I told you so: Facebook in China

Damn, this week has been good for my ego...

In my last post about Facebook I predicted that the world's largest social network would try to enter China through a joint venture with Baidu, the Chinese internet search giant. Two reasons for that stood out:

1- Facebook can't afford to ignore the Chinese market. As the company grows, prepares its IPO and needs to justify its sky high valuations; it can no longer accept to leave 500 million netizens outside of its reach. Furthermore, Facebook is putting mobile at the center of its strategy and China is THE country where mobile internet will be taken to an entirely new level (figures here). In my view, Facebook's vision is almost too advanced for western internet users. But in China, people will integrate social networks and mobile technologies into their daily life and consumption habits at an amazing speed, way faster than anywhere in the developed world. The Chinese market is thus an amazing playground for Facebook that wants to turn the social network into a platform for a myriad of services ranging from e-commerce to virtual currency and mobile payment.

The little red Facebook

2- Despite its status of superstar of the Chinese tech scene, Baidu does not have a strong position in social services (a problem is shares with Google). It is fighting against well established competitors with strong user bases such as RenRen, Pengyou and Kaixing101. A joint venture with Facebook may be its only chance to make up for the time lost and shake up the market.

As it happens, rumors have been surfacing this week that Facebook and Baidu may be going forwards with a project to create some kind of Chinese version of Facebook. What the end result will look like is still unclear at this point but we will surely know more in the weeks to come.

For now, neither Facebook nor Baidu have confirmed the rumors and there is some talk that the partner might not be Baidu but Sina (China's leading micro-blogging site). But I strongly believe that the deal will go through, which might frighten Kaixing and thwart its IPO plans. This is not really good news for RenRen either since it is essentially a Facebook copycat that might suffer from having the real deal now in its own backyard. Look ahead for an interesting couple of weeks in the SNS universe.

What will the iPhone 5 be like?

Signals have been surfacing over the blogosphere that Apple may have something special in store for us with the iPhone 5. Here are the two main reasons why:

1- The iPhone concept is stagnating. Since the iPhone 3G, Apple has been innovating incrementally and it looks like it has more or less reached the end of a cycle with the iPhone 4. Apple has used us to regular game changing innovations that completely redefine the rules of competition in the market (Macbook air, iPhone, iPad, iPod touch etc...). Furthermore, it looks like Apple is working on lots of cool stuff such as NFC chips, tactile screens that can recognize up to 4 touch points, a new system that would allow the phone to be controlled via the camera (ex: while listening to messages, you simple flick your finger in front of the cam to delete or skip) etc...

2- Its competitors have stepped up their game. Android now enjoys a 35%+ market share and shows no sign of slowing. More crucially, Google looks determined to address Android's one shortcoming: fragmentation. Openness may be cool in principle but it has resulted in operators loading Android phones with crappy apps and basically building their own version of the software. The result is a very uneven customer experience that widely varies according to the phone and carrier. With Google now tightening its grip over the Android eco-system, more people will flock to the little green man and the Android market will take a more central place. This in turn means more app downloads which equals more ad revenues and a higher potential for monetization. You get the picture.

Bring it on Stevy!

So how will Apple try to re-establish its preeminence over Android? I expect a push on content since that is where the threat represented by Android is the greatest. We can expect more stuff to be sold through iTunes (concert tickets for example) and maybe mobile payment. One thing is for sure: it will be pretty interesting battle.

Facebook is awesome

My, my, my... I can't believe how much Facebook has changed during the year and a half I spent in Shanghai.

When I left France for the middle kingdom, Facebook was still a big question mark. Sure it was fun, allowed you to stay in contact with your friends and (most importantly) mess up their status while they were away from their computer but could it turn into something more?

A year and a half later, Facebook is the subject of an Oscarized movie, is valued $74 billion on private markets, just struck a much publicized partnership with Goldman Sachs based on a $50 billion valuation (lead underwriter anyone?) and is eating everybody's lunches from Google to Netflix.

But above all, Facebook is no longer a social network: it is a platform. Having just finished a 6 month internship in strategy consulting during which I worked on many tech-related projects, I am genuinely impressed by the strategic vision the people at Facebook demonstrate day after day. These guys know where they are going and I can't wait for them to go public so I can get me some of that Facebook stock!

The first excellent strategic move they made was to focus on mobile. Facebook is by far the most downloaded app on all major app stores. Early on, Zuckeberg and co made clear their attention to be one of the driving forces behind the rise of mobile internet. This is an excellent move for many reasons. First, it increases the value of using Facebook for existing users (economic theory calls this phenomenon "network effects"). Moving Facebook from PCs to cellphones means more people connected at all times and the possibility for real live interaction between users. But more crucially, a strong position in the mobile scene opens up myriads of possibilities for the social network to develop news services such as location based services (ie: Facebook places), live photo sharing, mobile payment etc... It also allows the firm to capitalize on its strong position in social networking and vast user base to go against firms such as Foursquare and saturate the market for mobile services.

