Asia Tech Teams and their Cultural Nunances

Probably, if you have the time to speak to various founders of a technology start-up in Asia, you will hear this common feedback from them about their teams, be it outsourcing through a vendor or programming house or building internally:

• They over-promise and they cannot deliver: This is common but there are two sides to the comment. The first is from the perspective of the business owners. They want to get the product out quickly but the problem is that they under-estimated the amount of scope required to build the product, and usually they introduce scope creep to the product without confining the scope of the product properly. The problem lies in the business owners’ lack of familiarity on the technology aspect. To cure that problem, the business owner should do three things: (a) talk to friends who are product managers or CTOs to get some realistic gauge of the product that they are building, (b) read books on project management, agile software development and get some thinking from web design blogs, for example, Smashing Magazine, to learn some best practices about web design and (c) reducing the scope of the product to three features of the prototype and stick to it.

  The second perspective is from the technology people who are often either too honest or too ready to get business. The “too honest” group will get fed up with the business people for full of scope creep, and the “too ready to get business” group will end up taking the project without realizing that hell has just begun.

• They can build the feature but the product is imperfect: Sometimes, the management team dictates how the product is built and to the credit of the technology team, they build it. However, the product can work for the test case but failed for the other cases. How can that happen? The problem is that there is no planning on the technology team to provide adequate unit testing or even instructions to the layman how they can use the product.
• They cannot imagine beyond the technical scope of the product: In harsher words, I often hear my western counterparts or fellow Asians educated either in the US or Europe saying, “They can’t think.” I do agree with the “they can’t think” given the Asian hierarchal culture nuance of “obeying your elders”. However, as product owners and managers, we should encourage to work out how the product works and then put questions to the issues which they might be facing before they start coding. The missing link between the engineers and the business people is the social practice on how the feature is delivered. To mitigate that risk, the engineers should code the feature with an internal discussion on brainstorming the problems which might arise from usage and let the business people test and offer feedback. The tech team should look at several examples of how the same feature is delivered through other web services or mobile

It is important to note that all project managers or business owners should know that they should add a 2x to 5x to the number of days which the whole software development project take. So, if your programming house tells you that they take 100 days to finish the project, be prepared that it will be 200-500 days. The best programming house will finish it within 150-200 and the rest follows. Most outsourced programmers and freelancers will give up the project if they exceed 300 days. So, here’s a rule of thumb. Why does this happen? In a project that you outsourced to a vendor, you have to pay half the money upfront first and then the rest upon completion of the project. In some cases, the payment is split due to the completion of milestones. It’s a problem of economics when the vendor or freelancer takes half the payment and then runs away by the time when they realize that it’s too much work and it’s never going to end because of scope creep. What happens in the end, both loses. The business owners have to salvage the situation and look for another vendor, ending up paying twice the amount. The vendors walked out burnt too with their teams not paid properly and all hell broke loose.

The real challenge is …

The best way to deal with the scope creep is to be really honest about what you want and what you can’t have. Draw up a list of 20 things you want on your site, then systematically eliminate and prioritize which ones come first. Then in the end, focus on the 3-5 things on the list that really matter to the business. If something can be added without hassle, you can get the software engineer to add them later. Life is never perfect, and half the time, you are trying to constrain resources to deliver the highest amount of impact. Business people should learn that the perfect product should have lesser features but works in a seamless way without hassle. The best way to explain this to them, “You can create a feature of buy and add an e-commerce element to your platform, but what’s the point if your payment page keeps getting errors because you don’t spend money to perfect the experience of users buying the stuff from your site?”

Related posts:

1. Building & Managing Technology Teams in Asia 1: The Tech Conundrum
2. Building a (Mobile-Web) Start-up: the 2011 way

Why Companies outsource and the cost effective reasoning does not work

In a typical start-up particularly one in the mobile-web technology space, should you build your own technology team or outsource your technology building to someone else? If the technology you seek to build exists, it is likely that an Asian business owner will pay a programmer to clone it. Why is it cheaper to clone? On a macro-economical scale, the Asian business owner is trying to perform a technology arbitrage where he or she clone something and execute the same business at a lower costs. You will hear about the thousand Groupon clones in China, or the AirBnB clones in Southeast Asia or Middle East funded by a few group of people.

The common thinking among people with business but no technology background (particularly those with MBAs) is to outsource. Of course, if you are Asian (or even American), you will typically hear everyone telling you to outsource the job to Indian programmers. In fact, the common case studies most people will cite are the multi-national corporations from Microsoft to Nokia claiming success in outsourcing their operations to India. Unfortunately, when you start talking to start-up owners even if they are trying to clone a Silicon Valley start-up, you will start to hear the following about Indian programmers: (a) they are lazy and very hard to manage if you are far away, (b) they don’t seem to understand your instructions because they seriously cannot communicate and (c) they don’t get what you want to do correct and worse, they made a mess out of it. This is not intended to insult or dissuade you against using or hiring Indian programmers. The same problem spread across most Asian programmers. Very few and good Asian programmers exist but chances are, the lure of a giant salary from an investment bank or a multi-national company will draw them away.

One must be wondering why most Asian companies (even for start-ups) have consistently perpetuated the myth that outsourcing is good for building web and mobile technologies. Cost effectiveness is often cited as the main reason. If you are outsourcing specific operations which are mechanical, the reasoning is correct. However, some people with business backgrounds (particularly MBAs who were former consultants and investment bankers) tried to map the same reasoning into building their start-ups. The eventual result is that most of them crash and burn because they did not have a proper technology team or worse, not even a technologically inclined co-founder. The same goes for middle to large businesses in Asia. Why is that so? Why are these people did not want to invest more resources in building proper technology teams in Asia and wasted money later to repair large scale IT infrastructure or technology failures?

