Yesterday, around 3:15 pm, I jumped into the elevator and waited patiently as it dropped the 40 floors that separates my office from the Bloomsbury bookshop in the lobby – the sole intention of my trip was to pre-order the final Harry Potter book, Harry Potter and the Deathly Hallows.

When I rolled up to the checkout counter and asked for the sale form the sales assistant, Lucy, she asked me, “…do you want the adult version or the children’s version?” I asked, “What’s the difference?” Lucy responded, “Nothing really, just the cover…”

I didn’t hesitate one nanosecond and yelped, “Of course, I want the children’s version…it has the way cool cover art!”

Scratching my head, I’m thinking, “What’s going on here?!” Are adults embarrassed to be reading a Potter book? It’s not like you’re a Rabbi sneaking a shot of whiskey hidden in the scrolls of a Torah or something. It is just a book.

When I got back into the office, I did a little research and discovered that Bloomsbury first introduced the alternative adult cover when they launched the fifth Potter book. The reason, according to my source at London’s Bloomsbury HQ, was that “…bankers and lawyers on the high street – older people – were rather embarrassed at being seen reading a book with a childish cover…”

An hour later, I went back downstairs to the Bloomsbury bookshop and asked Lucy what percentage of people pre-ordered the adult version over the children’s version – indeed, the adult version accounts for about 45% of the total sales – up dramatically from around 15% of total sales for the fifth book.

This shift, if you will, started me thinking about what could happen to Facebook – now with over 30 million active users – as its popularity with the older crowd grows. Will the net natives – Facebook’s core user base – revolt and jump ship?

Check it out – the latest monthly figures (June 2007) reveal that the number of visitors between the ages of 25 – 34 increased 181% while the number of visitors 35 years old an older increased by 98% – definite signs of traction from the moms and pops of the world.

Will it peak? Eventually, sure, but not for while. And, if anything, the madness has only begun to build. Wait to see what happens when word gets out that US-based venture capital fund, Bay Partners, has launched a fund targeting all those odd lot developers (most haven’t bothered to register as proper corporations) responsible for the 1,500 odd Facebook applications. Tsunami anyone?!

Let’s be frank – this attention – going mainstream – is exactly what investors and creators of the site want to see – it means higher advertising revenues, more functionality, and increased credibility (eventually, leading to a fat pay cheque – cha-ching). Nothing wrong with this, of course. The issue is – what happens when the kids lose control and the adults takeover? Is Facebook in for a face lift – are we going to see brand extensions – different covers?

I don’t know for sure what is going to happen however my gut feel is that Facebook is nearing its peak. One of the key drivers or attractions of Facebook was that fact that everyone’s identity is real – that is why I use it – I actually “know” the person I’m talking to – or sending crap to – in many ways, the friends on my page are the same people I’d call up for drinks or share a joke with – it is purely social (i.e. I’m not looking to network – business cards…be gone!). However, the more random openness of the site the more opportunity there is to dilute this “real identity” flavor.

It just seems to me that when the kids discover something fun, unique and, well, pedestrian, the adults come in and institutionalize the damn thing – effectively, sanitizing the juices and mojo that shaped the community in the first place. How many kids/students want to hang out with random adults? None. How many kids/students want their parents looking at their drunk partying photos? None.

Unlike a Potter book, you can’t appeal to a wider user demographic by changing Facebook’s cover – the heart and soul of the site rests in the content provided by the members not a single author. So, no, I don’t think the answer is to have an adult version and a children’s version – the answer is, “mom, dad, you can look…I let you…but don’t touch!”

Those of you who are familiar with HBO’s Entourage TV series – the day-to-day life of Vincent (Vince) Chase, a hot young actor in modern-day Hollywood, and his group of miscreant friends (the Entourage) – may remember the episode title “The Sundance Kid” where movie studio big wig Harvey Weinstein casts Vince as the lead in a surfing film he’s producing. After initially accepting the role in Weinstein’s film, Vince drops out to pursue James Cameron’s “Aquaman” throwing Weinstein in one of his legendary spitting temper tantrums.

Try, if you will, to envision Weinstein’s “condition” after discovering the new Michael Moore docu-drama, Sicko, Weinstein Co produced was bootlegged (ahead of its June 29th release date) on YouTube over the weekend. Well, hell have no fury like a pissed-off Weinstein.

And how did writer-director Michael Moore, known for his disdain for copyright laws, react to the news? According to a June 18, 2007 interview with Brandweek’s Steve Miller, Moore said that despite the Internet ripping his new film…

“[…he disapproves of copyright laws. It’s a stance] I’m sure is different than that of Harvey and Bob…I think the music industry’s response to Napster was misguided … and for me, it’s about getting people to see the movie and that’s what I want, so they will talk about it…I would never want to prosecute anybody who would download it…”

For the record, Ymer does not condone illegal file sharing however we are adamant that the existing pay-for-content model is dead. Weinstein and his fellow movie titians can either learn from the mistakes of the music industry and work with independent distribution channels, such as YouTube, to create a payment platform that leverages the viral natural of “good quality content” or not – the equivalent of the latter is losing just about everything.

