positioning itself as much more than a commodity hardware maker, one of its next challenges will be to prove that it can make money off software and services. Because it sells phones at or near the cost of the build of materials, Xiaomi will rely on accessories and services to boost its margins.
Jun is reluctant to say whether Xiaomi is at heart more of a software or hardware company (a question that has also perplexed analysts of Apple).
“We positioned ourselves as triathlon athletes,” Jun said. “We do software, hardware and Internet services, so if you would ask which part of the three is stronger, my answer is: would you ask a triathlon athlete whether they are best at running, swimming or cycling?”
They’ve shared some vanity stats showing traction, although it’s hard to understand what they mean. Xiaomi’s app store sees 3.5 million app downloads a day, 3.5 million photos uploaded to its cloud service a day and has seen 2 billion messages uploaded cumulatively. Its messaging app MiTalk is way behind Tencent’s WeChat, which is the other big China tech story of the year with 190 million active users.
There are some promising metrics, though. Bin says Xiaomi’s customers are twice as active on the mobile web as those of other manufacturers. That sort of engagement could lend itself to interesting revenue opportunities down the line in gaming and e-commerce, although the company declined to share specifics.
Two other growth areas for Xiaomi are international markets and in other types of hardware. The company is expanding to greater China — or Taiwan and Hong Kong. Bin is reluctant to talk about even more international markets, saying that the company just wants to prove itself in these two areas first.
There are unique challenges. For one, these markets rely on more of the subsidized model that’s common in the West where carriers lower the list price through post-paid plans. In China, many consumers pay for the full cost of the phone upfront. They also don’t know whether the marketing model where they heavily engage a core set of fans will work outside of mainland China.
The other growth area is with Xiaomi’s new set-top boxes. It was a rocky start with the initial sales of the set-top boxes blocked by Chinese regulations around TV content. But they re-launched two months ago. Bin and Jun declined to share figures on sales so far, except to say that Jun has seen second-hand models show up on eBay and Taobao for $90 (which is about twice the list price of 299 renminbi).
Bin is hesitant to share too many targets, because he claims that Xiaomi doesn’t really even have that many internally. Even the goal to get to 15 million handsets is to produce that many, not necessarily to sell that many (although they invariably sell out).
“We don’t have any KPIs (key performance indicators) — not even internally,” Bin said. “Our KPI is to get handsets to everyone who can place an order online and make a full payment.”
After years of speculation about the Kindle’s arrival in China, a wide-spread rumor that Amazon was going to open Kindle pre-orders on April 16 sounded credible, building on the US firm introduced its Kindle apps and e-bookstore in China just four months prior.
That launch was believed to be a clear signal that the firm planned to launch its Kindle in China, however, the rumor turned out to be just that — a rumor. Amazon remained silent on April 16th and once again the timeline for the Kindle’s arrival in China fell back into uncertainty.
It is not actually surprising that Amazon’s effort to introduce the Kindle to China needs more time. Given the current status of the e-book market in China, the outlook for both the Kindle and its e-bookstore seems full of challenges.
In China, the paid e-book market features a limited reader base and lacks quality electronic book content. Given the ongoing problem of rampant piracy of digital content Chinese consumers have not yet grown accustomed to paying for digital content. Indeed, Xiaodong Hu, Vice President of leading e-reading startup Duokan once remarked that “Chinese readers are so used to getting a ‘free lunch’ that it is challenging to educate them to pay for e-content.”
Though China has more than 500 million Internet users, it is unclear just how many Chinese netizens are willing to pay for e-books, while the price that they are willing to pay remains up for question. To figure this out, Duokan embarked on a test sale of 17 e-books in the Apple store in January 2012, finding that the best-performing of the 17 sold just 8,000 copies in six months.
A survey of Chinese female e-readers conducted by the China Press and Publication Post also reflected the fact that few were willing to pay. Only 12 percent of the respondents said that they would pay for e-books, while 49 percent said they wouldn’t.
It isn’t just about users, since difficulty cultivating a market for paid e-books readers is also down to a lack of good e-book content. This leads to the fundamental challenge impacting the success of Amazon’s Kindle in China, which is how to obtain attractive and abundant Chinese e-book content from local traditional publishers given that they control the copyright of the majority of Chinese mainstream books.
Negotiating with traditional publishers will not be easy for Amazon. Compared to traditional book-selling in China, the e-book business is not so attractive for traditional publishers. This is because the cost of producing high-quality e-books is high while profit from e-books selling are low given the limited buyer base.