(Credit: SydesJokes.com)

The Intangible Cost of Technical Debt

“Shipping first time code is like going into debt. A little debt speeds development so long as it is paid back promptly with a rewrite… The danger occurs when the debt is not repaid. Every minute spent on not-quite-right code counts as interest on that debt. Entire engineering organizations can be brought to a stand-still under the debt load of an unconsolidated implementation, object-oriented or otherwise.”
- Ward Cunningham

The management from any start-up or company often justifies their outsourcing of technology based on the argument of cost effectiveness. It’s a very one dimensional argument and we can’t really fault them because their intention is to take the product (a website or a mobile application) to market at the shortest time possible. What they end up discover later, is that the solution that they are building is not entirely what they have intended or some failure in the IT infrastructure which they did not foresee like database crashes or security breaches.

What business theory did not teach them is the problem of technical debt in building a web or mobile technology. When a business owners builds a website by outsourcing it to a freelancer or a programming house, they often rely on them to pick the correct technology to implement the solution. What they don’t realize is that the business model for freelancers and programming houses is that they need to make a profit by working in several projects at the same time. For a start, both your business objectives do not align, because you have no awareness of your technology and you are being held hostage if problems happened by the vendor. Since we know that if the team you are outsourcing to is not focused, it results in three things: (a) lack of focus and hence poor code written to build the features on your site, (b) selecting the wrong database infrastructure or frameworks which may not align with your business objectives and (c) drop their hands off the project if you are not paying them enough and ended up you wasting more financial resources to repair the problems you have. So, when you outsource your technology building, you have actually incurred more technical debt with a higher interest as compared to those who start off by spending more money in building their own technology teams but reducing the interest rate of technical debt. The problem will come back to bite you in the future.

Precisely, the cost effectiveness argument fail because in the longer term perspective, the technical debt that was incurred in building cheap will come back to bite the business owner. In most cases, it will trigger a rewrite of the code, which the business owner is reluctant or have no choice to pay or they have to give up on the entire technology platform.

Dealing with the “I can’t hire any tech talent” problem

Another common excuse for most business owners is that there are no technical talent available. As a matter of fact, this is a common problem endemic not just in Asia but also in technology clusters such as Silicon Valley and Zhong Guan Cun. According to some, the problem is worse because the better engineers in Silicon Valley will prefer to work in the bigger companies like Facebook and Google rather than with start-ups unless they are on the ascendency. The correct way to phrase this is that there is no software engineer which fits criteria of your choice. In my experience working in a research institute, most researchers usually enter with no relevant software programming skills. The problem is exacerbated in Asia because most software engineers don’t fit basic requirements. Not just software engineers, the same can be said of user interace and user experience designers for web and mobile.

Why is Asia having so much shortage of good engineers? The key reason is that IT programmers are treated like digital coolies, a term which is used for labour workers in trading ports during the 18th and 19th century. There is a lack of incentive for innovation because people do not spent time or provide any incentives to help engineers to upgrade themselves or a feasible and decent career path. As a result, we have a shortage, and the better ones decided that it is better to service clients on a project basis and become freelancers. As a result, due to a mis-alignment of objectives, the problem of technology talent in most Asian countries has grown worse in the past decade.

There are ways to build a technology team in Asia but it requires configuration changes in not just building them from scratch and providing some allowance for error. In the next post, I will discuss a few models on how one can build and manage one with also the correct incentives and objectives. However, it requires some resources and a change in business owners’ attitude in Asia.

Updates

• Sanjay Anandaram (adjunct faculty from INSEAD and also co-founder of Jumpstartup Venture Fund) provided two interesting references: (a) TechCrunch, Should Tech Startups Outsource Product Development? and Serious Changes in the Global Startup Ecosystem where he contributed some thoughts on the issue.
• Patrick Turner (Professor of Entrepreneur from INSEAD business school) wrote this comment to me via email, “Outsourcing to project-based engineers works much better for start-up teams that have a solid full-time CTO on board. This is obviously because that person is able to control for the deficiencies of remote coders in a way in which teams without such a person cannot possibly do”.

Author’s note: This article is written in conjunction to a similar talk I have given in Barcamp Singapore 7 on 10 Sep 2011. The author thanks the audience, particularly several founders from various start-up companies in Southeast Asia for their feedback and lively debate on the topic. The picture used here is credited to LGB06 from Flickr under a creative commons licence. If you want to republish this article, please contact me to seek my permission first.

Related posts:

1. Building and Managing Tech Teams in Asia 2: Cultural Nuances & Scope Creep
2. Building a (Mobile-Web) Start-up: the 2011 way

Basically, the way I proposed is based on known methodology in product development and it is just a summary of three key principles: (a) Agile: Build a product in the shortest time and most effective way possible, (b) Iterate: Change the product quickly upon getting feedback from users and test until you find the killer feature, (c) Pivot: Upon failing in the fastest manner possible, learn from the lessons of why it did not work, change strategy and develop the product in a different direction.

• Build the prototype with an co-founder with engineering background: The best thing to do is to deconstruct the idea into a few basic features and create a simple site or app to test the market. The best way is to adopt the agile development approach – where you determine the features of the site or app that you want to have and followed by breaking them down into “stories” on how a user will interact with them. Sometimes, it’s easier to produce mockups to get a sense of how the user flow will look like. Some might ask, what programming languages to use for rapid prototyping? My recommendation is to look at open source technologies such as Ruby on Rails, Python-Django or even PHP if you want it quick and dirty. As for mobile platforms – focus on either Apple iOS, Google Android or Windows Phone 7.