Our views echo our desire to work with and support co-founder Eric Priest and his team at Beijing based Feiliu. While not revolutionary in design or concept, their business model of blanket content licensing, monthly subscription, unlimited sharing/usage and usage-based payments to content providers is, in our opinion, the most balanced and practical model we’ve seen in the market.

Some have argued that “digital music is a very difficult space to monetize” and a start-up in this space without a “massive user-base” will get crushed under the weight of industry leaders however what the public and investors are overlooking is the fact that content owners are less than excited about doing deals with established players given their less than stellar record on IP protection.

Indeed, this includes China’s leading Internet venture, Tencent, as it now faces several lawsuits from leading Taiwanese music label Rock Records. And therefore content providers will, by default, turn to independent enterprising companies, such at Feiliu, and their spotless IP track records.

Over the past couple of weeks, we’ve been receiving wave after wave of business plans for Global Positioning System (GPS) related ventures – not entirely sure what is driving this sudden surge in cases but there you have it. Indeed, the odds-on favourite for the number one reoccurring business theme is:

“We’re China’s leading GPS software application vendor developing navigation and Web2.0 compliant applications and in search of US$2 to $5 million”.

Coupled with each offering is a competitive analysis whereby software ventures are championed and hardware ventures trashed. Not surprising – hey man, big upside over here, give us some cash – their motivation is obvious. Frankly, it ain’t that simple of an argument– the GPS industry is evolving rapidly, outside of China, and for once, we sense that China’s GPS industry will not adopt Chinese characteristic (the way Baidu and Tencent have) – um, go back, of course there will be some localization but this will happen to the extend that Chinese characters replace English, French, etc (and the minor bells and whistles) but by and large we don’t see much room for this to happen. In its place we see vertical integration theming its way nationwide.

A casual observation of China’s GPS universe reveals definitive gaps in the pro-software argument (“hey man, big upside over here, give us some cash!”) – the “hugest” being that fact that the H.M.S. GPS has already set sail – at least, for this cycle. Quite frankly, Chinese and foreign GSP ISVs, both large and small, too numerous to count, have built (circa 1997) substantial beachheads on China’s shores – the most successful Chinese ventures (just a handful) partnered, early on, with major technology companies and telco providers, such as IBM and China Unicom which helped them go to the head of the venture funding line whereby millions of dollars have been doled out by international and local vc funds, such as SAIF, Gobi and Oak Investment Partners (sadly, Ymer was not one of them).

With fresh funding and strategic partnerships these first movers have quickly moved up the value chain, offering sophisticated navigation engines and tools, nationwide map databases, and proprietary value-add networks (e.g. highway sensors and tags relaying traffic information). Given the fact that the demand side of the curve has only started inching up the scale, it reasons that a young enterprising start-up will find it extremely challenging to increase its footprint until such a time that demand outstrips supply. If you consider that there is only one dominate (virtual monopoly) mapping company in the US (Navteq) and one in Europe (Tele Atlas) it become clear the difficult new entrants face in light of China’s well funded incumbents (Lingtu, Careland).

Those in the pro-software camp fade GPS hardware investments largely because they claim the industry is over saturated, highly fragmented and competitive environment. However, I’m a bit uncomfortable drawing such definitive conclusions when the industry in its infancy (i.e. China accounted for about 3.5 – 4% of total global unit sales in 2006) and positioned to benefit from the convergence of mobile device market, rising in-car GPS penetration, and heightened recreational use.

On the contrary, highly fragmented and competitive industries tend to be fantastic opportunities for existing players with means to control their own destiny – the idea being to identify and then inject sufficient capital in a market leader, structure a well articulated and thought-out business strategy, look to roll-up (consolidate) smaller (synergistic) competitors, build strategic partnerships with other industry leaders (vertical integration), and then throttle up your execution machine (experienced management team).

However, how many GPS hardware players are out there suitable for venture funding – the equivalent of a handful, at the most.

Even so to suggest that an investment in a GPS ISV vendor trumps a similar investment in a GPS hardware vendor (largely because of the operating environment) may be off-center and is slightly ignorant of the dominant trend playing out in the industry.

Convergence – that’s the ticket. The GPS value chain is melting and evolving – the top 5 GPS vendors (accounting for 70% of global market share) now have capabilities in software development, chipset design (e.g. Garmin) and module/end-product production/design. And therefore, it becomes rather clear that as the industry matures in China, the leaders will be GPS vendors with vertical integration know-how and capabilities (either in upstream chipset design or software navigation engines) will lead their peers in terms of both technology innovation and product positioning.

