The Myths of Innovation

The Myths of Innova/on Benjamin Joﬀe | CEO, Plus Eight Star Ins/tute of Innova/on & Entrepreneurship, Singapore Management University | 2010.11

Introduc/on

@benjaminjoﬀe

4 years 1 year 5 years

•  CEO, Plus Eight Star | www.plus8star.com –  Best prac/ces from Asia’s digital space –  Research, Strategy & “Innova/on Arbitrage”

Angel Investor, Advisor, Keynote Speaker •  Speaker 100+ talks in 16 countries •  Advisor •  Investor in Asia-‐based global companies

My Interests •  Technology, Sociology and Anthropology •  Virtual economies •  Digital third places •  Ar/ﬁcial ar/ﬁcial intelligence (AAI) •  Online social dynamics

The Myths 1.  Entrepreneurs have original ideas 2.  It’s all about execuEon 3.  The vision is clear from day 1 4.  Entrepreneurs make millions 5.  Innova/on always wins Bonus: the West does it beaer

Innova/on’s Cultural Bias

Common Assump/on #1 Everything from USA is great

Common Assump/on #2 Everything from Asia is strange

Common Assump/on #2 Everything from Asia is strange (and some/mes funny)

Western Framing of Innova/on

Famous Examples •  Ceramics (“Deleware?) •  Prin/ng Press (Gutenberg?)

Arts, religion, poli/cs… •  “Innova/on” •  “Democracy” •  “Roman/c love” •  “Chris/anity” •  “Freedom” •  “Crea/vity” •  etc.

Thee of history! •  The Western reframing even convinced Asia!

Magniﬁcent Seven Seven Samurai (1960) (1954)

The Matrix Ghost in the Shell (1999) (1989/1995)

Kimba the White Lion The Lion King (Japan, 1965) (US, 1994) “Even our lawyers are not that good” – a Disney animator (rumor)

It’s not always simple copies…

Ideas go back and forth! •  Nike (USA) and Asics (Japan) •  Feiyue (China) popular in Europe!

California Rolls (now served in Japan too!)

Durian Strudel

Beard Papa’s •  “Fresh’n natural cream puﬀs” •  250 stores in Japan, 300+ worldwide •  1999 | First store in Osaka, by Yuji Hirota •  Stores in Japan, China, Korea, Taiwan, Indonesia, Australia, Singapore, Malaysia, Canada, UK, US, El Salvador, Guam – Italy and Saudi Arabia coming soon! •  “Wired” – ranking by “Wired” in June 2008

BreadTalk

BreadTalk •  Bakery founded in Singapore in July 2000 •  24 retail outlets in Singapore •  13 countries, 300 bakeries, 5,000 employees •  Singapore (24), Indonesia (14), China, Kuwait, Oman, Philippines, Malaysia, Hong Kong, India, Thailand, South Korea, Vietnam, Bahrain •  Maintains 80% of its product range and adapts 20% to the local palate

Strip – Ministry of Waxing

Strip – Ministry of Waxing •  Body waxing concept store founded by The Spa Esprit Group with HQ in Singapore •  Founded in 2002 •  27 stores in 7 ci/es (Singapore, NYC, Jakarta, KL, Bangkok, Manila, London, Shanghai, HK) •  HSQ: Hygiene, Speed, Quality •  Thelma & Louise, Batman & Robin combos •  2 million bushes and coun/ng…

Summary •  Ideas are everywhere! •  Asia contributes too •  Stereotypes get in the way

If you missed the previous episode…

3 Stages for Innova/on Entrepreneur Inventor (Business) Idea (Prototype) (e.g. Durian + Strudel)

Digital Evolu/on or “ Techno-‐Darwinism” a)  Replica/on b)  Muta/on c)  Natural Selec/on Dodo (extinct)

Ecosystem Factors for Evolu/on: 5C’s 1.  Copy 2.  Compe//on 3.  Combina/on 4.  Constraints 5.  Context

The Race to Success

Who’s Success? Iden/ty Crisis

15th Century Entrepreneur

| Zheng He Chinese (Muslim) Entreprenaute (1371-‐1435)

Zheng He’s Ship

1. Zheng He Sells His Boat

2. Much later… Replace old boards, mast, sails… Everything!

Zheng He’s “Renovated” Ship Replace old boards, mast, sails… Everything!

3. Later again… Replace old boards, mast, sails… Everything! Re-‐use old boards, mast, sails… Everything!

Zheng He’s “Refurbished” Ship Replace old boards, mast, sails… Everything! Re-‐use old boards, mast, sails… Everything!

Ques/on Which is Zheng He’s Ship? Replace old boards, mast, sails… Re-‐use old boards, mast, sails… Everything! Everything!