  I want to highlight two features which can help start-ups in setting up a rapid prototyping and at the same time, gain users at a quick rate. The first is in the signing up of a user. With an inundation of mobile web services in the world, user fatigue will usually creep with respect to signing ups. Take the Jumo approach, just sign up with Facebook, extract the particulars and provide two fields for the user: password and confirm password, and within seconds, you get one user. If you want your service to be viral, flip the model over and put a Facebook application on top of this, and push wall notifications that the user has just joined your service and make updates on how he or she is using your service. The second is in the amount of fields you want your user to sign up. There is an approach in product development that you should only have 3 or 4 fields at most for a sign up, otherwise, the user will just give up. Once you collect these basic sign up processes, lead the user to your product and the main killer feature that you want them to experience.

  I don’t recommend outsourcing your first alpha product development to a vendor which is common in Asian countries and trust me on that, I have bad experiences on that front, no matter how good the engineering team claimed to be. In fact, assembling the engineering team might be slower but it builds good foundation. Get your hands dirty and build a product from scratch. It will also help you in understanding how the programming structure that underlies your product can align with the business objectives you want for your idea. Try to build a tech team in your own house as early as you can. This is the most important lesson for me.

• Test the prototype in the marketplace: The key lesson here is to take the prototype to market and let the market decide the feasibility of your idea. Move quickly into the market, and remove the “my product must be perfect before going out” mindset. A product with 70% completion with robust features can help you to determine how the users are interacting with your app.

  One important rule that most start-ups do not really do is to set up hypotheses to test the product feasibility with customers. Make a list of hypotheses, for example, “Which feature do you like or hate most?”, “What will you like to see in future versions of the software?”, “Will you pay for this service with $x dollars or cents?”, “Does this service really solve the pain point you are having?” and many more. The important thing here is honesty, do your product really nail the pain point or just your own wet dream that you think that they need it?

• Collect data and feedback from the users and customers: I do know that some people exercise the principle but not to the fullest extent. Having N=1 to N=10 datapoints are useless. You need as many as about 100 data points to at least get a good statistical feel if the product does have traction. Collect case studies on how different users will interact with the product and what they want. Use the scientific method to create hypotheses and ask questions, “Do feature X resolve the pain point of the user?”, “What are the common uses of your platform?” and etc. You can always make sure that you have served your target demographic group. What are interesting data points? Here’s probably a few that I think will suffice before you go to an investor for money:
  • Does the service really resolve the pain point up to a certain degree and what are the issues which you can’t resolve?
  • Does the service gives the users satisfaction?
  • What are the top 3 features that they love and hate? That’s useful for the next product iteration.
  • Will the customers pay for the service and most important, how much you can get them to pay?
  • What is the cheapest means or methods to increase distribution of your product to your customers?
• Iterate the product in a few cycles to see if there is traction: The start-up phase is the best time where you can iterate a product many times until you find the killer feature. Once you find that, just totally put all your resources onto that feature and crush the market, because in the mobile-web space, nothing is forever. Some guy from somewhere will steal your feature, and your only chance is to make sure that you quickly take advantage and earn the largest market share. What is important about iterating the product? Listening to customers feedback and discern which ones are really important and which ones are totally crap. For example, the reliable customer will explain to you what his or her pain point really is and wished for something you can actually build it to work. The person with crap feedback will keep harping on why it does not work but ask for blue sky technologies that it is out of your realm to make it or in some sense, have an illogical user experience flow.
• Quality is worth paying for – Design, User Experience & Good Video: Well, some things are worth paying for and it’s better to go straight to the source, hire the best people and then get it done. For example, if you want to go to the US market from Asia, hire a designer, user experience engineer, copywriter and a good video maker from US. So far, my experience with them is great as compared to the vendors I worked with. The major distinction is on one thing, is their way to communicate effectively and giving you exactly in quality – what you need and what you want. I find that totally lacking in all Asian vendors on this. For such things, I have totally sworn off Asian ones. The best way to know how to pay for quality is to look at how prominent start-ups in US are scaling up with the correct set of marketing tools and design principles. That’s where the real difference is. Less is more in this game and totally work on one thing. The others can come later.

  Here is a good example from a US vendor who conveyed our value proposition very well:
  

  
  
• Focus on that killer feature once you determine the market traction and paying customers: Well, we live in Asia, and so to get money, we need to demonstrate market traction, i.e. a lot of people want to use it and two, signs of monetization, i.e. customers are willing to pay for it. That’s the most important part, and if you can show those two data points, you are on the way to something interesting.

So, what if you fail? The answer is that it does not matter. The key is that you fail fast and move on. Life in a start-up is meant to be hard, and I don’t think people have talked about how tough and harsh the environment really looks like.

Author’s note: This post is prepared ahead that I gave today in the Rotary Club of Tanglin in the Police Mess on 25 April 2011. The slides are shared above here. Another thing is that this post has taken bits and pieces over a few weekends for me to construct.

Related posts:

1. Building & Managing Technology Teams in Asia 1: The Tech Conundrum
2. Why Exits are Important (as a metric for Start-ups)
3. Building and Managing Tech Teams in Asia 2: Cultural Nuances & Scope Creep

In the light of Google’s action to take on the Chinese government, we see that the shares of Baidu have gone up and also a lot of chatter in the Chinese blogosphere that Google’s retreat is motivated by the loss of her former CEO, Lee Kai-Fu and dwindling market share in the Chinese search market share. While it is easy to chastise Google who have given up some of her principles to set up in China four years ago, we should also applaud that Google has the audacity to try to work within the system and for the first time, standing on their principles. Yet, business is still business. What does Google’s retreat from China really tell us?