To the point, some of the most innovative GPS software solutions are developed by leading vertically integrated GPS vendors, such as TomTom’s Map Share technology. This unique mapping technology allows users to easily and instantly improve existing maps as soon as they identify changes in the road network, for example a smart interface allows users to change street names, unblock or block-off streets, identify one way streets, etc. Furthermore, as TomTom’s mapping system is dynamic, all updates are shared with TomTom’s 10 million users (i.e. community).

This is exciting stuff – the next step in further developing this community is to overlay additional information, similar to what US based community site Outside.in does with localized information generated by users.

Ethan Smith from the Wall Street Journal filed an article titled “Listen to music free, buy pay to carry” which is about a new Palo Alto, California-based music distribution portal called Lala Media Inc. The way the service works is that visitors to Lala.com can listen to streamed music (through a normal web browser) from Warner Music’s digital catalogue for free however if they so desire to download and cart the music away they must purchase an entire album. Smith writes:

“It’s like a subscription music service, but without the monthly subscription fee. Lala is betting that in return for getting all that free access to music at home, listeners will pay to buy the songs they want to take with them on iPods and other music players. Lala, whose owners include Bain Capital…is underwriting thr free offering by paying major labels $6 to $8 a user each month, about the same wholesale rate paid by online music subscription services like RealNetworks Inc.’s Rhapsody.”

To be fair – it is a clever idea. I particularly like the site as a music “discovery site” and the way the platform is device agnostic (i.e. mobile phone, iPod, etc). Though that is where my love affair with the site comes to an abrupt halt. What bothers me is that the music is streaming, quality is poor, you must purchase the complete album, and you’re still beholden to some form of DRM.For the record, I’m coming at this proposition slightly biased in that we have been working with Beijing-based Feiliu Media for several months now as they prepare to launch their content platform in September at Tsinghua University in Beijing, PRC.Feiliu’s business model is quite unique in that it not only provides a blanket content license on its content catalog but also tracks content usage – thus allowing users unlimited freedom to share music, video, etc while fairly compensating content providers.We believe the hidden gem in this platform is not so much in the “professional” or “industry” generated content, but rather in user generated content – to whit, Feiliu will be the first platform in China to compensate students, bands, whoever, with cold hard cash for their original work. Quite frankly, this is going to turn the business of collecting user generated content on its head – how can China’s incumbent video blogs, file sharing, and content aggregators compete with a site that pays users for their content? They can’t because they neither track usage nor earn an upfront fee from end-users – all existing sites are ad revenue models which are highly dependent on a high volume of free content.Feiliu’s CEO, Eric Priest, elaborates:

“On the music side, we deal only in full-track downloads, which no one has ever been able to make any money from in China, so most don’t seriously pursue that business. We don’t do ringtones at all, and we don’t add another intermediary to the existing online structure of SPs, etc. We’re a complete platform that deals exclusively with internet service providers (of which there are three in China: CERNET, China Netcom, and China Telecom). Our licensed content is served up via our platform and user interface with loads of rich value-added features like recommendation engines and social networking tools to help people discover new media.We serve up not only music but video and documents as well, including educational materials (English lessons, Harvard lectures, TOEFL classes, etc.). We provide this complete platform for a small fee bundled into every user’s monthly ISP access bill, so we are paid by the ISP, not the user. In return, we license the whole network to freely download and share the content in our system. In order to fairly divide our content revenue pool among copyright owners, we count not just downloads but also plays and copies of each media file, accumulating the most detailed and extensive data on user media consumption in the world. End users can upload user-generated content into our system, promote it among their peers through our platform, and get paid a portion of total revenues for each time the media is watched or listened to. Imagine how important that feature will be on college campuses among bands and student filmmakers.”

In short, Feiliu provide ISPs with the technology and licensed content to serve up all the best content in exactly the way users want it–high quality, reliable, fast, no technological restrictions, in an attractive online environment that helps you smartly navigate content and discover new things you like. What if users prefer to download their content from illegal sites and use a player different from ours? No problem. They are still paying the bundled content fee to the network, which Feiliu still collects and distributes to copyright owners, and Feiliu can still log those users’ content usage because their counting technology is entirely player agnostic, and they need not get the file from Feiliu. Once they have it, Feiliu ID it, count it, and pay the copyright owner.We’re confident there’s no one in this space doing anything close to this business model.

Okay, this has nothing to do with China (directly) but I can’t stop myself – it just too good – you’ve got to go to itune’s TV Show channel and download the pilot episode of the SciFi Channel’s new reality show “Who wants to be a superhero“.

