The general consensus on those questions is often: copy is easy and has no merit; the original has little recourse; investors are aligned with entrepreneurs if those want to grow and sell fast. During the past few weeks, thanks to various research projects and encounters, I came to evolve to a richer viewpoint.

Is copycatting easy?

Quite frankly, if it was, everyone would do it, and companies would try and expand internationally a lot faster. You might have heard “execution is key”, I would like to add “…once you have adjusted the plan correctly”. Many copycats fail due to their sticking to a plan not suitable for their market. While starting with an idea proven somewhere else removes part of the risk, as a company in Europe specialized in “starting startups” explained to me, the culturization of startups and execution speed constitute most of the work.

Copycats are enemies

The world is often more complicated than when divided between good and bad guys. The “good guy” is often the “first bully” to reach prominence. Was YouTube the first online video site? Was Facebook the first social network? Pandora.tv in Korea was up 6 months before YouTube and Friendster was around since 2003. And there are surely other companies before them who tried and did not reach the same scale. So how do you get where YouTube or Facebook are? With visibility, scale and money.

In the US, the marketing machine is very well used by some startups, who get people excited around them when they barely have a few tens of thousands of users, or sometimes not even launched! This initial push gives them a lot of visibility for cheap, which in turn allows them to “own the mindshare” of the category they are creating, raise capital, and scale up. In a way, it is a form of self-fulfilling prophecy.

What the case of Groupon (a service offering “one deal a day” for group purchases) shows is that even when your model is easy to replicate and maybe thanks to this fact, you can expand faster thanks to copycats. In China, Europe, Japan, South Korea and more, dozens of copycats appeared earlier this year. Within a few months, leaders started to emerge. Some of them raised some funding – showing again how venture capital also fuels copy – and distanced the pack of those who did not.

Since Groupon is operating in the US and raised a lot more money, it was in a position to de-risk its international expansion at a reasonable cost by simply buying the copycats that were doing well. By doing so it acquired a capable team and saved lots of time. Maybe the price paid looks expensive, considering the local entrepreneurs took the idea and ran with it for less than a year, but if one considers the value not today but in just one or two years time, it is a very good deal with a much lower risk of failing than starting operations from scratch by hiring a hard-to-find local entrepreneurial-yet-salaried executive.

New deals for entrepreneurs: If you’re worth a million dollars

After meeting a handful of incubators and attending startup pitch sessions gathering hundreds of angel investors, it became clear that the world of financing for technology companies had evolved. While venture capital firms were calling the shots, the lower financial requirements of web companies has given a new scale to early stage investment: smaller amounts of money are offered by more people, and companies are aiming at reaching profitability faster than ever. At such stage, companies generally sell 5 to 10% of their capital at valuations generally in the 1 to 3 million dollars range.

Another interesting aspect of joining incubators and getting angels on board is the leverage of resources, knowledge and reputation it allows. Instead of a financier who will check on milestones, entrepreneurs can receive regular support from people who not only genuinely like what they do, but also have a useful expertise or human network to help the company develop. This is not making traditional venture capital irrelevant, but rather creates an early-stage filter for them, giving a better position to entrepreneurs when negotiating subsequent “growth” deals.

New deals for entrepreneurs: If you’re worth a billion dollars

At the other end of the spectrum, a relatively new investment company named has been offering a different deal: instead of going from rags to riches at a distant public offering, they are offering to entrepreneurs, and sometimes employees, to sell some of their shares before the elusive IPO. It is sometimes called a “partial exit”. Why is that attractive to entrepreneurs? Just like everyone, entrepreneurs worry about their personal finances: owning their house, paying off loans, ensuring their kids get a good education and ideally having enough money saved to not work again if they want to. Alleviating those concerns is beneficial to the company and its stakeholders as it allows them to focus more freely on growing the business.