The first is the difficulty of foreign internet companies making a headway in China. As one of the well-known Chinese web entrepreneurs once commented to me in a confident manner, there is no chance that any of the US Internet based services from Facebook to Twitter to dominate the Chinese market. There are two supporting reasons to his claim. The first is that the multi-national companies do not want to localize their operations and prefer to replicate their model in China than adapting to it. The second is that the Chinese local Internet companies will put more than 100% to take on the giants from US. Looking at Microsoft, Google, Yahoo!, eBay and MySpace, it does not look favorable for them to enter the Chinese market at all, but to let the Chinese market replicate their stuff. While the era of cloning is over, the real competition is now between US and China in making innovations for the web-tech space. Is it a question of culture and context that made it difficult for these Western companies to enter the market? Is it nationlism that emerged victorious in seeing how Google being battered by Baidu in the Chinese market?

That comes to my second point. It concerns the whole optimism about the rise of China as a superpower and many including myself sees Zhong Guan Cun as the only viable alternative to Silicon Valley. While the Chinese government maintains a very heavy handed approach against activists and making it tough for foreign companies to enter into this emerging market, we also see that the culture of openness and freedom of speech are challenging China once again.

Can the Great Firewall of China stands the test of time? I have a friend of mine living in China once touted China as a rising dragon and see the financial crisis happening in US as the signs of decline for the western power. I countered with a historical argument that the optimism with China may not turn out what we hope to be. I will give one comparison. In the early 1970s and 1980s, we see Japan as a counter rising superpower that seek to end the dominance of US with their success starting from cloning the US companies in the automobile industry and then moving into innovation and creativity that might allow them to leapfrog the Americans. But what do we see in the end? Japan failed to catch up with US for different reasons. Japan failed because the traits of creativity and innovation clashed with a hierarchical business culture. What these rising powers failed to see, is the way how the US bounced back from failures, starting from a recession in the 80s and headed into the roaring 90s with the creation of the Internet. While creative destruction happens so often in US, their democratic culture works hand in hand with the innovation and creativity culture, while the values of the Chinese culture counter that. Probably a disruptive technology in the US is in the making and before we know it, the Chinese move backwards again like the way how Japan did in the 1980s.

My opinion is that Google has lost on the business aspect in China but won a moral victory albeit the type of hand that they are given. So, the Google vs China creates a clash of values between two civilizations. Who will dominate in the end and come out swinging? We should leave this discussion to a decade later and see where we are then.

Related Links:
[1] George Codula, Google likely to retreat from China.
[2] China YouRen, What is going in with Google (2): consequences.

Related posts:

1. Top 3 Social Networks in China after QQ
2. 3 Reasons Why Google is launching the Chrome OS

Sometime back, I broke the news regarding Facebook has almost conquered the whole Southeast Asia market with the exception of Thailand and Philippines. Now, the whole Southeast Asia is overtaken by Facebook (via the Alexa rankings within each country except Thailand). Note that Friendster has lost their last bastion in Philippines. It is a feat that Facebook has conquered a market which they have not set up an official outfit. After all, the whole Southeast Asia market is fragmented, unlike the lucrative markets in India (still held by Orkut but Facebook is gaining traction with them last year) and China (where pundits like my friend Gang Lu just tell Facebook to forget going to China given the dominance of the local social networks and also the difficulty with government regulation as observed with Google China and MySpace China). To be fair, Friendster was the first social network which set up here in Singapore but they have run into difficulties where the problem does not lie with regulation based on other factors from business models to hiring the wrong people to who are established in their industry but not on social networks. Here are some thoughts on why and how Facebook should come to Southeast Asia.

Why Facebook should come to Southeast Asia

There are good reasons why Facebook has not set up a presence in Asia. First of all, they are not familiar with the market in Asia. Second, they are seeking a monetization model that can allow them to grow quickly like the way how Google has done with their online ads model. Most business strategists will suggest Facebook to tap into the East Asia markets which are heavily dominated by local players because they are seduced by the scale of the market. Who can argue against China’s 550M internet users and the success of QQ as a social networking and instant messaging tool? The problem is that Facebook will have to cope with the tight regulation in the Chinese market (given how many times they have turned off Facebook in the split of the second if any political incidents happened). Even if Facebook ignores the Chinese market and goes for the Japanese and Korean market, they are of no match against Mixi or Gree and CyWorld‘s business models of utilizing the high mobile penetration rate in these countries and micro-payments. Benjamin Joffe’s analysis of QQ provided an interesting ratio 8:1 for the revenue generated in QQ are paid by the consumers by mobile or micro-transactions using virtual gifts or games to by online advertising. So, there is not a tight fit unless Facebook finds a model that can harness this form of revenue generation methods.

However, there are interesting lessons to learn from the failures of other Western social networks for e.g. MySpace and Friendster which Facebook can learn from in order to expand into Asia. They are good examples because MySpace showed how difficult for a social network to penetrate in a market where local players are very strong in the East Asia market, while Friendster conquers the whole Southeast Asia market and yet unable to build a sustainable business model because all the users have started to migrate to Facebook.