Each contestant begins with an original idea for a superhero, a self-made costume, and their best superhero mojo. Over the course of the series, they will test their mettle, try to overcome their limitations, and do what it takes to prove that they truly are super. The finalists will leave their former lives behind and become their brainchild heroes, all under Stan Lee’s watchful eye.

I’m still trying to work out which superhero is my favorite but Fat Momma is definitely a leading contender – check out FM’s profile:

Superpowers: Can grow to five times her normal size when she gets angry.

Vulnerbility: Needs doughnuts to fuel her super-powers. Diet foods weaken her and shrink her to five inches in height.

Catch Phrase: “Saving the world, one doughnut at a time!”

I was playing around on YouTube a couple days ago and came across this real life adaptation of the cartoon The Simpsons.

Actually, it is only a real life adaptation of the show’s introduction but it is still quite fun to watch. Anyhow, this Simpsons sketch got me thinking about how innovation allows real life to imitate art, in this case a cartoon.

It would be very cool to see a real life version of the Simpsons introduction acted out by people from various non-Western countries; for example, I wonder how someone in Iran or DPRK (North Korea) would not only interpret the introduction but also get access to Nuclear power plant footage?

I guess they might rip footage/photo from the web, perhaps from Flickr or Amazon?! The point I’m getting at has nothing to do with greater cultural understanding, but rather how Web2.0 innovations (or innovations leading up to Web2.0) have slashed open regional boarders, truly making the sharing of information a global reality.

The question is, do we really need localized content sites? Or maybe it is, can a venture like YouTube service the entire world? These are important questions especially in light of the increasing popularity of community centric sites, such as Craigslist; important because, at least in China, we are seeing countless numbers of “me-YouTube-too” type of sites (i.e. US/EU hatched, China transplanted). Perhaps the answer is localization is good for something, like personal advertisement, and bad for other things, such as video hosting (where the volume, quality and scale rule the roost).

I’ve heard the arguments that some people want to have servers based locally (why?), or foreign companies just don’t get local culture (hello, I thought we were in age of user generated content? ever heard of tagging?) but I’m not convinced, I’m fading this line of reasoning big time.

Not to be overly harsh but at this point in China’s investment/development cycle I just don’t see any upside gained from investing in a country specific (e.g. China) video/blog hosting venture(s) – so hold onto your business plans for a more sympathetic ear…

Doh!

As a kid growing up on Cape Cod it is hard not to spend at least 90% of the summer either swimming or sailing in Nantucket Sound (the remaining 10% was spent eating ice cream from Four Seas). So, yeah, I have lots of salty stories, yet one specific, very poignant flavor comes to mind whenever I feel troubled – the first time I got caught in an undertow (an undertow is a strong underwater current generated from waves crashing into the beach and water recoiling) at Sandy Neck beach in West Barnstable.

For those in the know, getting entangled (and that is what it feels like) in an undertow is frightening especially if you’re five-years old and holding onto your bathing suit with your toes as it gets ripped from your body (note to self, learn to tie a double knot). For those fortunate enough not to experience an undertow, well, just imagine being getting sucked out of an airplane at thirty thousand feet (I’m going for the vacuum effect, not the “splat” thing).

The first thing that floods into you mind is “weee” – the second thing is “crap” – the third thing is “mom” – and the fourth is “I wish I had something tethering me to the beach rather than being sucked out to sea (Regis, I’d like to use a life line).” At that moment of panic you don’t care what form the life line (or knight in white shining armor) looks like, where it comes from, or what you need to do to get it – all you want is to have it in hand.

I liken my undertow induced panic to that which some early stage start-ups experience during their early days, you know, before the model is proven and/or they’ve cobbled together a solid track record – a panic that sometimes results in the management team reaching out an advisor (or advisory team) for help. With this said, this panic isn’t reserved exclusively for start-ups, big, established companies do this too, but they call this “hiring a consultant” or “consultancy validation” (queue commercial for Bain).

Over the past year and half, I’ve seen at least five China based start-ups reach out to an advisor (or team) for help in validating the model or re-positioning of the business strategy or just to secure venture capital funding. At one point, I thought this was a great idea (and I still do); it makes lots of sense to find someone experienced and knowledgeable in the space you’re operating it – sort of like a road map or knowing the “code” for a secret gun or unlimited life in Tomb Raider (I’m old school). At the same time, being all panicky and stuff, forces bad decisions, or rather irrational decisions that make sense at the time (“dude, toss me that poison ivy vine, pull me up…”) but in hindsight you end up kicking yourself.

Recently, I learned of a Beijing based start-up (let’s call this company “Zing”) operating in a competitive space, yet with no clear market leader. Zing’s management team knew they had a solid business model, a quality team, and good momentum; even so Zing was nervous, worried that the echoes, or rumors of foreign competitors encroaching on their space would quickly materialize.