Of course this type of deal is not for everyone: those investors are looking for a multi-billion dollar potential. Ideally in the tens, if not in the hundreds. Despite the large sum it would require to get a meaningful share, they see those deals as low-risk as they invest in clear leaders with fast growth at a valuation where there is little competition from other investors, while still having a huge potential. Maybe the company won’t multiply its valuation by ten, but if it doubles at least once it is already a good deal for them, and a welcome one for founders. It also allows those investors to focus on just a few very large deals. It happens so that Digital Sky Technologies (DST), the company which started offering those deals, is based in Russia. They invest worldwide. Interestingly, showing again how reasoning in terms of nationality is increasingly irrelevant, DST themselves received investment from China’s leading Internet company Tencent. For memory, the largest shareholder in Tencent is a large media holding from South Africa.

As was said to a TV anchor gone mad in the movie “Network” back in 1976:

“You are an old man who thinks in terms of nations and peoples. There are no nations. There are no peoples. There are no Russians. There are no Arabs. There are no third worlds. There is no West. There is only one holistic system of systems, one vast and immane, interwoven, interacting, multivariate, multinational dominion of dollars.”

This column was written for the magazine “China Electronics Business”

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+8* | Plus Eight Star cares about your digital looks, and shows you how Asia leads online styles. Follow us at @plus8star and @benjaminjoffe.

The Digital Ape

The behavior of humans has numerous parallels with animal behavior, from group behavior to conflict resolution or mating. In the late 60’s, Desmond Morris looked at our species from the point of view of a zoologist and wrote two important books on the topic: “The Naked Ape”, which makes parallels between our behaviors and our ape cousins, and “The Human Zoo” which explores how urban life lead us to exhibit behaviors that in the animal kingdom are specific to life in captivity. Basically, we are not only mammals at heart, but also showing signs of mental and physical distress like zoo animals.

How does this relate to the Internet? As the world goes increasingly populated, individual space diminishes; people are also getting increasingly connected and we are becoming part of new tribes that are larger, more symbolic while still requiring from us the ability to display emotions, show dominance, etc. You might not be an “alpha-male” (or female) offline – for males that generally means tall, square-jawed, muscular, deep-voiced, graduate from a top university and driver of a fast car – but stop worrying: online is not only going to give you another chance, it is rapidly going to be the most important field for numerous human activities. Including, of course, romance.

Welcome to the new era of evolution, where the naked ape escapes from his polluted cage and enters a new world. Without further ado, let us look into the exciting and highly abstract life of the digital ape.

Generating Digital Attraction

By now, many companies have learned how to advertise their services and present themselves well online. They have ideas on what they need to show in terms of who they are, what they do, customer references, quotes from famous media and spend more and more on online advertising – basically generating attraction and showing some “social proof”. For most of them, they are still trying to figure out how to handle the back-channel: reviews on third party services, forums talking about them. With the growth of the “instant web” – social networks, micro-blogging, Q&A services – it is turning into a pretty big PR headache and an important business risk.

What about us, individuals? Many of us caught into social networks or blogs gradually realize that managing our online reputation requires quite a bit of attention. Recently, I read that a job applicant created the “perfect Facebook page” to look more attractive to a prospective employer. And this is still a watered-down version of what is to come.

One interesting case to look at is online matchmaking and dating services. Most people would not mention they actually tried or use one, but there are already millions who registered and a sizable number who even got married. Having completed projects for leading online matchmaking companies, I got to learn about that scene, and realized their value in solving a real problem of society. People are busier than ever with long work hours and commute, they live far from their hometown and have to rebuild their social circle, which may or may not help them find the right partner. Adding to this the inherent difficulty of approaching strangers, the path looks a bit rocky.

Offline, if your social skills are not high, you might end up standing by a wall, holding your glass in front of your chest and wondering why those other guys or girls were born with much better skills. Of course, it can be fixed, but it is a different game from what is happening online.

Online, conversations are scalable, and you can use that to learn more rapidly. Just like professional online poker players are able to play up to 10 tables in parallel, you can handle numerous interactions and test what works best a lot faster.

