The Chinese Form of Innovation

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👍︎︎ 11 👤︎︎ u/[deleted] 📅︎︎ Oct 12 2017 🗫︎ replies
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We're here with NYU colleague Clay Shirky a professor at the Tisch School and a recently appointed vice provost of educational technology - did I get that right? That's exactly right. And has recently returned from three years in China so let's start there. China has this reputation for more for less - unbelievable skills around supply chain and figuring out a way to get us something for less than we're used to paying for it, but you talk a lot about what makes the china form of innovation. Yeah, so when I started going over to help NYU set up a Shanghai campus, I bought a phone while I was there - I needed a Chinese phone - I just saw one I liked, I bought it when I got to the campus. We only had freshmen at the time so that's all these 18 year olds running around. I pulled this phone out of my pocket and they go "Where did you get that?" And I'm not used to being the envy of teenagers, like yeah, that does not happen - not a familiar feeling before or since - but for the moment I had this I was like "What is this thing?", like that phone is sold out in all of China. It was the Xiaomi mi3. Xiaomi was kind of the Apple of China, as it was often called. About three years ago, two or three years ago? Exactly, 2013, and and Lejeune who is the charismatic CEO was often compared to Steve Jobs. But Xiaomi's innovation wasn't so much hardware-focused the way Apple's was. It was building this software ecosystem. They rewrote the operating system - they were using an Android operating system - but they rewrote it to be especially tolerant of low battery. You know, low battery draining dual SIM for people who are swapping SIM networks for cost conscious consumers and so forth. So they took all of the sort of Shan Zhai tradition - the very rapid creation of electronics in this relatively open way and they used it to drive the hardware cost down, but they also innovated on sales and marketing and delivery. They only sold online. They would have these flash sales where you had to apply for a ticket to have a chance to buy a phone. What that let them do was it let them aggregate demand at larger scale than they could deliver. Then they'd go down to Shenzhen and say "We know we have a million customers for this phone, give us the million unit price for these parts and so the whole thing was this - the innovation was in the ecosystem in a way. What Xiaomi was doing was saying if you want a phone that is not just cheap as China has always been best in the world at, but surprisingly much better quality for the cost you're paying if we want to in use design to inflect the cost curve up, it's not enough to design the phone. You have to design the sales, you have to design the marketing. They insourced customer service. Usually that's a function people want to get rid of. They said no, no, if someone is talking to a customer about our product and that customer is not happy, we want to know it first. And so, in Beijing - right in the neighborhood, in the kind of, you know, Silicon Valley of China as it were, there are people answering the phone talking about Xiaomi, operating on chat because they just rethought all of the things you could do as an electronics company to control cost downwards as always while raising quality. You talk a lot about sales and delivering innovation in China - speak more about that. Yeah, so there are many things that are different about about China, particularly if you're living in a large city. The combination of urban density and a large, educated workforce, but low wages means that you can get these incredibly effective networks - the ability to have almost anything delivered within a two-hour window is really extraordinary. You buy something and a couple of hours later, a guy on a motorbike drives up. You sign for it and off he goes. They've moved to an almost completely cashless economy. My wife and I went to a new restaurant that had opened up in our neighborhood. We sat down, we couldn't figure out even how to order and there was no menu. We asked for a menu and the woman just pointed to the QR code on the table. You take a picture of the QR code - those little two-dimensional barcodes - the menu pops up on your phone, you select what you want, you press the button the order's on the way. So the entire the entire front end of the restaurant is automated then it turns out the back end is automated too - we said well, okay we're ready for the check now. She's like "Pay on your phone." We're like, "Well, we don't have WeChat setup for payment yet, but it's hard as a foreigner to get into some of the payment systems. She took pity on us. She took our money, put it in her own pocket and used her WeChat account. There was not a cash register in the restaurant, they couldn't even take money if they wanted to and that's, in a way, I think, why the sales and delivery stuff is so important is it doesn't just speed up the way businesses used to do thing. It invites businesses to say "If these systems exist and I can take them for granted, what else can I reconsider?" So now you've got a restaurant with no menus,no waiters and no cash register. What you've got are cooks and runners and it is a different way to run a restaurant and because everyone walks in with a phone you could offload a lot of the electronics and networking to the devices the customers have already capitalized that are sitting in their own pocket. So, let's talk talk a little bit about payments, let's stop there. So, payments make a ton of sense, they were supposed to take off here. Apple Pay got a ton of sign up from a retail standpoint, but it just hasn't got a lot of consumer adoption and some niche players - Venmo, PayPal - I don't know if you call that a niche player But what is it about our society and our culture where we don't adopt payment and some of these automated digital platforms as quickly as Chine? Yeah, so there's