Complicating the issue was their inability to attract venture capital funding because: (1) the team’s experience only covered 50% of the knowledge investors thought they needed to make Zing a winner; and (2) while Zing had an impressive pipeline of potential, promising customers, very few heavyweights had signed up.

Queue knight in white shining armor.

Zing was introduced to an American based guy who had not only successfully built a similar company in the USA, but also took the company public on NASDAQ (valuation hit +US$3billion). The American advisor dazzled Zing with his domain knowledge, his track record, confidence, and most importantly marketability (“trust me, any vc in their right mind will toss you millions by having me as your advisor…oh, and by the way, I have a meeting with you competitor in 5 minutes, what do you want to?”).

Feeling the drag of the undertow, Zing’s management team signed up our American advisor, offering him flowers, camels, KTV and 3% of the company (“who’s your daddy?”). And, for a couple months after the advisory document was signed, the advisor did add value, re-shaping the business model, helping the team to refocus and avoid rookies mistakes he made, and yet, for all these operational trophies, venture capital money remained quite elusive – nine months, two week, and 5 hours after Zing brought the American on board.

So, what was the problem? Did the American advisor doop Zing? Over promised, under delivered? Pull the old fast one? No, that didn’t happen at all, in fact the American was absolutely upfront and forthright with Zing, if anything Zing fucked up; they got all hyped up, putting too much stock in this knight in white shining armor.

The fact is no one person can make your company work, not to mention attract venture capital funding. And while an advisor, especially an active advisor who has proven he/she can build companies and attract funding, adds a tremendous amount of value to a start-up, the young start-ups management must going into the relationship eyes wide open.

Here is a list of some things Zing’s management team should have thought about before handing over 3% of the company to the American advisor – and by the way, the answers to these questions should determine how much of the company the advisor should get:

1. Location: Where is the advisor based? If this person is not in China, then how often will he/she be in town? There is a lot of value in having your advisor in the same country (or 2 hours flight away) for those urgent, “dude, we have a meeting with a major client and would really like to have you on our side of the table…” If this guy isn’t in the same country then you might want to consider finding someone who is, and when this isn’t possible make sure you have an open line of communication readily accessible (Skype is great for this);

2. Activity Level: How active is he/she going to be? Are we talking 1 meeting a week, or a conference call once every quarter? Will communication be on an ad hoc basis (as need be) or will there specific times you can call on him/her (this isn’t a bad thing, sort of like “office hours”);

3. Milestones: Are there pre-determined milestone or goals that must be meet to trigger vesting rights? Maybe the Advisor receives half his compensation from at the start and the balance after the company wraps up its funding. What do you expect to accomplish from having the advisor on board? Who determines the milestones (hopefully not the advisor);

4. Resources: What does the advisor bring to the table? In the case of Zing, the advisor had a very solid network in the US (perhaps globally) but not in China; in fact, I bet Zing’s advisor overestimated his value (from an investor’s perspective). If you need a guy to come on board to help raise money, maybe it’s a good idea to meet his funding agents before you agree to an advisory relationship;

5. End Game: Outside of equity in your company, what is he/she looking for? This is very important consideration, especially in China where the market is hot and yet very few people outside of Asia have any exposure (or relationships) in China; the case might be the advisor is using your company as a beachhead to ramp up his/her China knowledge base (“…for the past 12 months I’ve been assisting a local company grow its business from ‘x’ to ‘y’…imagine what I can do for your company…”). To be honest, this isn’t a negative attribute, if the guy helps to grow the business and get your company to where you want it to be, then why shouldn’t the guy take credit for it – the point is to keep this in mind when dishing out compensation (mutually beneficial experience is cheaper than a one sided deal);

6. Investor Impression: How does it look to a potential investor that you need to bring in outside help isn’t the real issue here, however what some investors might have problems with is the amount of equity the advisor gets – make sure you can justify your advisor’s value add (this is why basing compensation on successfully reaching pre-determined milestones is so important).

7. Relevancy: So, like, dude, are you still CEO or actively involved in the company you took public or are you like, on the beach sipping apple martinis? Point being, technology moves quickly and while there is a lot of benefit in working with guys who have been their and done that, you’ll get a lot more value (network, exposure, investor attention) if your advisor is an acting, innovative CEO (or other C level manager) of a company in your space than a, well, a has been (“…like, 10 years ago, I was, like, the guy who build a stock trading engine using email based delivery system…”).

8. Life Expectancy: When does the damn advisory contract end? Is it indefinite? Is it reviewable every 6 months? You might find that you’ll get everything you need to know from your advisor after the first 6 months? However, my gut is that if this guy’s is worth his salt, he’ll continue to offer up lots of valuable insights and connections. I like to see a 1 year advisory lock (non-compete) with a 4 year extension that can be terminated by either side at the end of every quarter (allowing for quarterly vesting of equity options). The way I see, don’t be greedy or petty – fairly compensate those who do good work for you – karma thing, I guess.