Though the ethics of the method are debatable, one coach specialized in online dating suggested to his clients to use first a “reconnaissance” profile: build an imaginary profile mixing a picture of a girl with the profile of another and putting it online for a few days to see what kind of messages they would get. It not only helps the user understand better the dynamics of the service, but also provides useful feedback on what works best to get attention from a female user. In other words, it helps him learn “digital alpha-male” techniques in communication and building of his own profile from other unsuspecting male users. It is a kind of parasitic behavior but certainly provides an edge.

While you become increasingly successful at presenting yourself and interacting online, the slippery slope is losing track of the respect and consideration the persons you interact with deserve; becoming so systematic that you lose yourself and become a social robot. Instead of supporting your social life, those tools could take control of you, your identity and values.

The Future of Digital Attraction

As pictures, videos and text are recording many of our offline and online interactions and sharing it, often out of our control, the world is getting increasingly transparent. You could easily imagine a future where not only your colleagues, clients but also friends or former partners could provide feedback about who you are and how you behave. Various matchmaking sites already do psychological profiling with questionnaires or user-generated quizzes; since third-parties are always more trusted, you could imagine others filling those about you.

If you combine total transparency with feedback and rating mechanisms, we could be on the verge of a new cognitive revolution: just like the invention of writing helped us reflect deeper and spread ideas, the disappearance of what we know as “privacy” might lead us to higher levels of understanding of ourselves. My hope is that, if that is the path we are taking, the transition goes smoothly and that it leads not to more control, but to more tolerance as we get to know and accept the various quirks of our fellow digital apes.

What do you think? Comments are welcome on Twitter (see below) or by email benjamin [at] plus8star.com

This column was written for the magazine “China Electronics Business”

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+8* | Plus Eight Star cares about your digital looks, and shows you how Asia leads online styles. Follow us at @plus8star and @benjaminjoffe.

Innovation outside Silicon Valley?

Anyone working knows about his own industry. The problem is that when asked about the latest trends and innovations, most people would come up with the same answers. This is what you get when reading mainstream media, attending most conferences and talking with peers. Eventually, all tend to agree and hardly anything disruptive or original emerges. While the world is looking at Silicon Valley, learning from the US in addition to their local market, the US is not looking much outside its own fish bowl. This is why such initiative provides so much value: not only entrepreneurs and investors get exposed to new ideas, but meet peers who address markets with original angles. It broadens their views and stimulates their creativity.

During this trip, we joined various events such as Ignite Shanghai, Mobile Monday, Startup2Startup, the CHINICT and Global Mobile Internet Conference (GMIC) in Beijing, Startup Weekend in Seoul and Echelon 2010 in Singapore. Just those events are already worth the trip!

The group also had a few cultural experiences such as visiting the Shanghai Expo (tip: lines are short at the DPRK and Iranian pavilions), the Great Wall, doing Tai Chi with a Beijing master and various parties and cocktails almost every night. I met many remarkable people and probably swapped over 200 business cards in just 10 days – you can do better at SXSW or other large events if you have your routine, but what about quality? In addition, the links forged between the two dozen members of our group will also be a long-lasting asset to all of us.

Some remarkable companies

We heard pitches from over forty startups at our various stops. According to the tech writer who was among us to report on the trip, the most impressive were the Korean ones. They not only displayed a strong command of technology and design, but were developing original ideas and showed a high team spirit. Have you heard of Chatroulette, the randomized video chat service that is now a playground for exhibitionists? It happens so that a Korean company named Wetoku has been offering a similar service before the US one was launched, but not only got rid of nudity and added useful functions such as recording and embedding in any website of the video conversation. While they are still in search of a strong business model, the service is already working well.

