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”

•  Speaker 100+ talks in 16 countries

•  Advisor

•  Investor in Asia-‐based global companies

Angel Investor, Advisor, Keynote Speaker

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 (1960)

Seven Samurai (1954)

The Matrix (1999)

Ghost in the Shell (1989/1995)

Kimba the White Lion (Japan, 1965)

The Lion King (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!

(now served in Japan too!)

California Rolls

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

Idea (e.g. Durian + Strudel)

Inventor (Prototype)

Entrepreneur (Business)

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

郑和 | 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!


Everything!

Ques/on

Replace old boards, mast, sails…

Everything!


Everything!

Which is Zheng He’s Ship?

…Or Zheng He’s New Ship?

Case Studies

Examples from Asia

#1 SNS in Korea

US$100M in 2009

#2 SNS in China

Raised US$500M

#1 SNS in Japan

US$200M in 2009

Changing riders

#2 SNS in China #1 SNS in Japan

Yong Hyoung Founder Cyworld

#1 SNS in Korea

Changing riders


Gave most shares to keep going

Yong Hyoung Founder Cyworld

#1 SNS in Korea

Changing riders


Wang Xing Founder Xiaonei

#1 SNS in Korea

Changing riders


Wang Xing Founder Xiaonei

#1 SNS in Korea

Sold for US$2mln in 2006

2005 2007 2008 2009

Wang Xing’s Projects

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


Batara Eto CTO Mixi

#1 SNS in Korea

Changing riders


Started Mixi as an intern!

Batara Eto CTO Mixi

#1 SNS in Korea

Changing riders


Now invests in Indonesia

Batara Eto CTO Mixi

#1 SNS in Korea

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 the race was over.

•  […] At last the Dodo said, EVERYBODY has won.

Dodo (extinct)

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!


(and started mid-‐race!)


(This one has no rider)


Nobody knows the track’s shape

Case Studies

Changing diet

Ads CPA Virtual goods Ini/al business model?

#1 Mobile SNS in Japan

US$1 billion in 2010!

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

IM was not making money and our compe/tors moved to other ventures. I did not have other ideas so I stuck to it. Pony Ma

Founder & CEO Tencent (QQ)

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)

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




•  Where is the innova/on? •  Not in the game concept, but in viral & social mechanics




•  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”

I’m loving it!

Conclusion

•  Aggressive teams can do it!

•  “Ramen Profitability” reachable

•  “Fast followers” can trump innovators

Shanzhai Innova/on: Mass customiza/on

Innova/on Awareness Test

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


Hardware InnovaEon: “Shanzhai” (山寨)


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!

More about “Innova/on Arbitrage”

Thanks!

www.plus8star.com

[email protected]

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The Myths of Innovation