9. Responsibility: End of the day, it is the management team’s responsibility to engage the advisor. Often, a team will sign-up an advisor and forget to actually use the person, or rather doesn’t understand how they want to use the advisor. I’ve seen this happen in two China based start-ups in the past month – and when things don’t go as the team expected (“We’re rich! We’re rich!”) the blame games starts – and the loser is the guy with furthest from the ball, the advisor, when in fact its not really his/her fault but the CEOs. Smack! The truths gotta hurt, dawg!

Anyhow, these are just a few things to consider when hooking up with an advisor. I’m sure there are variations to these nine points (and some might not even be applicable to your current situation) but I guess the point is, if you have to remember just one thing, well, it would have that not matter how powerful the undertow is it eventually subsides once it hits the surf line. Shaka Brah!

“…trust me…”

We’ve talked a lot about direct marketing, specifically the benefits of RSS and permission based networks. One development we’ve been following in the US is the growing popularity of two companies, Return Path and Goodmail.

Essentially, what these companies are proposing is a “sort of FedEx for e-mail…for a penny or less per message, the sender gets guaranteed delivery for mail and the promise that it will stand out in the user’s mailbox” writes Esther Dyson in an op-ed piece she wrote in today’s NY Times about Goodmail. Esther continues,

Goodmail, in my eyes, does not raise moral issues. It simply wants to make the Internet a better place — and yes, make a little money along the way

We understand that Goodmail’s solution is meant to help filter out the bad e-mails from the good e-mails by labeling e-mail with a “certified e-mail” icon and thus making the Internet a safer place but we don’t believe this model is going to work as it is intended or promises. Truth be told, the only way to absolutely filter out bad e-mail is to build a closed network where individuals need to be individually certified by the person they are looking to contact (Linkedin.com, anyone?)

So, if Goodmail isn’t the solultion, what is? Could the answer be a permission based marketing (i.e. “I give Yahoo! permission to only e-mail me marketing info about green spotted frogs”) model? We don’t think so as permission based marketing (“PBM”) is about filtering out unwanted/random e-mail spam; the promise of permission based e-mails is to provide marketers exceptional measurable results while rewarding customers for playing.

You might be thinking, “so what the heck is your point, get on with it already” or “all this yelping about PBM and yet you fail to realize you’re comparing apples [Googmail] to pears [PBM]…”

Here’s our point: We believe Goodmail (and Return Path) further pollute the direct marketing environment by incentivizing corporates to turn up the volume on unwanted spam under the guise of safe, certified e-mail (“truuust me, dear customer, you’ll love this spam mail…”).

We truly believe this is the worst possible path for direct marketing to take as it approaches the problem of “spam” not from the end-users pain point (“dude, stop the spam”), but rather from the corporate/aggregator/ISP’s (e.g. AOL, Yahoo!, etc) monetization pain point (“man, I wish I could earn US$0.01 for ever time some joker used my network to send spam, a network of users that is costing me some bucks to maintain and support”).

We look at the issue of paid e-mail from the inside out, in other words, we’re advocates on not only rewarding the corporates (i.e. measurable results), but also rewarding those consumers who want to be contacted by advertisers (all the while leaving those consumers uninterested in “spam” alone).

In trading, when a guy has a strong opinion of the market’s direction we say “he’s talking his position” which mean he’s positioned to make money if the market plays out that way. And in this sense, with regards to permission based marketing and loyalty rewards, we are talking our position, however when you’re right, you’re right. Yeah?

I met this American, Thomas, from Mooers, New York the other night while waiting for the bank manager at Pudong Development Bank to open the ATM that just eaten our bank cards. It turns out he has been in China for, get this, over 20 years as a marketing director and country manager for some of the largest consumer goods manufacturers on this planet, such as Coke Cola, Nestle, and P&G.

He started talking about what Shanghai looked like in 1982, where to get the best straight razor shave, and of course, his adventures in marketing. The last bit about marketing in China was the most interesting.

According to Thomas, branding in China isn’t about branding at all, it is all about logistics, price points and samples. From his experience he believes that before you can even build/develop a brand you’ve got to get the products into the hands and mouths of the Chinese consumer. And thus, “flashy advertising gimmicks” take a back seat to “cold hard logistical planning.” I’ll try and paraphrase what he told me:

“…not only are you building a proprietary distribution network (well oiled distribution channels are a serious competitive advantage) but also you’re dealing with suppliers unaccustomed to Western standards of quality and time constraints. That fact that consumers can see and physically touch your product might be the best, most effective marketing tool multinationals have at their disposal…

The fact is most China based marketing teams look at the branding approach the wrong way, they come at it from the direction of building short-term demand rather than building a sustainable presence. As a marketer you need to understand how the goods get to market, where products are placed, and at what price people are willing to pay for them. In China, I believe some of the best marketers are also brilliant engineers; most people disagree with this assessment…

It took Dove candy bar almost 8 years to understand this. They came into China with a large Western size candy bar, yet it was too expensive for average Chinese to afford; furthermore, they were not accustom to the rich chocolate taste. The solution was to sell sample size (or bite size) bars but this meant reengineering the entire production and distribution network, not to mention positioning and pricing.”

