What We Must Learn from Asia

Posted on Aug 11, 2009 | 11 comments


asia2I run a monthly meeting called the VCA that represents the majority of Southern California venture capital firms.  My goal is to bring in informative speakers who stretch our collectively thinking on topics that will influence our investment strategies and use it as a way for us to share our experiences in ways that I hope benefit the Southern California technology ecosystem.

In the past 6 months we’ve heard from Dmitry Shapiro on the future of online video, Ian Rogers on the future music model, David Sacks on the future of social networking and Michael Crandell on where Cloud Computing is headed.

All have been fascinating.  This month’s presentation was truly mind boggling so I wanted to be sure to share the entire presentation with all of you.  This was one of the most fascinating presentations I’ve seen in a long time and a must read – although you’ll see clearly better in person with commentary.  Benjamin Joffe (the author), a Frenchman who runs a consultancy in China that tries to help non-Asian investors understand the innovation occurring in Asia as a way to bring ideas to their local markets.  He also consults companies in Asia.

I lived in Europe for 11 years and in Tokyo for 6 months so the idea that innovation is happening outside of our 50 states in not new to me.  I’m sometimes surprised how little people here in the US want to try to learn from what is happening elsewhere.  I find that a shame.  When I reached out to Benjamin at the suggestion of Dave McClure who told me what a great guy he was I was fascinated.

To see the deck click —->  HERE (sorry, I can’t do embeds yet, I’m migrating from WordPress.com to WordPress.org in the next few weeks).  As I mentioned, some pages unintelligible without commentary but well worth a read to get to the nuggets.

My take aways are below:

1. Wacky, weird and low cost: Before diving into what I learned in the deck I want to share something crazy.  Motorola gave us in the US the RAZR (before they stopped innovating).  But China literally gave us the Cell Razor.  Benjamin brought in a cell phone where the bottom pulls out and you have an electric razor.  No joke.

2. Film innovation – If Benjamin’s analysis is right – even many of our most successful films have been adaptations from Asian films.  I knew some were but the scope was surprising.  Especially Star Wars & The Matrix.

3. Internet users in US – 225 million, mobile 260MM.  China Internet: 340MM, Mobile a staggering 650MM.  Don’t bet that China won’t innovate in mobile. (slide 29)

Korea4. 70% of Korean population has Internet speeds > 5mbps (and avg = 15 mbps) – don’t bet that the Koreans won’t innovate on online content (slide 30).  Larger online game market ($1 billion) than Japan despite 1/3 population and 1/2 GDP per capital (slide 99).  Way ahead of the US on mobile gifting.

japan-flag5. More than 90% of Japanese mobile subscribers are on 3G networks (vs. 20% in the US) (slide 30), More than 50% have mobile TV & NFC chipsets (slide 87). Mobile ARPU = a staggering $110 / month for content and commerce alone (slide 88).  Massive fall-off in ringtone and massive uptick in full songs (slide 89) —> still think we shouldn’t be watching what’s happening in Asia?  Sales of avatars in social games nearly 50% of total revenue eclipsing revenue from affiliate transaction, ads or paid games (slide 97).  Mobile game content revenue > PC game revenue (slide 98)

6. China’s leading social network (Tencent, who’s product is QQ) already does more than $1 billion in revenue.  That’s 2x Facebook estimates.  Tencent market cap on public market is $21 billion, Facebook’s is a theoretical $3-15bn (slide 52). China is innovating in many of the categories that the US is trying to solve now including mobile

ChineseFlag

couponing, vertical social networks, Internet TV, etc.

7. Free-to-play gaming with micro transactions has become huge in Asia with very nice profit margins. EA and others in the US are copying this success (slide 71)

When I lived in Europe in the 90′s we all texted people on mobile phones.  I was surprised when I came back to the US and the only people texting were 13 year olds.  When I worked in Japan it was crazy how much people were using mobile content on the i-mode phones.  Now they have TV & NFC chips.  I have been looking at a South Korean online start-up and am blown away by the innovation in this company relative to the online models I see in the US.  It is a global world – I plan to make sure I’m tapped into Europe, Israel and increasingly Asia to know what trends I can look for here in California.


