In the recent hit Iron Man 3, there is one scene the doctor, played by Wang Xueqi, telling iron man Tony Stark on the phone, “You’ve always been courteous to me, Jarvis, you know what, you gotta let me do this.”
The line is probably most fitting for Lee Kaifu, the CEO of Innovation Works, regarding the issue for overseas Internet companies to enter China. On one hand, Lee’s years of experience in Microsoft and Google China has made him know well of Chinese characteristics and situation, on the other hand, Lee’s familiar with Americans’ appeals and minds as he always has frequent contacts with the seniors of hottest internet firms in silicon valley. As a matter of fact, Lee has been giving suggestions to Microsoft, Google, Facebook and Amazon about their developments in China, yet unfortunately, none of them put his words into practice except Microsoft.
Amazon may be the only American Internet giant that hasn’t officially entered China. Although its Android apps store went online in China on May 6, meanwhile, its sales plan which directed at developers went live as well, and in addition, Kindle appeared on the market in mainland China on June 7, which shows it is taking steps with ease and patience to go deeper in China, however, it seems relevant domestic dealers of E-commerce, app store or E-book are taking no account of its threat.
What does Lee Kaifu see Amazon’s opportunity in China? What advices he’d give if possible? Huxiu talked with Lee about the suggestions he had offered to Facebook, as well as his analysis on the particularity of Chinese market from American companies’ perspectives.
Amazon: missed opportunities in E-commerce, and its AWS needs a partner as soon as possible to enter China
Lee said he had advised Amazon to take the Windows Azure mode to settle in China. “Two of Amazon’s future core techniques are its e-commerce platform and cloud computing platform, Amazon Web Services. There should be a relatively flexible way to introduce AWS to China, which is similar to Windows Azure, and conduct it through a collaborative model.”
How did Microsoft do it?
At the beginning of last November, Microsoft announced its cooperation with 21Vianet Group, China’s Internet infrastructure service provider, bringing in its enterprise-level cloud service Office 365 and Windows Azure. Microsoft enables technology to 21Vianet while the latter does the operations, which also means Microsoft’s cloud computing service has been legally licensed, presenting the first case of global corporation getting public cloud qualification in China. (In fact, Azure hasn’t formally landed, but MS’ senior deputy CEO Zhang Yaqin said recently that it would be very soon.)
What attracts Microsoft certainly is China’s huge market for cloud service. According to a report released last year by Forrester, an American market research company, China’s public cloud market volume would reach $3.8 billion by 2020 from $297 million in 2011.
The days that global companies have to operate complex product through their subsidiaries (no matter running by foreigners or American-Chinese) in China, in Lee Kaifu’s view, are past. “It’s too difficult. Valuable time is wasted when they are trying to learn and adapt, meanwhile the Chinese rivals are rising fast, even faster than them. Even if it’s Facebook coming to China, it’s not about simply ‘hiring a team to fight with Renren and WeChat’. “
Then what to do? “It would be well to pack and license the technology to a Chinese company. The company could be a joint venture or a pure native one, and it has to have an intimate knowledge of Chinese laws and regulations, market rules, clients as well as the understanding of promoting successful outcomes.”
Under the circumstance that cloud products of Alibaba, Tencent and Baidu already exist, Lee Kaifu thinks that Amazon’s AWS can only run faster and farther by using the similar authorization method of Windows Azure.
Speaking of the scramble for e-commerce platform, Lee felt hard to put forward any ideas.
Because of the strong presence of Alibaba, Amazon could hardly exert enough influence even if it is willing to cooperate with a local partner. “There might be been opportunities three or four years ago, but now the cooperation between the fields of social networking and commerce are too tight for the Americans even to seek a strategic partnership.”
In a word, Amazon has missed the opportunities.
So has Facebook.
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Three years ago Zuckerberg asked advice from Lee Kaifu on how to make Facebook enter China, and Lee offered six suggestions:
Set up research and development center to learn Chinese users and attract Chinese developers and inventors;
Major business has to enter china with the cooperation of a Chinese partner through the mode of licensing technology, and let the Chinese side lead the operation;
May let the partner run a different brand to operate the business as Facebook the name has been affected by the social unrest in the Middle East;
Develop new products in China and then introduce them to the countries like Brazil, Russia, India and Indonesia;
Seize the one-year launch window or only fat chance left; Prepare an advertisement sales team if the major business is not coming so as to sell ads to Chinese companies.