Well, I’m not sure I completely agree with Thomas on all of this as China’s consumers have gotten a bit more sophisticated; and yet how can you argue with someone who has been in the business about as long as I’ve been alive? I do think he makes a very interesting point about the power of samples and the importance of logistics in branding.

Anyhow, after that conversation I wanted to find out how wide spread sampling was in Shanghai, so I went into a Lawson’s, looked around, and was like, cool, lots of Western brands do in fact use sample size packaging. And, then I thought, gosh, sampling must be really expensive, at what point will manufacturers stop sampling and just go back to exclusively selling regular size products? And the I thought, in the States we are crazy about super sizing, getting biggest bang for our buck, but in China people are kind just figuring out what they like and don’t like…interesting, huh?

As far as weeks go, this past week was definitely challenging – riddled with conflicts and misunderstandings across the board. In hindsight, we can sort of make out where we stumbled – the question is, how do we prevent this from happening in the future?

Perhaps more than anywhere else in the world, in China, the importance of face/self-worth/ego are paramount – more so in the major cities, such as Shanghai, were people (both Chinese and Westerners) tend to take themselves more seriously (i.e. “…I’m educated, and thus you must respect me…”). We understand this very well but it isn’t enough to simply understand how the game is played you’ve gotta practice it 24/7 – truth be told, it gets exhausting.

One solution we are thinking about is phasing out our “asynchronous communication”, or rather:

…communication that does not require that all parties involved in the communication need to be present and available at the same time. Examples of this include e-mail, discussion boards, which allow conversations to evolve and community to develop over a period of time, and text messaging over cell phones.

And, replacing asynchronous communication with “synchronous communication”, or rather:

…communication where all parties involved in the communication are present at the same time (an event) is a form of direct communication. Examples include a telephone conversation, a company board meeting, a chat room event and instant messaging.

True, this seems a bit extreme (and perhaps not very practical in this day and age), but there is some merit to it – should a conflict arise during the “synchronous” conversation all the parties involve can stop, circle back, resolve the conflict, and hopefully move on rather than stew on something for x number of hours (as is the case with “asynchronous” conversation).

It is a little late to enter but I just learned of a cool short film competition that is currently underway in Shanghai called “Contest 2.0” — the group organizing the contest is MeiWenTi Productions.

According to the contest’s guidelines there are a number of specific elements or situations that must be included in the film:

a bobble head
a flight of birds
an animal
a hidden secret that is revealed in the last 45 seconds of the film
the heart of Shanghai
the line “that’s so cool, can you do that again”
a pair of shoes
some eggs
an accusation and a violent reaction

We have an Indian friend who has entered this competition, his group’s film is titled, “Life as a Shanghai expat” and it promises to be very entertaining. When we get our hands on it we’ll convert it into an mpeg and post on this site.

China use to cycle 5 to 7 years behind the West, in terms of technology/Internet business models, however with the introduction of business models leveraging “Web2.0” (this words is so overused and generic) technologies this cycle lag has dramatically narrowed; we’d argue China is only 2 to 3 years behind the West (while Japan and Korea might actually be trailblazing thanks to the proliferation of broadband).

As a result, local entrepreneurs looking to break into this Web2.0 space don’t necessarily have the cushion they once had – “hey, the train is leaving the station and you’re still trying to figure out how to buy your ticket…” – with Web1.0 business models. Furthermore, the very nature of Web2.0 ventures, being all user generated content and stuff, are significantly more global friendly (i.e. localization is bottom up, not top down) – for example, Flickr is as relevant to Xiao Wang in Xi’an,PRC as it is to Redneck Bob in New Hampshire, USA.

Not solely for this reason, but perhaps the above comment is a main driver of our belief that China based blogging communities are not financially viable over the long term (ex-advertising revenue model), for example, a recent survey revealed that over 40% of China professionals use MS Spaces, which is free and not a Chinese homegrown product. We think this certainly holds true for video storage/sharing sites as well.

Heather Green from Business Week fundamentally shares our view on blogs/podcasts/vblogs but “we thinks” Heather is overlooking one specific opportunity – Web2.0’s “killer app” – here is what Heather has to say:

But I believe the general notion here is that there isn’t a huge amount of money to be made just on podcasts and that the disruptive nature of podcasts lie in the fact that most people will be doing them for themselves and their friends and families.