More importantly, concern about Internet piracy of e-book content in particular makes traditional publishers in China feel cautious and hesitant to enter the market. Then there are also doubts about the reliability of current encryption technology and the transparency of the sale data on e-commerce platforms.
In addition, fierce competition from local player Dangdang also poses significant challenges for Amazon. As an early pioneer of selling books online, Dangdang took the lead in terms of collaborating with Chinese publishers. According to Wenfei Yi, Dangdang’s Vice President of Digital Content Development, the company’s 12 years of experience cooperating with traditional publishers, along with years of making publishers significant profits, give it the strongest network and strongest value proposition for traditional publishers in China.
As early as 2011, Dangdang had already built partnerships with more than half of China’s publishers.
“We have monopoly rights in many cases because of our exclusive book contracts with a sub-set of China’s publishers,” said Dangdang founder and CEO Guoqing Li.
Even Chinese e-commerce giant JD (originally 360buy) cannot compete with Dangdang on the sourcing books from traditional publishers. To make up for the deficiency and compete, JD adopted a strategy of buying copyright directly from the writers themselves. On March 29th, the company launched its ‘exclusive e-book edition by star writers’ when it signed contracts with three famous writers who have created exclusive e-book content for JD.
Bearing all of this in mind, Amazon still has a lot of challenges to overcome before launching Kindle devices in China. The priority for the company should be to develop partnerships with local Chinese publishers and solve the content issues. Without this, Kindle’s arrival in China will be doomed to failure — without a rich library of content, the Kindle will be just like a pretty flower without any roots.
Headline image via seenful / Flickr
China is investing $810 million into the development of Beidou (BDS), the navigation satellite system that it is positioning as a rival to the U.S.-developed GPS.
According to China Daily, the money will be used to build an industrial park that will house 30 to 50 companies focused on developing an ecosystem for Beidou. Based in Tianjin, the industrial park is expected to welcome its first 20 companies in June.
The Chinese government not only wants Beidou to eventually dominate China’s $19.2 billion navigation service sector, but also sees it as a way to make China’s military less dependent on foreign technology. This would protect the country if the U.S. decided to deny it access to GPS and also potentially give it a strategic advantage. As DefensePolicy.Org writes, “Aside from the commercial applications of Beidou, the placement of an independent global navigation system would give China a considerable strategic military advantage in the event hostilities should break out in the Asia-Pacific Region. Most notably, such an advantage would be useful in countering foreign naval forces and with particularity those of the United States.”
Beidou can also offer China more quotidian advantages. For example, developers hope that the system will allow taxi drivers to quickly locate nearby passengers, which in turn would cut down on emissions and improve the capital’s air quality. Watches synced to Beidou navigational satellites can identify a user’s location within 10 meters and clock synchronization signals to within 50 nanoseconds.
In a March interview, the chief commander of China’s lunar exploration mission Chang’e-3, Ye Peijian, said that Beidou will achieve full-scale global coverage by around 2020 and will be able to provide highly accurate and reliable positioning and navigation with the aid of 35 satellites. China has so far launched 16 navigation satellites.
Beidou has been used by the Chinese government and military for transport, weather forecasts, fishing, forestry, telecommunications, hydrological monitoring and mapping since December (it originally launched on a trial basis back in 2003), but more than 95 percent of navigation terminals used in China still rely on GPS. According to industry statistics cited in China Daily, the total output of China’s navigation service sector in 2012 topped 120 billion yuan ($19.2 billion).
In addition to its navigation and timing functions, Beidou’s terminals will also be able to communicate with the ground station with short messages in Chinese characters. China’s government hopes that its language functionality will allow it to grab 70 to 80 percent of domestic market share away from GPS by 2020, and also allow Beidou to gain traction in other Sinophone countries.
Read the original post: China Is Investing $810M In Beidou, A Navigation System It Hopes Will Eventually Rival GPS
Tencent’s social blogging site, Qzone, has Asia’s largest active social network user base, with 600 million (and counting) users who log in more than twice a month.
I spoke to Peter Zheng, vice president of Tencent’s social network group. He’s been overseeing Qzone’s evolution for the past eight years. He told me that when Qzone was launched in 2005, it was initially planned as a Geocities-style blog community, before the company decided to add social aspects by linking blogs to users’ QQ accounts. “Luckily, when we started, Facebook wasn’t common in China. There were some challenges from other platforms like microblogs such as Weibo, but these [Twitter-like channels] are quite public, and people saw QZone as a more private space,” he said.