Another interesting example from Korea was FlyFan, which improved the online group purchase concept of Groupon.com (followed in China by companies like Meituan.com). It invites “power bloggers” to broker deals to their audience, solving the high cost of deal sourcing and scalability that Groupon has. Such concept works in Korea thanks to the sophistication of its online population and is likely to develop overseas only in a few years. Another company named PixelBerry displayed an impressive browser-based 3D avatar customization technology.

A few other companies caught my attention, such as Singapore’s Foound, a mobile-based service allowing users to organize and broadcast their plans to their friends, which was a significant improvement over the US-based startup Plancast. The company got a standing ovation following their pitch at Echelon. Another was a Japanese startup named Sidefeed that developed a low-bandwidth streaming technology for iPhone. Both had ambitions beyond their national borders.

What about Chinese startups? Despite the high level of entrepreneurial activity in China, the focus is still mainly on bridging the gap with foreign markets. Investors also support this attitude by funding models they are familiar with. I mentioned before my model of describing innovation with “5C’s”: Copy, Competition, Combination, Constraints and Context. One example of this is a company named Lashou that created a mobile service combining concepts of location-based service FourSquare and group couponing Groupon (see article on TechCrunch).

I am glad to share the new ideas generated by this trip in attempting to describe differences among national innovation ecosystems: there are three “missing C’s”: Collaboration, Culture and Comedy.

The first one, Collaboration, is the sharing of information, resources and best practices among entrepreneurs, investors and other professionals, and the continuous re-investment in the ecosystem. When asked whether he was mentoring other entrepreneurs, Wang Xing, a 4-times serial entrepreneur and CEO of Meituan, a leading group purchase service in China modeled after Groupon in the US, answered negatively. When asked about how he was planning to beat his competitors, he said humorously that the strategy was “Run, Forrest, Run” (quote from the movie “Forrest Gump”). Speed of execution is of the essence, and entrepreneurs are often left to fend for themselves.

“Culture” refers to the ability to tune to other cultures, which is a must to globalize services and products.

Last is “Comedy”, which stands for the ability to establish an emotional connection with users and rise above the level of bland technology or commodity. Those three elements are yet to develop in many markets, including China.

Things are changing in China as well: the two conferences we attended we both aiming at displaying Chinese innovative companies and sharing ideas with other countries. If most companies are still focused on the domestic market, it is a matter of time before they venture out. Some in the online gaming and mobile space are already making inroads overseas. The very concept of the “Geeks on a Plane” tour is being emulated as well: the Mobile Internet Great Wall Club, a Beijing-based global organization of mobile industry CEOs, has organized study trips to over a dozen countries in the past year and plans to visit over 40 in the coming year. Again, innovation is not only about technology

As the examples above showed, innovation can be in business models, service concepts or even variations on existing concepts. The most challenging seems to remain identifying the value created by emerging usages of new services and designing appropriate business models.

Eventually, the innovation that surprised me the most is not a high-tech one. It is an innovation in an industry that rarely stands out: air travel. Asiana had a team of in-flight cartoonists that offered to draw caricatures of passengers (mine is attached). Other flights had teams of magicians and nail artists. That showed how a mundane flight can be turned into an unforgettable experience, which is what separates a commodity from an outstanding service. What unforgettable experience are you working on?

Apple’s iPhone case

Though a famous Western example, it is by no means the most recent, though it might become the most successful, until Google’s Android market possibly overtakes them. Apple’s ideas on guidelines, specs, revenue share practices and payment systems are almost identical to Docomo’s i-mode in 1999.

The fact that iPhone is succeeding 10 years after i-mode is a spectacular illustration of how mobile operators worldwide have failed at replicating the Japanese success and simply saw a gigantic market pass them by for a decade. Even Apple’s restriction on the ever-popular adult content is similar to Docomo’s. Paradoxially, Apple also sells songs, movies, books and provides a browser giving access to infinite amounts of erotica and profanity.

Facebook’s case

Despite the ambition of its founder to bring peace to the world, Facebook found its success mostly as a gaming platform, becoming the largest game publisher on earth in terms of users. Half of its 400 million users play games at least once a month.