there's two different things going on. One - China is very comfortable with monopoly. Right, because the state is willing to intervene in businesses, they are very comfortable saying one or a small number of companies will control a very large part of the economy because they are - the government itself is a more active constraint on what those companies are able to do. The government is also willing to knock heads together in the direction of interoperability. If the US government said"You can have any payment system you want as long as it looks like this on the back end." then Apple Pay and Samsung Pay and Venmo and all of these various systems would be much more interoperable than they currently are. The other is they don't have investment in the previous system. They're doing what's called technological leapfrogging in the way that there are countries in Africa that have had extraordinarily rapid mobile phone growth (they just skipped landlines completely) There's no copper in the ground to worry about. In the case of China, they really went from super cheap Nokia-style, all it does is voice and text, straight to smart phones and the mass of adoption coupled with a low cost which, you know, drives those Network effects really everywhere in the country means that it is a very - there's a very short window to be one of those early successful companies that's getting drawn up and you're not competing with "Well, we already had a perfectly functional, you know, electronic billing system or electronic checking system before." There isn't a lot of credit cards, there aren't a lot of credit cards, people use debit cards. The electronic systems that were set up around those appeared all of a sudden. They were useful for e-commerce, or time e-commerce was growing, and there was no old system to kind of overcome and the U.S. credit cards have worked well enough for long enough that they're really deeply embedded and the value of replacing credit cards with, you know, take a picture of a QR code on your phone, it's just a smaller step and the sunk cost of the previous systems are larger, so yeah it is very weird to come back to New York City and think , "It feels so primitive." like just paying for things here feels really primitive compared to China where I just stopped carrying cash as long as I had my phone in my pocket, I could interact and by the time we were leaving - it was just last July - street vendors who were making, you know, pancakes and they're making sort of street food - they've got a little QR code. Buy six dumplings, take a picture of the QR code, transaction's done. So Xiaomei - most valuable startup in history at one point or to date, kind of feels like it's sort of disappeared or it's gone AWOL. Was it local competitors, was it Apple coming in and taking back - I mean, what happened there? Yeah, so the Xiaomi story is interesting because it was - I mean at the end of 2014 - was the most valuable startup in history. 45 billion dollars, it took a billion and changed on an imputed valuation of forty five billion dollars and Uber at the time was only worth 40. So, there was this moment of "oh my god, this is it, this is when China is breaking out into the world economy." Several things could have gone wrong - all of them happened. So the biggest one is exactly what you said - local competition. There were a collection of low-cost phone providers operating mostly out of Shenzhen, the electronics district just north of Hong Kong. Huawei, OPPO and Vivo principally are the three brands and Americans are starting to know Huawei because those phones are starting to show up here. They copied Xiaomi so quickly. They saw that what Xiaomi was doing was was keeping price low, but creating a better margin and that turned out to be relatively readily copyable in that ecosystem, partly because China's not a strong enforcer of IP law but partly because Xiaomi based their operating system on the open source Android platform so the copying was easier. The next thing is Xiaomi's imputed valuation came from the idea that every product a person buys is gonna have the economics of a cell phone. Right, you buy a toaster, you buy a rice cooker, you buy a watch, you buy a drone - whatever - they were making all of these products that are becoming a kind of general industrial design firm and there's that Internet of Things idea floating around that somehow you want your scale to talk to the elevator, but I don't know what they would say to each other. I don't have anything coherent that my toaster needs to say to my electric blanket and that idea turned out not to work well. Right, that people weren't in fact buying Xiaomi products with the idea that they would have an all Xiaomi home that was networked and and tightly controlled by them on there Xiaomi phone so those revenues didn't show up. Xiaomi bet on services revenues for things like cash exchanges that in fact went to the platform that had the widest adoption which was first Ali pay and now we chat so turned out a pure software play worked better for that and then when they opened up in India, they got sued and they had to shut down sales within four days of arriving because Qualcomm sued them over a patent issue. So, really on every front, local competition, lack of Internet of Things style network effects, lack of services revenues and headwind for international expansion - they all hit at the same time. Perfect storm. It was a perfect storm and Xiaomi is still there, they're still making phones, the phones are great, but they are now out of the top five. The Chinese manufacturers are principally Huawei, OPPO, Vivo so Xiaomi is still a multi-billion dollar company that operates, you know, in the largest market in the world, but they are far from the heights they were at at the end of 2014. So you teach kids - we both teach kids - kids come to my office hours as I'm sure they do to yours and they want to talk about career options and where should I go to work. Yep. So a kid born in China, speaks perfect Mandarin, educated in the US, speaks