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  • aproductguy

    Interestingly enough, I recently met with the developers of one of the top social games in China, and he pointed out that although there is much talk of monetization via virtual goods & currency in China, they are actually seeing much better ARPU in the US via Facebook. He attributes this to general lack of credit card use, so he actually wants to focus more on the US market.

    But you’re right, there’s a TON of activity going on in Asia, and while traditionally in the US we’ve looked at it as an opportunity to increase our marketshare (bring our stuff out there), there’s also a huge opportunity to take that innovation and apply it to the US markets. Obviously the devil is in the details, but that’s just more reason to go out there and experience first hand.

  • Charles

    Great post Mark, and interesting slideshow (can only imagine how interesting it must have been with the accompanying presentation!) I didn’t realize how far ahead Asian countries were until I was in S. Korea two years ago visiting family, and my 16 year-old cousin had a more advanced cell phone than anything I’d seen in the U.S. at that time. I thought one of the best things about S. Korea is that they’ve wired all the subway tunnels in Seoul to get cell phone and network reception, even while underground. My cousin and I took a wrong train at one point and he was able to pull of a real-time map on his phone that pinpointed exactly where in the subway network we were. Smart of the government to do that, and think of all the opportunities for mobile companies to capture consumer traffic while they’re stuck on a subway commuting to work!

  • Don

    Great perspective and info from Benjamin – it’s a huge market worth understanding. A friend and former engineer of mine is Chinese, and we’ve had some really interesting discussions about the needs, wants, and behaviors of their Internet users. The most striking observation being that, in his experience, Chinese users view the web as an entertainment platform over an information platform. He’s of course offered to help us localize Streamy.

    I think it’s worth mentioning how well some of the casual gaming companies in the US are doing with micro-transactional models and virtual goods. I have some close friends killing it at Zynga, and I don’t expect them to slow down any time soon.

    There are lessons to be learned and eyes to be opened, but I think Americans may continue to lag on mobile / virtual world adoption simply because we’re not as collectivist as some of our international counterparts. The Zynga guys would probably disagree.

  • marksuster

    thanks for your input. No doubt a single presentation and superficial post can’t explain the market dynamics. I think you’ve hit the nail on the head when you say, “Obviously the devil is in the details, but that’s just more reason to go out there and experience first hand”

  • marksuster

    Awesome examples. Many people tell me that South Korea is the real spot of innovation on the web: more so right now than Japan or China. Going to these countries is where you have experiences like the one you describe. I remember being in Tokyo in 1999 and watching people surf the Internet on i-mode and then being surprised that in the US nobody was even sending text messages.

  • marksuster

    I think companies like Zynga and Playdom probably get many ideas from what is happening in Asia. I have talked to people at EA and know that they’re studying the Asian markets closely. But the beauty is that companies like these will continue to innovate and create things that Asian companies aren’t doing. The shame is companies that never look to Asia or Europe to see what they can learn. It is too often assumed only to flow the other way.

  • aproductguy

    Charles, having grown up in Taiwan and traveled many times to China, I thought I had a pretty good grasp of the Asian scene. When I stepped foot in Korea a couple years ago, I was blown away as well. My local colleagues had TV on their mobile phones so clear that they could see the stock ticker running below the reporter. At Samsung HQ, they had microwaves that read bar codes off of TV dinners and heated accordingly. The population density lends itself to a more connected infrastructure compared to the US, but still, it is really amazing to see how advanced S. Korea is. While all the talk is about China these days, South Korea has not only advanced their own technology and infrastructure, but successfully setup shop in the US and created household brands like LG, Samsung, Kia, Hyundai and more.

  • http://www.plus8star.com Benjamin

    Mark, thanks for your great commentary and kind comments!
    I’m looking into how I could add commentary to slides (text or voice) without too much PPT hassle. In the meantime, some of my presentations are in video here:
    http://www.plus8star.com/talks/
    As a side note, we released our “Inside Tencent” 2009 report. Feel free to check the slideshow or free sample on our website!

  • http://www.mobilephonesshops.com/ Phones

    Well i dont have much to say about Asia, but i believe it really great and wanna visit some countries during the holidays. thanks for sharing.

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  • http://www.telecomandinternet.com nadahima

    beside china, my country, indonesia also will grow fast in the next few year
    telco company is frwoing very fast today here and we open to investor

    thanks
    http://telecomandinternet.com/?p=51

  • DB

    Too bad the site requires an annoying registration to view the deck.