A large part of Facebook’s advertising revenue come from content providers promoting their games to Facebook users. Facebook adjusted their notifications policy several times to keep up with what developers were coming up with to flood their users’ friends with messages. The fact that users are entangled in a web of relationships allows providers to leverage such “light endorsement” to their advantage. This ecosystem has been beneficial to Facebook and the providers who whether found loopholes or managed to keep up with the policy changes.

In this ecosystem, users are either “grass” or “worms”; service providers are mice and rabbits – with some snakes maybe – Facebook is of course the bird of prey. It is also likely Facebook will impose its “tax” by introducing its own virtual currency, taking a 30% cut from others’ revenue. Like a bear standing by a river where salmons are migrating upstream. One conclusion from the panel I moderated at the “Inside social apps” conference in April in San Francisco was that being dependent on a single platform was risky.

China’s and Japan’s social networks’ case

In China, several Facebook-like social networks publish their own games, thus competing with developers. Don’t expect risk-taking or originality there, those networks simply copy what works elsewhere to do their own. They also impose the use of their digital currency and take a solid cut on sales. With such conditions, it is unlikely any developer focused mainly on the Chinese market will grow anywhere close to those who operate on Facebook or internationalize.

In Japan, the situation is similar for two of the three social networks. GREE and Mobile Game Town were mobile gaming platforms before opening to third party developers and keep publishing – and giving way more visibility to – their own games.

Finding what social networks won’t do themselves, whether because it is a too small business, too complex or against their business model or public image, is a difficult exercise. Despite those conditions and its limited size, the Japanese market remains attractive for adventurous Chinese and foreign developers.

Twitter’s case

Twitter has been preaching the “open” mantra since early on: tweets are mostly public, they launched an API for developers and encouraged the community. It was as if Facebook, Twitter and Google were trying to “out-open” each other. Twitter’s high visibility, a consequence of the nature of its service, served it well to attract users, developers and investors. However and contrary to Facebook, its lack of any initial viable business model forced it to consider how to make money. The answer? Simply look at what successful third parties have come up with and do the same!

It was even possible for one of Twitter’s early investors to frame efficiently the discussion by calling third-parties “hole fillers”, while encouraging those who were not directly threatened to come up with “entirely new things”. Needless to say, those who managed to grow those initially popular services are left with a bitter taste in their mouth, as Twitter peacefully leverages the innovations and best practices they came up with.

The lesson: new platforms are not solid ground for a business, and nothing forces them to buy startups when they can replicate their services at a much cheaper cost, thus avoiding the uncertainty of finding “killer services” by themselves – who would disdain free R&D? To make an unlikely parallel: years ago when the mad cow disease was detected in the UK and the government ordered to massacre millions of cattle, Cambodia offered to ship them to help in finding land mines by walking them in open fields. The purpose was to avoid having people, especially children, walk on them. The proposal did not work out. In tech, a similar proposition seems to attract legions.

What can you do?

As users, it seems all pretty good: services are becoming legitimate parts of the platform, and when the platform itself does it, it is infinitely more trustable than when rogue third parties only following the “profit motive” do it.

That being said, managing an ecosystem successfully also means allowing third parties to thrive while protecting users – otherwise it’s simply exploitation. The purchase of Playfish, a leading game provider on Facebook, for 300 millions by Electronic Arts at the same time EA was cutting 1,500 jobs highlights how traditional game publishers have been unable to keep up internally with the changes in the video game industry.

For entrepreneurs, it is also a lesson on risk management: being dependent on a single company, while having no power to defend yourself puts you at a high risk.

As was said accurately over a year ago by Andreas Constantinou, Research Director at the telecom strategy advisory firm VisionMobile – who took the time to analyze the terms of services of the various emerging mobile platforms – “open is the new close”. Those cases are a reminder that despite the sweet talk about “openness”, the control of the ecosystem remains with the one who builds it.