Then, Facebook's focus on mobile means that they are ideally positioned to profit from the rise of the internet in developing countries. For us westerners, the internet means PCs. It took time and a lot of learning for us to fully embrace mobile networks. In China, India and other such developing markets, people are integrating mobile networks in their daily life and consumption habits faster than anybody had predicted. I could write for hours about how mobile internet in developing markets will completely change the rules of the game from a business strategy standpoint and lead to the emergence of news business models and consumption habits unlike anything we have seen before. In these countries, PCs are still expensive and as smart phones get more and more affordable, millions of people will go from no internet at all to mobile internet. This will, I believe, be the big business story of the 2010s, stay tuned because it's going to be ground breaking! Here a few numbers about China and India just to give you a taste of the magnitude of the phenomenon:

Internet users in China

Note: I know that FB is blocked in China but my point remains: mobile networks are big in developing markets. Plus Zuckeberg has been talking with people from Baidu recently and I wouldn't be surprised if the two struck a deal to launch some kind of China friendly version of Facebook. Baidu does not have a strong position isn social networking and might be interested in going after Xiaonei and Kaixing101 (the two leading SNSs in China).

I mentioned earlier in this post that Facebook had gone from being an social network to being a platform. This is, to me, the other key element that explains Facebook's success and convinces me that it is not a one trick pony that will go bust when the next bubble bursts. Facebook has managed to create an awesome eco-system of apps and other product and service offerings that tack themselves on its platform. Think of it as some kind of hub from which you can do nearly anything from playing games to sharing files, edit pics, look for a job and so much more. Facebook has also blurred the boundary between virtual and physical with its virtual money (Facebook credits) that can be used to buy virtual goods but also real stuff. Now you can even rent movies via Facebook!

I'm very enthusiastic about this because what Facebook is doing is truly remarkable. It has put itself at the center of our Internet usage habits and is creating new ways of surfing the web and consuming content. This is disruptive innovation at its finest.

Finally, Facebook's "platform" strategy allows it to leverage its user base to make companies such as Craig's list, Groupon, Foursquare (as I said earlier), Netflix (whose share took a dive after Facebook announced its movie deal with Warner Brothers) , LinkedIn and many more far less relevant. It may not always work (Foursquare's users doubled since the launch of Facebook places) but it's sure making life very difficult for them.

So what's next? I foresee a deal with Baidu in China (if the political climate allows for it), a push in location based services and an ambitious attempt to make Facebook credits usable in physical stores. Sounds fun but Facebook must nonetheless be very careful not to over stretch itself and go AOL's way trying to be everything to everybody at the expense of quality. Facebook can be plenty of things but it can't represent the whole web. So I'll try to temper my enthusiasm and consider how Facebook could crash in a later post.

The Smart Cover is bigger news than the iPad 2

Let's take a few minutes to talk about the iPad 2 and Apple's global strategy

Yesterday, people saw the unveiling of the iPad 2 as the major piece of news. To me the iPad's Smart Cover says far more about Apple and the reasons behind its success:

The Smart Cover retails at $40, pretty steep for a piece of plastic that only covers the screen don't you think? And yet people will buy it, I certainly will. Why? Because Apple has this unique capacity to keep only features that matter and ditch the rest. This, I think, is the single most important factor behind Apple's success. If you look at each and every Apple product, you will notice that whichever one you choose, it will have less features than most of its competitors. The iPod was far less technically advanced than other MP3 players when it came out, the iPad is constantly lambasted by geeks for its lack of technical features and the rigidity of the Apple IOS and don't even get me started on Macs... But Apple succeeds because it focusses on what truly matters. It creates value not with technical features but with tangible customer benefits that, put together, create a fluid and nearly flawless customer experience. The Smart Cover is simple and almost minimalist but it does exactly what people expect and incorporates small innovations that bring big improvements to the product experience. A true Apple product.

Click goes the profit margin...

It is widely recognized that the iPad is the best tablet out there (sorry Apple basher but it's true). But do you notice anything about its price? It is remarkably low! The iPad 2 starts at $499 for the 16G+Wifi version and the iPad 1 is now sold for only $399. Competing tablets such as Motorola's Xoom, Dell's Streak and the HTC Flyer are all at least $100 more expensive. How does Apple do it? For starters, the scale of its operations allows it to be a heavyweight in the components market. The company develops strong relationships with its suppliers and is doing everything it can to make it as hard (and expensive) as possible for its competitors to have access to quality components (especially touch-screens). Then, since it operates its own retail network, it can count on more revenue drivers than its competitors. Finally, it knows how to make up for smaller margins.