perfect English, and has an offer from Amazon or an offer from Alibaba - one in New York, one in Shanghai - if they're just an economic animal, not quality of life or anything like that - where would you suggest they go to work? Let me put it this way, if you care most about the global market, you go to work for Amazon, you go to work for Google, you go to work for Facebook. If you care most about rapid growth, you go to China. So, gone for three years, you come back, you don't see the gradual changes, you kind of come back and see how things have changed in three years - what surprises you most about social media and the big four and big tech that's happened in the last three years while you've been gone? Not even so much what was going on with those companies. Except for Amazon, most development has seemed to me to be incremental, Amazon is the only one consistently doing really surprising things. What's surprising is the change in attitude - Ben Smith recently wrote about this beautifully saying the era in which big tech got the benefit of the doubt is over and they're heading into a world of normal politics and normal regulation. People have simply decided that what's happening in Silicon Valley is not magic, it's just the market and that there are issues and constraints that will come up largely around antitrust, monopolistic practices, obviously workplace practices and that change in attitude happened while I was in China. At the same time, what has surprised me that was true when I left and is still true now, but China inflected it - China is incredibly optimistic right now. I mean, it has it's problems, what country doesn't? But I was dealing all the time with both my Chinese colleagues but also about half my students are Chinese citizens, with this sense that they're in a country that can do anything and I remember that growing up. America felt like that in the seventies and eighties and nineties and it went away obviously largely because of the financial crisis, which then got people talking about other problems the U.S. had, but the contrast was incredibly striking the U.S. is - it seems to me that there's this sense that nothing can get better and in China, literally if you just sit there and time passes, things get better. You get back to New York LaGuardia, my god right. No I I left from PVG, I left from the Shanghai International Airport, I landed in JFK. It's like, okay one of these airports is in a developing country and one of these airports is in a developed country, but I'd swear they were swapped. You expect to see chickens running around JFK. But having said that, so China's more optimistic, we look at China, how can they build, you know, these kind of Skidmore Owings designed airports that are just incredible, but the observation - I'm sounding like the ugly American here - is that all the Chinese students I have in my class are desperately trying to figure out ways to stay in America. I don't see that same - still when given a choice, I find that the majority of young people with options would rather be here. Yeah, but that is true. There is a sense and it may be slightly muted among my population because many come to me, they're into social media and China is clearly where the action is in a way. It's easier to say "I want to go work for $0.10." - was the parent company of WeChat than I'm gonna stay in the U.S .and take my chances in the Internet industry here, but there is a way in which if you want to do global business or if you want to be part of any global community, you'd be better off here, but that's true in comparison with almost any country in the world, but I also know people who want to study here but go back, sometimes because I see the opportunity in China, but sometimes because they want to change China. There's a kind of patriotism among young people that isn't my country right or wrong, it's my country. China can do anything, so why don't we fix these problems and the tension between people saying "Well, let's just get rid of the pollution." and Beijing saying "No, no, those people running the polluting industries are also government officials so it's not so easy to shut it down." Like as this cohort ages, that tension is going to become part of how they figure out how to govern, but anywhere in the world, the people making the most cosmopolitan choices are gonna come here. There's no - as the U.S. withdraws in the world somewhat under Trump, there's no obvious replacement. It's not like we're shrinking back and some other cosmopolitan center is coming forward, it's like we're shrinking back and maybe the global interconnectedness is just going to come under pressure, but certainly anyone and and I think anyone who'd find their way either to Stern or to you is gonna be minded to be thinking on a global canvas. I can bet that most of the students want to work elsewhere. So a book, articles, website, where can people find more information from Clay? Shirky.com, of course, but the most recent book is is "Little Rice", which is published by Columbia, the global Columbia Global Report series and then here comes everybody and cognitive surplus, my two books about social media remain on the bookshelves. Good, thanks very much. Great, thank you!
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Channel: Gartner for Marketers
Views: 308,842
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Keywords: Scott Galloway, L2inc, Winners & losers, Digital marketing, Social media, Ecommerce, Mobile marketing, Marketing news, Business news, Internet news, Tech news, Social Media news, Digital research, Business intelligence, Digital trend, Market trend, Brand strategy, clay shirky, nyu, nyu professor, china, chinese innovatoin, xiaomi, lei jun, cashless technology, payment tech, payment technology, venmo, chinese monopoly, alipay, wechat, internet of things, huawei, big tech
Id: 2Wm_Lew0kME
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Length: 18min 35sec (1115 seconds)
Published: Thu Oct 12 2017
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