1. MySpace: MySpace is a good example of a social network which tried to enter into the East Asia market (Korea and China). There are two reasons why MySpace falter in those countries. The first relates to the earlier point I made about online micro-transactions. Let’s look at Korea first. The convenience of paying small gifts in CyWorld and the flexibility to pay for small improvements to the user generated account. The “Minihompy” phenomenon in Korea underlies how Koreans pop artistes and politicians have used CyWorld as the platform to promote their latest hits or policies. MySpace Korea suffers from what makes them strong in the US market when it comes to Korea. What about MySpace China? In fact, MySpace China could not mount a serious challenge to the other Chinese networks that ranked after QQ (51.com, RenRen and Kaixin001). The Chinese based social networks tapped on getting the users to pay for VIP privileges (as if they are running a private club) and virtual gifts and made MySpace’s online advertising model virtually useless. A easy way to think about this is the following: micro-transactions generates traffic and traffic complements online advertising. The power of online advertising can be multiplied by consumer interactions within the social network if some form of virtual economics are running in the background.
2. Friendster: In some sense, the Southeast Asia market resembles Europe that it is a very fragmented market marked with different languages and cultures. Yet, if you examine Facebook’s dominance in Europe, you realize that Facebook is just as widely adopted in both regions. One should probably ask Facebook the question, “Since you have set up Facebook in Europe via United Kingdom, why not the same with the same approach using Singapore for the entrance to Southeast Asia? Friendster caught on the first wave of social networking fashion in Asia and got an exponential growth of users.
   
   How did it falter so badly today? Two important factors led Facebook superceding Friendster. First, Facebook offers a better design interface, and most importantly, an opportunity for early adopters to work with the open platform and create apps on the network. Probably, I will use Singapore as an example. In early 2008, there are only 300K users and by today, 1.2M users. The first tipping point of Facebook for Singapore happened in March 2008 with the first Facebook Developer Garage followed by the mainstream press publicity that surged the network to its prominence. By now, there are already 3 Facebook developer garages events and the developer events spread to Malaysia and Indonesia through grassroots movement (via E27 and SGEntrepreneurs), and also with developers from the surrounding countries (Malaysia, Indonesia) coming to Singapore for the events. Contrast this to Google Singapore which was set up in 2007, but the developers communities on Android and Maps are only starting to happen in 2008. Second, online advertising is a dominant model in Southeast Asia as compared to their east Asia counterparts. The Southeast Asia market is not very adapted to the micro-transactions model via mobile payments (with strict local national telco companies in control) or the high rates that require users to do micro-transactions. In some sense, Friendster did not have a mobile app except in the Nokia Ovi Store, whereas Facebook app in iPhone and Nokia N97 are heavily utilized by the users owning smart phones.

The important question to address is why Facebook should come to the Southeast Asia market. Three factors come to mind:

• Strong local market online presence in Southeast Asia: If you look at the table I have presented the Alexa ranking of Facebook in three categories: (i) Southeast Asia comprising of Brunei, Indonesia, Philippines, Malaysia, Singapore and Thailand, (ii) Greater Southeast Asia with Vietnam and Cambodia and (iii) India (which is especially closer to the Southeast Asia gateway). MySpace has established presence in India but failed to harness any form of strong market challenge against Google’s Orkut and Facebook. In the table, you will note that Facebook is number 7 in Thailand and Vietnam and number 5 in the India market (close to Orkut). In these countries except for Vietnam (Zing.VN), the local social networks have not reached the reach and coverage in the same order of magnitude like Facebook and Friendster. One can also look at presentation from Ben Lorica from O’Reilly Radar on the demographic trends for adoption of Facebook in Asia where the rate of change for new user growth in Indonesia and Philippines are about 190-200%. India and Vietnam trails with 50% and 71% after these two markets for Facebook user growth.

• Convergence of Language, Culture & Business Models: Online advertising remains to be the most dominant business model in these countries. In fact, the success of East Asian social networks of utilizing micro-payments or mobile payments are totally invisible to this market. Given most countries descended as former colonies of Western powers, these Asian countries maintain a more cosmopolitan population that follow the trends in the US and European markets. Most of the top media buyers are located in Singapore (or Hong Kong) and expand out to the rest of Southeast Asia via this gateway. Companies beginning from the humble origins of Facebook developers have successfully monetized, for example, Tyler Projects with their BattleStations and Mafia Empire are beginning to create an industry of social network games within the region.
• Domino Effect into India and Greater Southeast Asia market: It is known that Facebook has a surge of 1M users in first quarter of 2009 in India, meaning that there is some form of domino effect taking place. This has already happened in Southeast Asia earlier, when Facebook started spreading from Singapore to Malaysia, Indonesia, Brunei, Thailand and Philippines in a rapid manner and eventually superceded Friendster as the dominant social network.

How to make Facebook work in Southeast Asia

How should Facebook position itself in a fragmented market like Southeast Asia? It’s easier to learn from the lessons why Friendster did not succeed and select localization of the Facebook platform within the region. Here are some strategies that Facebook can think about:

• Focus on Sales on Online Advertising: Like Google, Yahoo! and Microsoft who have established a presence in Southeast Asia market, the most common strategy to adopt by these companies are sales and marketing. It also explains why most operations in these markets are lean and mean and do not take into account of localization and harnessing the greater market potential of these markets. Most brand marketers and media buyers are looking into methods and means to use Facebook to promote products and services, particularly the usage of Facebook pages and ads. While most of these media campaigns are deployed by PR agencies and social media marketing consultants, Facebook can work directly with them but focus on localization of the platform to the market.
• Working with the Developer Communities and Expand the Facebook Credits platform: Social gaming and utilities have been the chief focus on how developers can make money from the Facebook platform. A rising tide lifts all boats and generate more usage within the platform. Currently, most users tend to use Facebook for organizing events, spreading information and galvanizing masses using causes and groups and also pushing Facebook ads. Can more be done? Perhaps, Facebook might be able to supercede the East Asian social networks in Southeast Asia market by pushing the credits platform to get local developers in these regions including India and with more apps, it increase Facebook’s market share and ability to monetize using the micro-transactions model.
• Utilizing strong mobile penetration with partnerships with local national players in Southeast Asia countries: Mobile social networking is getting popular within the Southeast Asia market, but limits the ability of users to make proper transactions via their mobile phones. Facebook is practically installed into every Nokia, Blackberry and Apple device and the trends are showing that most users are accessing the social network via mobile, but it only limits to very general functions. For example, in Korea, the CyWorld app taps into the fact that the mobile phone is also the user’s electronic wallet and pushes online sales of music and wallpaper for the MiniHompy. The most difficult part to get this strategy work is to engage the local telco operators, like SingTel (Singapore), CelCom (Malaysia) and AIS (Thailand).

Conclusion

Should Facebook come to Southeast Asia? At the end of the day, it depends on whether they have a scalable monetisation model that ultimately deliver the promise from the US$716M investment from various sources. Google took quite some time to move to this market and yet focus on only sales and marketing than engaging the developer communities until recently. In fact, Microsoft has been the most active in all fronts and engaged very well with the community, given that they hosted the 2nd Facebook Developer Garage for the community. Friendster squandered the opportunity with one, the wrong hire of a CEO who lives in Australia and not focus the business in Southeast Asia; and two, slow in engaging the communities (even with their partnership with the local government authorities in Singapore). Before they ever decide to come here, they should probably work why the rest have failed and then built on that to create a real success of an online Western social networking platform in the Asian market.

Updates
[21 Sep 2009] Nicholas Aaron Khoo aka Geekonomics wrote a response entitled Should Facebook setup office in South East Asia in his CNET blog on my post. In his post, he used a different measure using Google Trends to look at how Facebook has superceded Friendster. He also gave two candidates for Facebook’s SEA HQ.
[21 Sep 2009] I did an interview with Michael Netzley in the “For Immediate Release” (Hobson and Holtz Report) podcast episode 485 – Sep 21, and talked about some of the emerging trends on social networks in Asia.

Related Links
[1] All Facebook, Facebook Announces 300 Million Milestone And Cash Flow Positive
[2] TechCrunch, Chinese Social Networks ‘Virtually’ Out-Earn Facebook And MySpace: A Market Analysis.
[3] Grey Review, Snapshot of Social Networking in Malaysia.
[4] My recent lecture in Nanyang Technological University, MSc in Technopreneurship & Innovation programme on “Building Online Communities: Trends & Strategies” (in Chinese). I did a case study discussion with the students on a hypothetical scenario with them being consultants to advise on how Facebook can survive in a market like China, and the two most important factors that Facebook has to consider is to work with the authorities and abide by the tight internet regulation and strong localization to the Chinese market drawing ideas from 51.com, RenRen and Kaixin001.
[5] Thomas Crampton, Ogilvy, comScore: Facebook now rules Asia. The ComScore statistics are presented here:

Related posts:

1. Facebook has almost conquered Southeast Asia and why
2. Three Tales about Social Networks @ SMU
3. Top 3 Social Networks in China after QQ

• Adoption of the Cloud from consumers is taking a bit longer than expected: First of all, in the past few years ago, when Google launched various apps (e.g. GMail, Docs, Calendar, Spreadsheet) together with Android, it was clear that the strategy is that people will access data and applications from the Internet through a browser and gradually, people will shift from desktop to the mobile phone (which is called the 4th screen by Nokia which gives the power of portability and access to content from the Internet). The mobile phone was the device which Google bet on that it will sidestep Microsoft (given Windows CE does not go well with phones except HTC devices). Despite the rumors of a Google OS were circulating around, Google has proved resilient to make that announcement time and time again until now. What is different in today’s world that Google would have revisited their strategy a few years ago? One clear argument is that the adoption of the Google Office Applications (Documents, Spreadsheets and Presentations) is slow. The reason why it is slow goes in two perspectives: (i) if I am a consumer who writes a document, I am worried about security even though if there is a collaborative perspective towards it, (ii) in the enterprise perspective, most companies will be resistant to have their data sitting on another server and naturally, it will slow down adoption since ultimately, Google will need the enterprise market and the consumer market to move towards the cloud. People are moving towards the Cloud, but the rate of that is not fast enough. So, they need an operating system.
• Android is facing stiff competition from Symbian, iPhone OS and many other competitors: The problem is just not with the users’ adoption with the cloud. In the mobile phone OS space, Android is facing serious competition from iPhone OS (Apple), Symbian (Nokia Smartphones) and Web OS (Palm Pre). The contest in the mobile-web space between several mobile operating systems is heating up. Most developers are in the iPhone OS and Symbian space, and with Nokia pushing their applications via the Ovi Store and their inherent competitive advantage with their handsets, Google Android is at the mercy of the handsets from several vendors. Although the number of android apps are growing, the pace of development is still far slower as compared to the iTunes Apps Store.
• Take one step down and we have the OS and focus on Netbooks: Given the adoption of cloud is slow and the competition faced by Android, Google need to re-align her strategy. Here are the options they can choose: (i) they create their hardware and forget about the mobile phone vendors and computers, for e.g. they can go the Apple way with phones and operating system, (ii) they continue to do hard sell of Google Apps to the enterprise and consumer sector but it takes time for market adoption, or the last option, (iii) Google’s strength is in software, why not create an OS and compete for the desktop and laptop space where Microsoft is still dominant in the PC market. In effect, Google Chrome OS strategy will not pose a major threat to Mac OS X and Linux. By targeting specifically to the netbooks space, they are going for emerging markets and given their brand and innovative software development, they can give Microsoft a hard time in the PC space.