However, none of the above was taken by Facebook.
Why didn’t those companies take the advices for localization?
“A company will easily feel it has conquered the US, Europe and even some Asian countries when it achieves a great success”, said Lee Kaifu, “and China is just one of its next targets, which in their thoughts, doesn’t worth any particular efforts.”
Apparently that mind-set is wrong, Lee said. China has more potential users than the US and EU, which means it’s worth making an exception. Moreover, China’s domestic companies have become prevailing，and industrious and bold as well as with huge money support. Therefore, it hardly shows any hope just finding a “contracted employee”, paying him high salary in spite of success or not and striping any authority of decision-making.
Lee Kaifu thinks that actually Zuckerberg understands the point and he is rather practical, “he expressed his will of making certain compromise to win Chinese users.” But the thing is, Zuckerberg’s idea is to build the platform, technology and brand of Facebook to connect everyone around the world, which in Lee Kaifu’s eyes is not workable at this phase, and as a result he raised the six proposals. Perhaps this was the reason stopped Zuckerberg to take actions.
Lee said that American Internet companies would place laws and regulations at an over-high position and entangle with them too much. “They always think the regulations and the national conditions here are special once mentioning China, and they wonder if they can take it in full or just in part.” The negative result of overthinking the legal situation is, user needs are ignored. It is because in the first place the inventor of a great product often takes it for granted, that his product suits every country and region, races and languages.
When they get entangled with the laws, start paying millions for attorneys, lobbying and consulting, and optimize their products to western style, Chinese companies have harvested their own fruit. Two years later, the market opportunities are gone. Say for example, WeChat has risen sharply taking Facebook’s gap, and the market window has closed. Also, If Amazon doesn’t move quickly, the market will be occupied by Aliyun or Windows Azure, and what has happened to Facebook will fall on Amazon too.
Chinese market, a parallel space
What makes Chinese market particularly special to American companies?
Here are Lee Kaifu’s analyses:
1. Different user structure. In China, it’s the mass users who represent the big market proportion, and the typical high-end and professional users are only in the minority. These two groups have different demands and the small number of premium clients is not likely to influence the mass. While in the US and Europe, the proportion is just the opposite, which means winning the high-end users is having the greater percentage of customers, after that the majority could influence the ordinary consumers. The mass products here are usually dedicated to the common users as China has very different chains of trust and social-network. That’s one big issue that the American enterprises don’t know about China, and the problem has been there since eBay and Yahoo entered the country in early years.
2. Different industry landscape. There’s a huge difference between China’s three internet giants and America’s, of their systems of domain divisions, product categories and user habits. The social platform in the US, for example, is built on Facebook and based on PC and is gradually closing to mobile, while in China it is WeChat which based on mobile phones. As another example, the payment methods in the US are PayPal and credit card with no weigh of logistics, while Alipay and Unionpay are the modes in China but the logistics is the core of competition. The industry pattern and user habits of the two countries are heading to the different directions in their own developments, and probably will keep growing apart in the short run.
3. Fast-growing startups at a barbarian growth in China result in intensive vicious competitions. The user base of Chinese market is almost twice or more as much as of many other countries, but the demand of startup capital is as only one third as of the American market, and what’s more, China’s venture capital has risen sharply in recent years. The huge market and capital and the low startup cost have encouraged the startups’ fast growth. For example, two million yuan in the US probably is just enough to make a Demo, and it’s over if not workable; while in China the money may help you leap forward and have millions of users. The things is, however, companies started like that (in the latter mode), will meet with an intensely competitive market when they moved to the second stage, say, having millions and billions of users, and if the rules of competition are not clear, then many of them will come to an untimely end. But there are also bright sides to see, like the survivors are of stronger products and business modes.
Yet none of the points above could be truly experienced by Facebookers sitting in the Silicon Valley.
In this case, when will the two parallel space probably meet? Lee Kaifu thinks it may just depend on “the next great invention like Facebook and Google.” “By the time when the product or technology has enough influence and attraction for both Chinese and western users, and is hard to duplicate as well as easily to penetrate globally, we will know.”