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+8* | Plus Eight Star shows that concepts are universal, while implementation is local. Follow us at @plus8star.

Years ago, while working at a large telecommunication operator, I was invited to a large yearly event for the company’s decision makers and attended a session on “ecosystems”. An expert was explaining how industry relationships were changing from clients-suppliers to “ecosystem”. At the end of his talk, he was told by an attendee that the company already had many partnerships in place and that, frankly, there did not seem to be a big difference with this “ecosystem” thing he was talking about. From what I gathered, the presenter failed to get the idea across.

Almost 10 years later, we hear this word frequently in tech circles, and we can observe quite directly the impact on the industry of who “got it” versus who did not. More importantly, it has expanded beyond telecom and become tremendously important to the web. I’ll take a few important examples to illustrate how some key companies understood this very well and have used it to their advantage.

What is an ecosystem?

The first image that comes to my mind when mentioning the term is the one of a forest, with grass, worms in the earth, mice and rabbits on the ground, snakes, and birds of prey such as the wedged-tailed eagle.
Generally, grass is considered a free resource or “externality”, worms get most of the abuse and birds of prey have a good time, but everybody live together and can thrive together if things keep balanced.

Obviously being a bird of prey is a better position, but there are only a few of those, whereas worms, mice and rabbits can be many. I found that this image works pretty well for most industries, the point being to understand who is who in the chain, especially if you discover you are a rabbit, a mouse or worse, a worm.

The legendary case: Toyota

Toyota came up with a system for continuous improvement, later adopted by General Electric under the name “6 sigma”. Toyota is today applying is system way beyond product development and you would not believe the extent to which they go with the system of “five why’s” to identify issues. Despite its commitment and still being the largest car maker in the world, it is pretty obvious the company somewhat lost track of the purpose of this system.

The Toyota system relies on a network of relationships with suppliers, where those are trained at Toyota facilities, benefit from Toyota’s research and are allowed to make profits in exchange for better integration and not being simply left to compete and destroy their margins. Of course, the master of this ecosystem is Toyota and its partners are much more dependent on the company that it is on them.

The best telecom case: NTT DoCoMo’s i-mode

Docomo designed a platform on which each partner could focus on its strength: making good phones for makers, making good services for content providers. Docomo takes a significant financial risk by committing to buy large volumes of handsets in exchange for makers following its specifications. Content providers followed Docomo’s guidelines and benefitted from a very generous revenue share.

As a result, several of them listed on stock exchanges for millions and sometimes billions. Some went on to acquire other companies in Japan and overseas. Docomo changed little its model over the past 10 years, which means partners were standing on reasonably solid ground. Whether Apple did find inspiration in this model to create the iPhone platform and business model is left to speculation, but the similarities are striking.

Korea’s mobile industry case

Korea found inspiration in Docomo’s model for sure. However, their command-and-control attitude and lack of efforts in bringing down data prices created a market where most successful mobile content providers are… subsidiaries of operators! The top gaming companies have been stagnant for years. Maybe the introduction of iPhone and other platforms will change the balance of power?

China’s mobile industry case

Again, inspiration was found in Japan. Again, the model was taken to a different direction. Generous in appearance, China Mobile left content providers battle to grow the market, while taking increasing shares in sales. It also regularly cleaned up the market from abuse, after having taken its share, letting content providers take the blame. More, it launched its own services, sometimes competing directly with its “partners” and of course, wiping them out in the same move.

In effect, China Mobile used its ecosystem as free R&D, financed by foreign venture capital and the sweat of entrepreneurs. The fact that the ranking on the operator’s mobile service portal was critical and utterly opaque did not create stable businesses. Most companies who could find an alternative business such as Netease, Sina, Sohu and Tencent gave up on mobile as a reliable revenue source.

– Part 2 next week!
@benjaminjoffe

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+8* | Plus Eight Star finds amazing innovation prior art in Asia. Follow us at @plus8star.