…Or Zheng He’s New Ship?

Case Studies

Examples from Asia #1 SNS in Korea #2 SNS in China #1 SNS in Japan US$100M in 2009 Raised US$500M US$200M in 2009

Changing riders #1 SNS in Korea #2 SNS in China #1 SNS in Japan Yong Hyoung Founder Cyworld

Changing riders #1 SNS in Korea #2 SNS in China #1 SNS in Japan Yong Hyoung Founder Cyworld Gave most shares to keep going

Changing riders #1 SNS in Korea #2 SNS in China #1 SNS in Japan Wang Xing Founder Xiaonei

Changing riders #1 SNS in Korea #2 SNS in China #1 SNS in Japan Wang Xing Founder Xiaonei Sold for US $2mln in 2006

Wang Xing’s Projects 2005 2007 2008 2009

Ques/ons 1.  What did he do in 2006? (no company created!) 2.  What went wrong? 3.  How did he select his models? 4.  What kind of changes did he make? 5.  Is it going to work this Eme?

Today’s Deal!

Changing riders #1 SNS in Korea #2 SNS in China #1 SNS in Japan Batara Eto CTO Mixi

Changing riders #1 SNS in Korea #2 SNS in China #1 SNS in Japan Batara Eto CTO Mixi Started Mixi as an intern!

Changing riders #1 SNS in Korea #2 SNS in China #1 SNS in Japan Batara Eto CTO Mixi Now invests in Indonesia

A Caucus Race?

What is a Caucus Race? From “Alice in Wonderland” •  Why, said the Dodo, the best way to explain it is to do it. •  First it marked out a race-‐course, in a sort of circle, (the exact shape doesn't maWer, it said,) •  and then all the party were placed along the course, here and there. •  There was no One, two, three, and away, •  but they began running when they liked, and lee oﬀ when they liked, so that it was not easy to know when Dodo the race was over. (extinct) •  […] At last the Dodo said, EVERYBODY has won.

Winner Bias They talk but don’t race

Winner Bias We don’t keep track of how many start

DNA Bias “You don’t change horses mid-‐race” He changed his ride!

DNA Bias “You don’t change horses mid-‐race” (and started mid-‐race!)

DNA Bias “You don’t change horses mid-‐race” (This one has no rider)

DNA Bias “You don’t change horses mid-‐race” Nobody knows the track’s shape

Case Studies

Changing diet #1 Mobile SNS in Japan US$1 billion in 2010! Ini/al business model? Ads CPA Virtual goods

Changing playorm + business model! #2 Mobile SNS in Japan US$400M in 2009

S/cking to it Tencent #1 SNS in China US$1.8 bln in 2009 90% From Virtual Goods (40% Net Margin) Market cap US$43 bln (more than eBay)

S/cking to it Tencent #1 SNS in China US$1.8 bln in 2009 90% From Virtual Goods (40% Net Margin) Market cap US$43 bln (more than eBay) IM was not making money and our compe/tors moved to other ventures. I did not have other ideas Pony Ma so I stuck to it. Founder & CEO Tencent (QQ)

Alibaba | China’s #1 e-‐Commerce Playorm •  1999 Alibaba by Jack Ma + 17 others –  Mission: “ To make doing business easy” •  2001 Savio Kwan hired as COO –  17 years GE Medical Systems –  Target: “Sustainable long-‐term cash ﬂow” •  2010 More GE than GE? –  “The GE spirit is alive and well at Alibaba” David Wei, CEO of Alibaba.com

Myths of Entrepreneurship

The Myths of Innova/on 1.  How many talked but did not start? 2.  How many started? 3.  Change in product/service 4.  Change in business model 5.  Change in market condi/ons 6.  Change in ownership!

Case Study: Farmville

Quiz: Who Created the First Farm Game? •  Game MAU Dev. Country •  FarmVille 61.6M Zynga USA •  Farm Town 18.6M Slashkey USA •  Country Story 8.1M Playﬁsh UK •  Barn Buddy 6.8M TheBroth USA •  Happy Farm 2.5M 5 Minutes China •  Happy Harvest .6M Elex China Source: Appdata and Facebook, 2009.10.26

Answer: “It’s Complicated” 1.  Five Minutes (China) 2.  Slashkey (US) 3.  Zynga (US) 4.  Playﬁsh (UK), Elex (China), etc.