Under all these circumstances, it is not surprising that Google is taking the step to challenge Microsoft in the space of netbooks. In fact, they can team up with the OLPC project and make it really hard for Windows to penetrate into the emerging economies.

Related Links:

[1] Google Operating System: Google Chrome Operating System.
[2] TechCrunch: Google Drops A Nuclear Bomb On Microsoft. And It’s Made of Chrome.
[3] The Next Web: Prediction: Google and Apple go to War.
[4] The Economist: Google vs Microsoft – Clash of the Titans.
[5] Ars Technica: Google’s Chrome OS: what it means, why it matters.
[6] ZDNet: No thanks Google, we’ve got Ubuntu.
[7] Neowin: Microsoft set to respond to Google OS Next Monday?

Related posts:

1. Google Chrome OS: Initial Impressions
2. Some Thoughts on Google vs China
3. The Chronicles of a Mobile-Web Economy

• Design Interface of Facebook continues to bring new users to her platform: One of the key revolutions in online social networks in the 2.0 era, is the ability of users to be clairvoyant and view the activity of their friends. An example that I often used during my talks on online social networks from Barcamp to Unconference 2009, is that I can now know a lot about a friend who I have not been in touch for the longest time via the activity feed which was first introduced by Facebook. For example, if my friend has uploaded new baby pictures, I would know that his wife has just given birth. It is that kind of interaction that attracted Facebook users. Whereas in Friendster (see the activity feed picture I attached on the right), when I login, the first page that I am directed to is not the page which displayed the activity of my friends but my own user profile. To be fair, Friendster has recently incorporated a “Home” page. In fact, I believe that they have taken a leaf from the dashboard (or Home) page from Hi5.com with the way they display activity of other users connected to you. It is not that Friendster is losing the battle by not trying to catch up with Facebook in terms of functionalities, but rather the way how the users interact via a clean and well-designed interface in Facebook makes Friendster less appealing and starts losing users. In fact, I can easily point out two features which Friendster has imitated from Facebook but failed to gain traction within: groups and apps. Till date, BattleStations (one of the successful Singapore games on Facebook by Tyler Projects) has not done well after their app is launched on Friendster is one clear example.
• Migration of Friendster users over to Facebook: The tipping point for Facebook happens in Sep-Oct 2006, where there is a lot of coverage from the mainstream media in Southeast Asia about the platform. In fact, when I was working with my students in National University of Singapore, most of them are organizing events using the Facebook event feature. Even when I first signed on Facebook, I did not really use the account until I started getting a lot of friend requests via Facebook from my alma mater in UK. In fact, I can now safely say that the crossover of users from Friendster to Facebook and vice versa is asymmetrical with more flow going towards Facebook rather than Friendster. The interesting question now is why Facebook has not been able to supercede Hi5 in Thailand. We should probably explore this further.
• Why social networks in East Asia are not subjected to this Domino Effect: The social networks in the East Asia bloc are making more headways against Facebook as compared to those in Southeast Asia (and they are few and far between local social networks). First of all, one should probably notice that the western social networks are dominant in Southeast Asia and India. India is former British colony and also have a huge English speaking populace, and hence a western social network like Orkut (owned by Google) dominating should not be much of a surprise.The key is that most of the countries in this region are former western colonies and the local populace tend to follow the western social networks with little need for localization. A more subtle reason, I suspect is to do with the business model. In the East Asia bloc, the main revenue model is not just online advertising per se. In fact, most media buyers are still thinking that the only thing they can do in online advertising is just banner ads. They are more conservative in adopting new and radical approaches and given the limitation of micropayments, the situation gets much worse. So, the western social networks may dominate Southeast Asia, but the monetization does not come along while the East Asian social networks are fully monetized from dollar to dollar and cents to cents.

So, the story continues. Speaking of which, if Friendster will to fall in the future and Facebook will to set up shop in Asia, will they be still hiring the same group of executives who did not successfully revive the company against the onslaught from Facebook?

P/S: I have just received a note that the Social Networking World Forum for Asia will be held in Grand Hyatt Hotel, Singapore on 22-23 Sep 2009. I will suggest that a forum like this will be helpful in knowledge transfer from East Asia to Southeast Asia to explain why the social networks in the East Asia bloc are monetizing better than their western counterparts. Perhaps, brand marketers and media buyers should start to move beyond banner ad online advertising for a change.

Related posts:

1. Why and How Facebook should come to Southeast Asia
2. Much Ado About Social Networks in Asia @ Unconference 2009
3. Top 3 Social Networks in China after QQ

Number 1: 51.com with 130M users in China, targets working class adults from rural parts of China after QQ (which I don’t consider it to be a social network, but rather an instant messaging service with certain social networking features within). The site is founded by IT entrepreneur Mr. Pang Sheng Dong, in Shanghai. From the corporate site, it is claimed that the site attracts 14 million unique users visit per week, 31.5 million logins at least once a month, 
350 million page views per day and users uploading over 10M photos and write
over 3M blogs per day. 51.com is jointly funded by Sequoia Capital China (its silicon valley counterpart funded YouTube, Google and Apple), SIG Asia Investments (SAI), Giant Interactive, Intel Capital, Redpoint
Ventures and other renowned international enterprises and venture
funds.
51.com is the first social network in the world which open their payment API (as compared to Facebook who is now starting to contemplate to do so). The revenue is split 50/50 between 51.com and the developer.

