Rethinking Innovation
Benjamin Joffe | CEO, Plus Eight Star
Haas School of Business, Berkeley | 2009.11

Plan
1. Introduction
2. Orientation
– Definition
– Why foreign companies fail in Asia
– Why Asian companies fail overseas
3. Background on Innovation
1. Misleading appearance
2. Techno-Darwinism
3. Innovation catalysts
4. 5Cs of Innovation
5. Innovations in web & mobile
4. Q&A

Introduction

Benjamin Joffe
本杰明
ベンジャミン
벤자민

4 years
1 year
4 years

Consulting | Startups | Community

| Plus Eight Star
• “Innovation Arbitrage”
• Internet & Mobile Digital strategy
• Best practices from China, Japan & Korea
• Published reports
• Inside Cyworld (2007)
• Inside Tencent (2009)
• Inside Alibaba (upcoming)
• Contact
• www.plus8star.com

References
EUROPE USA
ASIA

Work With Startups: Newt Games
• Mobile SNS in 2003 in Japan
– 3G
– GPS
– Avatars
– Virtual goods and AI!
• Too early!

Work With Startups: Cmune
• Making the 3D Web happen
– fbFund winner
– First 3D FPS game on Facebook
– #1 Widget on Apple.com
– Virtual Goods
• Check it out!
– www.cmune.com

Most Advanced 3D Game on Facebook
Paradise Paintball by Cmune
http://apps.facebook.com/paradisepaintball/
Disclosure: I am an investor & partner of Cmune

Mobile Monday Beijing
31 events
111 speakers
3,500 members
1,500 companies

Orientation Test

Question #1
Define “Innovation”

Definitions
Entrepreneur
Inventor (Business)
Idea (Prototype)
(e.g. Chocolate + Hemp)

Question #2
Google is the world’s largest search engine.
Its market share is 1.5% in Korea. Explain.
(here)

Question #3
Why Did Japanese Handset Makers Fail Overseas?
(Where are Sharp, Panasonic, Fujitsu, NEC, Sanyo, Mitsubishi…?)

Background on Innovation

1. Misleading Appearance
Aggressive?

Simplification vs. Understanding

The Appearance
• Naver = “Google of Korea”?
• Rakuten = “Amazon of Japan”?
• Tencent = “Facebook of China”?

The Reality
• No real equivalent
• Powerful ideas get overlooked
• Virtual goods since 10 years ago
• Market 7 times USA
• More concepts not yet ported

2. Techno-Darwinism

Charles Darwin
“The Origin of Species”
(1859)

Voyage of “The Beagle”

“Diverging” from common ancestors

150 years later…

IT Infrastructure
100%
Avg. 7 Mbps
80%
Avg. 15 Mbps
60%
3G users
40% C
hi
n
20% a Avg. 4 Mbps
www.plus8star.com
0%
0% 20% 40% 60% 80%
% of Internet connections measured above 5Mbps
(Source: Akamai, 4Q08)

Alexa Ranking
USA China Japan Korea
#1 Google Baidu Yahoo JP / SB Naver
#2 Yahoo Tencent FC2 Yahoo
#3 Facebook Sina Google JP Daum
#4 YouTube Google China YouTube YouTube
#5 MySpace Taobao Rakuten Google
#6 MSN Netease Livedoor Cyworld
#7 Live Google Ameblo Nate
#8 Wikipedia Sohu Mixi Google KR
#9 Craigslist Youku Wikipedia Live
#10 eBay Yahoo Goo Facebook

“Japan’s cellphones are like the
endemic species that Darwin
encountered on the Galápagos
Islands — fantastically evolved
and divergent from their
mainland cousins”
Takeshi Natsuno
Inventor of i-mode

Internet Mobile
1.3 billion 3.3 billion
Source: Morgan Stanley, 2007

Digital Population
Country USA China Japan Korea
Population 300 mln 1,300 mln 130 mln 50 mln
Internet users 225 mln 340 mln 100 mln 35 mln
Mobile users 260 mln 650 mln 100 mln 45 mln
x5
Total x2
x3

Why did those countries diverge?

3. Innovation Catalysts

What do you think?

Key Catalysts
• IT infrastructure
• Market potential
• Talent
• Capital

On a smaller scale?

4. The 5Cs of Innovation

5Cs of Innovation
1. Copy
2. Competition
3. Constraints
4. Combination
5. China

1. Copy
Entry barriers
Technology?
Capital?
Talent?
Intellectual Property?
Censorship?

2. Combination
Will it blend?
Tencent
(US$1bln)

3. Competition
What happens with
4 Facebook
20 YouTube
10 MySpace
5 Match.com
3 Yahoo
4 Twitter
?

4. Constraints
Low GDP/capita
Limited advertising
No credit cards
No legacy industry

5. China
Scale / Geography / Demography
make some services viable

1. Some Asian species
are fit for global markets
2. Learn from them to evolve
successfully

Question #4
When was it invented?

Europe
Gutemberg | ~1450
Korea
Metal | ~1230
China
Wooden | ~1040

Who came first?

The Arbitrage Opportunity
1. Identify
2. Analyze
3. Leverage

5. Some Examples

Looking more closely
Zhenai.com vs. Match.com
• “On the shoulders of giants”
– Started as Match.com
– Raised capital
– Business model issue
• “Each new user costs us
money!”
• Develop new model
– 350 people call center
– VIP service
– Metrics & analysis

Questions?

Thanks!
More about “Innovation Arbitrage”
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