The Mother of all Farming Games? or “where is the innovaBon?” •  Harvest Moon (1996) –  On Super NES, by Victor Interac/ve –  Inspired Happy Farm •  Sim Farm (1993) –  On PC, by Maxis •  Where is the innova/on? •  Not in the game concept, but in viral & social mechanics

The Mother of all Farming Games? or “where is the innovaBon?” •  Harvest Moon (1996) –  On Super NES, by Victor Interac/ve –  Inspired Happy Farm •  Sim Farm (1993) –  On PC, by Maxis •  Where is the innova/on? –  Not in the game concept, but in viral & social mechanics

Quotes from Elex •  High producEvity –  “Anyone is able to develop social games at Playﬁsh level” •  12 languages versions –  “We can localize our game in diﬀerent language versions in 1 day”

Conclusion •  Aggressive teams can do it! •  “Ramen Proﬁtability” reachable •  “Fast followers” can trump innovators I’m loving it!

Shanzhai Innova/on: Mass customiza/on

Innova/on Awareness Test

PHOTO: MOBILE PHONE, BEIJING, APRIL 2010 © Benjamin Joﬀe / Plus Eight Star Ltd.

QQ Farm

Hardware commodi/za/on •  Change your iPod into a phone!

“Shanzhai” Spirit? •  Cheap •  Fun •  Flashy •  Fast

Cmune’s Story

UberStrike | World’s First Social FPS! www.facebook.com/paradisepaintball www.cmune.com

The straight story •  FPS make billions •  Nobody has made an FPS on Facebook •  “Let’s make one and make billions!”

Startups are not straight stories •  Our star/ng point in 2008 was… “Online 3D collaboraEon made simple”

Go that way… Really Fast

Cmune’s Evolu/on 1.  Powerpoint stage 2.  Technology selec/on 3.  From ideas to prototypes 4.  Valida/ng concepts 5.  Finding the business 6.  Building the service 7.  Evalua/ng markets

Powerpoint stage •  Showing around to people and friends •  Get feedback •  Get started!

Technology Selec/on •  Our CTO wrote the reference book on Virtools •  Evalua/on of tech features & licensing –  Browser-‐based? –  Per-‐desk? –  B2B or B2C focused? –  Cool team? •  Eventually pick of the young “Unity3D” tech

V1: Mid-‐2008

Prototyping •  Social network visualizer •  Virtual space (TED scene!) •  Web-‐based apartment •  And… a small FPS game

Showing around: Business •  Adver/sing agencies –  “We could use that cool 3D thing.” –  Upside: people are interested, but it’s a gimmick –  Downside: reference price = Flash •  Virtual world companies –  “Let’s use your tech to build a prototype.” –  Upside: validates tech, ﬁnances team –  Downside: slows down and distracts •  Investors & Experts –  “I don’t see your business.” “And the tech, is it Flash?” –  Upside: show the need explain beaer & ﬁnd market. Puts on radar. –  Downside: no money, /me consuming if too oeen

Showing around: Users •  FPS put on Apple.com as a widget… •  #1 worldwide in 1 week! •  Do we have a winner?

Pick your market! Service Market scale (MUSD) Business model 3D Tools 1 x B2B Virtual worlds & Spaces 10 x B2B, B2C Social networks & games 100 x B2C Online games 1,000 x B2C

Pivot: Clariﬁed purpose •  Mission: “digital third place” –  First place: your home –  Second place: your workplace –  Third places: crea/ve & social places •  Is the market ready? –  Only gaming is –  Path of least resistance

Which game? •  3D has to make sense! •  FPS •  Racing game •  Dance / Music game

V2: Late 2008

Our pick: FPS •  Limited assets: 2 guys and a gun ^_^ •  Huge market –  Billions! •  But… most diﬃcult technically –  Lag –  Fun

How to build an FPS •  Benchmark! •  Free-‐to-‐play FPS from Korea successful •  Best prac/ces in dual currency & pricing •  Business model & virtual economy were (almost) no brainers

V3: Mid-‐2009

Valida/ons Summary •  Tons of users, many passionate •  No compe//on •  Huge FPS market, untapped in the browser •  Tech partners impressed •  Presenta/ons at events

V4: September 2010

Evalua/ng markets •  GDP/capita •  Channels •  Usage •  IT infra •  Payments systems •  Cultural peculiari/es (FPS in Japan?)

Results •  Game portals > Social networks •  Korea, Japan, Russia > China •  Convincing social gamers << Aarac/ng gamers

Conclusions

1. Inspira/on is everywhere

2. Innova/on is acceleraEng

3. Global success can be built in Asia!

How could you…?

1. … leverage proven models?

2. … make use of the “Shanzhai” spirit?

3. … and create your own success!

Thanks! More about “Innova/on Arbitrage” www.plus8star.com benjamin@plus8star.com +81 | Japan benjaminjoffe +82 | Korea +86 | China hap://twiaer.com/benjaminjoffe Telecom & Internet www.linkedin.com/in/benjaminjoffe + Added Value * High quality www.slideshare.net/plus8star

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The Myths of Innovation

by Benjamin Joffe

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