Number 2: Xiaonei with 40M users in China and the bulk of the users are students especially from the Chinese universities. The site is created by Wang Xin in Beijing. Often known to be the “Facebook clone in China”, Xiaonei has practically cloned the same user interface from the outside and also opened her APIs to 3rd party developers.  The only known statistic I can find about this network so far that in 2008, there are about 40K unique visitors by April 2009 (source: Crunchbase). The site has been acquired in October 24, 2006 by Oak Pacific Interactive, a holding company which consists of web 2.0 communities, content creation and distribution, and integrated communication. The company is backed up with US$430 million in funding from its parent company Oak Pacific Interactive and investors led by Softbank.

Number 3: Kaixin with 30M users that comprises of white collar workers in China’s largest cities. It came in with a surprise surge of users during July to Oct 2008 and . This social networking site allows for photo uploading, a blogging and micro-blogging platform, music sharing, and a 1G online hard drive, but also adopts controversial invitation techniques in getting members to join the network. Based on Crunchbase data, it has about 20K unique visitors by April 2009. The site has raised a total of US$25M with the series B phase (US$20M) funded by QiMing Venture Partners, Ceyuan Ventures and Northern Light Venture Capital.

Of course other sites of interest in this space are MySpace China (6M Users), Yahoo’s Guan Xi and Tencent’s Xiaoyou. Most of the western counterparts have difficulty penetrating into China because the strategy and approach to market are rather different. The same kind of resistance is also encountered in Korea and Japan by their own dominant social networks, whereas in southeast Asia and India, the situation is reverse with one of the contributing reasons is that most of the countries in that region are either former British colonies or mainly English speaking (with the exception of Thailand and Vietnam). It will be interesting for those social networks in southeast Asia to learn some lessons of user growth and monetization from their east Asia counterparts.

Related Links:
[1] George Godula, David Li & Richard Yu, “Chinese Social Networks ‘Virtually’ Out-Earn Facebook And MySpace: A Market Analysis“, TechCrunch
[2] MJK, TechNama, Top 10 Best Social Networking Sites in China

Related posts:

1. Three Tales about Social Networks @ SMU
2. Building Online Communities & Social Networks: Strategies, Tools and Trends in Chinese
3. The Importance of Being Social – A Talk on Online Social Networks

Related posts:

1. Building Online Communities & Social Networks: Strategies, Tools and Trends in Chinese
2. Much Ado About Social Networks in Asia @ Unconference 2009
3. Three Tales about Social Networks @ SMU

• Plan B for Applications Developers on Social Network Platforms: During the session, I asked Leonard Lin, co-founder and CEO of Tyler Projects to discuss the problems encountered by application developers working on established platforms. He has indicated that after a run-in with Facebook for his product BattleStations during a platform change that reduced his business revenues, he realized that there is a need to publish the same game on another platform. They have also tried to put BattleStations on Friendster but it did not generate any revenue for them. It is important that if you are an application developer, you should have an exit strategy for another platform if the primary platform you work can throw you out anytime.
• Can Friendster make a comeback?: A member from the audience posed this question to me given that I broke the story about Friendster losing her dominance in Malaysia to Facebook. My answer is pretty simple. It is about finding features that can bring the users back to the network. I explained why Facebook was able to have so much user interaction because of the transition from a static to a dynamic profile management, giving friends and people who share the same interests as yourself to know what’s going on in your life. Friendster needs to find features that can lure their users back or risk being superceded by Facebook and Hi5. Note Friendster is on the decline but they may abandon the traditional SNS and turn towards mobile social networking.
• There is a role for Ning too in the social network landscape: Someone posed the question on whether Ning is able to survive given so much social networks out there. My answer to that question is that there are small and medium enterprises out there who can still use Ning to build a simple and quick social network to service their customers. I gave the example for Because i Matter – a Singaporean-based site on getting people to report on security using a Ning social network. 
• Social network aggregators for managing and aggregator data: Given the plethora of user data that might be distributed across different social networks, there exist an opportunity in social network aggregators analogous to ping.fm in sharing links and microblogs. The social network aggregators have taken two routes: (i) the desktop aggregators built on Adobe Air – OrSiSo, TweetDeck and Seesmic Desktop or (ii) Power.com (web-based aggregator). The issue is that people will still visit the main sites given that most users might want to play their favourite games or use their favourite apps which may not be compiled by social network aggregators.
• Interesting Social Networks which you can find in Singapore and Malaysia: Here are some interesting social networks which you can take a look at for Singapore – iHipo, Eteract, SENATUS (all the three networks I am involved in), Settlr and for Malaysia – Ruumz, Social Wok and Pacmee.

Acknowledgements: I thank Yung-Hui (GreyReview.com), Daniel Cerventus (Malaysia Entrepreneurs), Gwendolyn Tan (SG Entrepreneurs), Patrick Linden (iHipo.com), Colin Charles (Bytebot), Thorben Linneberg (OrSiSo), Leonard Lin (Tyler Projects), Jonathan Wong (Armchair Theorist) and the audience for the interesting twitters and interactive discussion that sparked all the thoughts and opinions in this breakout session. You can check out Richard Korffr’s Qik video on my breakout session as well.

Related posts:

1. The Importance of Being Social – A Talk on Online Social Networks
2. Building Online Communities & Social Networks: Strategies, Tools and Trends in Chinese
3. Three Tales about Social Networks @ SMU