Now I haven't looked at the financial details but let's suppose for the sake of argument that Apple, to maintain its cost advantage, has to accept a smaller profit margin on its iPad 2 (very probable). Enters the Smart Cover. Retails at $40, probably costs Apple less than $5 apiece. I'm ready to bet that at least 70% of iPad buyers will go for the cover as well. You do the math...

Why Justin Bieber is awesome

I sure hope that this tittle will help my Google Rankings because getting my fingers to type this sequence of words was no small achievement...

As a business student with experience in corporate and brand strategy consulting, I think that Justin Bieber deserves my praise. There a many reasons why Bieber is awesome: you can always turn to him when you need a good laugh, his songs make for great drinking games and, most importantly, he is a very talented brand strategist.

It might be a little unsettling to go from historical comparisons between Napoleon and modern China to business strategy, but hey the tittle above says "random thoughts about random things" so don't be surprised if I abruptly hop from one topic to another.

There are many things Bieber does very well from a brand strategy point of view:

• A compelling story: storytelling is very hip right now. We easily forget names, logos, slogans but what we remember are stories. Stories may be the most powerful and cost effective way to convey a brand message. They are easily memorable, often aspirational or entertaining and encapsulate the brand essence. They are what stays when everything else is forgotten. Most great brands are, to varying degrees, supported by compelling stories: Nike, Apple, Microsoft, Zara, Nespresso, Budweiser etc... Justin Bieber knows that stories speak volumes and is careful to capitalize on his (young boy who started by posting videos of himself singing on YouTube and was later discovered by RnB superstar Usher) as much as possible. Hence his movie "Never say never" (although I can say with absolute certainty that I will NEVER watch it) that is essentially a 1h30 long biography meant to strengthen his brand image. Good move JB!

• A clear target audience: Bieber does not try to give something to everybody. He knows that his music and attitude are unbearable for people over 16 and yet he sticks to his message because he knows who he is talking to. Well done little man!

• Strong symbols: Bieber does not keep his hairstyle because it looks good, he keeps it because it is his logo, the visual representation of the Bieber brand. How many brands do you know who have their logo on other people's heads? 祝贺你小朋友!

• An image that is aspirational without being unattainable: the tittle pretty much says it all. Maintaining an aura of superiority without seeming aloof and out of touch is a fine line to walk. But for now Bieber is walking it just fine. He maintains an image that is perfect enough to create scenes of riot everywhere he goes but he is also careful to stay in contact with his fans (mainly via social networks) and seem "down to earth". To his fans, he is almost like one of them, kind of like the most popular guy/girl in high school: he walks amongst you and yet lives in a different world you hope you could enter but really can't.

Beat THAT Mc Kinsey!

But what really makes Bieber great is the way he relies on his fans to air his brand message. As any brand manager knows, getting a brand message across is a difficult exercise. Success is expensive and customers tend to regard official messages with skepticism. The best kind of media is thus not owned media (media that is paid for) but earned media (media that customers or other persons of influence willingly create).

Just look at what JB is doing on Twitter. Despite the fact that the micro-blogging tool enjoys little popularity with teenagers, Bieber is one of the site's hottest "trending topics". What's more, his fans are entirely devoted to the promotion of his persona. Many of them include his name in their Twitter ID (notable examples include Bieberworld 16, Bieber4eva and 1bieberloveyou) and tweet almost exclusively about their idol. All in all, they represent thousands of touch points that dutifully spread the Bieber brand message at a total cost of 0 dollars!

Furthermore, Bieber has an active profile on Twitter and fans can ask to be followed by him. The lucky few that are chosen by JB (or the intern his agent hired to manage the account) see their own followed base expand exponentially. In show business terms, that means even more people likely to catch Bieber fever. In brand strategy terms, that means higher brand awareness and a proselyte customer base.

Obviously, Achieving Bieber's pop star appeal is no easy exercise, but like Bieber, brands can generate the right conditions and create the right tools to transform their user base into an army of ambassadors. And while attraction between the average brand and its consumer pales in comparison to that between Bieber and 14-year old girls, that doesn't eleminate the potential for earned media. Not every brand can be it's industry's pop-star, but it's high time brand managers took a look at the Bieber playbook.

So let's recap. What is the "3 step Bieber recipe for earned media" ?

1- Generate a desire to talk about your brand by uncovering deep seated customer needs that go beyond customer benefits

2- Catalyze this desire by creating the right tools to turn fans into ambassadors

3- Participate in the discussion and give back