It wasn’t always supposed to be walled, but QZone inherited the company’s older QQ contact list that added people based on user IDs, not more universal identifiers like email addresses or phone numbers. And unlike what we’re used to on Facebook or LinkedIn for example, you can’t see who your friends’ friends are because of the way those lists were architected, said Zheng.
“For a while, we were concerned that that made it hard for people to expand their friends lists. Our legacy was closed, and we thought it hindered the expansion of the network,” he said. But it seemed to work out. “Over time, our users told us that they didn’t want to add contacts the way you do on Facebook. When everyone is added deliberately because you sought them out, you’re just adding buddies you want to share your updates with. Turns out that was a way to keep your friend circles tight, and our users are keener to share on Qzone because of that,” he said.
This is the mantra of some of the “private” sharing platforms like Path—some with more success than others—but Tencent seems to have stumbled upon the working formula and had its popularity multiplied by the sheer volume of users coming onboard in its home country.
Over 100 million users concurrently on Qzone, with most of them concentrated in China
Another way it has fueled its user growth is an early emphasis on the mobile phone. The Qzone app was released in early 2010, and included features like photo filters and the option to record voice memos. While a typical Twitter or Tumblr user would take a photo, open it in a separate app to dress it up, then open the blogging app to post it, all of this can be done within Qzone’s app, reducing the friction to post. (Instagram was launched towards Fall 2010.)
The Qzone app has also added features that caught on with Asian users earlier than they did in the West, such as decorative water marks. “Asian users like to decorate their photos, not just filter them,” he said. Qzone’s app also allows users to add a voice clip as a status update, or tag it to a photo. “That makes it feel more personal. You can send a gift and attach a voice clip from the phone too,” Zheng said.
When he showed me a typical Qzone page, I was boggled by how busy the page was, with animations and audio. “It’s almost like MySpace,” I say.
“Sort of,” he agreed. “But it isn’t really the form factor that matters the most. Maintaining the relationship with your existing user base and keeping them happy goes a long way. You want to be on the social network that your friends are on, and always keeping it fresh means users stay happy.”
Tapping the ideas of 22,000
It is here in Shenzhen’s hi-tech district that Zheng’s 2,000 or so engineers work on Qzone. The Tencent headquarters is a sprawling skyscraper, dwarfing its myriad grey-washed neighbors. While I had problems getting my cab driver to register exactly where I wanted to be in the already famous Hua Qiang Bei cluster, simply saying “Tencent” in English got him to immediately acknowledge, exclaiming “Teng Xun Da Sha”, which translates to Tencent Plaza in Mandarin.
Started in 1998, Tencent is China’s largest Internet company by revenue, and was the first Internet company in the country to break through the $1 billion revenue mark in 2009.
My arrival at the headquarters was kicked off with a tour of the impressive lobby showcase area. A big, gleaming board reflected how many users were concurrently on QQ—156 million that Wednesday afternoon, with a peak of 172 million. The company counts an active user as someone who logs in more than twice a month, and by that measure, has an impressively high retention rate of 700 million out of its 1 billion total users worldwide.
156 million users chatting on QQ instant messenger at the same time
“This is the same tour that our CEO, Pony Ma, gave to (Chinese Communist Party general secretary) Xi Jinping when he visited,” informed my guide in impeccable English. I asked her how long she’s been working for Tencent, and she said she’s been with the company for the past two years since she graduated. “I do not consider myself young here,” she said, shaking her head.
And perhaps she can’t. The average age of Tencent’s 22,000 employees is merely 26—a feat made possible by an aggressive, ongoing hiring campaign that takes Tencent to tertiary institutions in the country in order to sniff out their finest.
The constant influx of fresh blood could be one of the reasons why Tencent has kept up with China’s relatively young Internet population. China’s average age across its user base is just 25, while in the US, that number is much higher at 42.
How do you juggle ideas coming in from thousands of young, enthusiastic minds? “Unfortunately, you have to cancel projects if they don’t work after a certain time, usually several weeks or months,” said Zheng.
“There are no bad ideas, only bad execution. So we give all ideas a fair chance, but we look for teams with bad execution and we do kill their projects,” he said.
See the rest here: How Tencent’s Walled User List Ended Up Boosting Its Userbase