So, what is the killer app (or business model) in the Web2.0 space? To Heather’s point, how are we as investors (and you as entrepreneurs) going to profit from this disruptive force – free content and storage? Well, after months (not years, mind you) of hard core research and analysis we’ve identified the perfect killer Web2.0 app/business model: Education.

We liken the Web2.0 education model (language/test prep) to online dating, but not match.com, more like Jdate.com – a dating site targeting the global Jewish community. Jdate can charge up to US$34 per month for their service because they have a captivated audience (Jews) looking for a specific payoff (a date/marriage) and are willing to pay for this (users trust the content/service).

To preempt any inflow of dating b-plans, for the record, we don’t see dating as a very good Web2.0 business.

Education is perhaps one of the only services/categories that not only leverages the benefits of community, RSS, podcasting, etc to vastly improve the user’s experience (“making learning fun”), but also does so inexpensively and, if you get the content and usability right, profitably. Furthermore, the market remains wide open (perfect environment for China based entrepreneurs) with only a handful of start-ups attacking this space (and no clear leader).

And, within the education space, we believe language and test preparation are the most exciting segments – largely because it combines both the foundation of a captivated audience (“I need to pass my GMAT to get into b-school or it’s back to the countryside for me”) and specific content (language is, well, language) with established/popular/free distribution channels (podcast, RSS) and the support of community/network (user generated content). In other words, consumers will pay for your content, while your costs associated with distribution are relatively low.

We especially like what the boys over at Shanghai-based OnDemand Training are doing with Chinesepod.com and Englishpod.com

I think you can learn a lot about life, relationships, and investing from watching sitcoms, especially US sitcoms – no joke!

For example, I have been watching season three of NBC’s Scrubs, a hospital spoof based on the lives of young doctors and nurses coming to age. In last night’s episode, the main character, Dr. John “JD” Dorian, commented:

“…a recent study showed doctors spend an average of 15 seconds with each patient – sounds insensitive but that is all the time we need…”

Reflecting back on JD’s comment, it stirred a thought, something that I’ve been noticing/observing for quite some time now – when it comes to investing, China based VCs a vast majority of China based VCs tend to spend more time listening to the opinions of other VCs than they spend on truly understanding the business and listening to opinions of the management team. So, let’s call this phenomenon “clubbing”.

I can totally understand that there is safety in numbers and that there are some benefits in building a syndicate (i.e. leveraging diverse relationships, experiences, and portfolios) but these spoils only go to the gold standard start-ups (i.e. those companies who fit the “Valley” venture model).

But this is China and as of yet there isn’t an acid test that is applicable to a majority of investments. The fact of the matter is that the VC environment in China is not only immature, but also untested (i.e. no serial entrepreneurs). Ultimately, lots of hidden gems fall through the cracks because their composition/profiles buck the conventional wisdom of what is an “A” team v. “C” team.

In my view, this is the time VCs should be backing less traditional ventures (i.e. anti-gold standard), when the market is less defined and investors are more accepting of China’s raw environment.

Turning back to our sitcom, Scrubs, (and yes, like all formula based sitcoms, there is a lesson here) JD recognizes the flaws associated with a 15 second diagnosis – let’s read what he has to say:

“…the problem with only listening for 15 seconds is sometimes you don’t hear everything, and when you finally figure out what they were trying to say you might have lost them forever…you can never underestimate the importance of listening…ultimately it keeps you in the moment so you don’t miss the things that really matter…”

A bit corny, we totally and unapologetically recognize this but, nevertheless, this is relevant to the point we are hoping to make…

Man-o-man have we received a ton of b-plans pitching video sharing sites over the past couple of weeks. By last count there are no fewer than 50 such sites in the US alone; and since barriers to entry are so low making a move in this space is challenging. However, here are four criteria we want to see even before we will consider your venture:

(1) Destination – #1 spot, #1 spot, #2 spot (if you also own the #1 spot)

(2) Captive audience – size does matter (“super size me”), but so does their length of time on the site

(3) Rich content – audience contributes content as much as they consume

(4) Control – clear, functioning copyright and mature content control/policy

From Oriental Morning Post via Pacific Epoch:

According to a recent survey by Chinese career consulting firm CBP Career Consultants, 52% of white collar workers in Beijing, Shanghai, Guangzhou and Shenzhen have their own blogs and 28% more will launch their own blogs soon, reports Oriental Morning Post. According to the survey, white collar bloggers update their blogs every 3 days on average, and Shanghai’s white collar workers update their blogs every 4.5 days on average. The report said that 41% of white collar bloggers use MSN Space because it is only open to friends.

BBN Technologies launched Podzinger, which uses speech technology to convert to text the contents of 60,000-plus podcasts. Since it can search through the text of podcasts, it can better determine the relevance of search results to help you find what you’re looking for.

There are several China-based blog search engines that do very basic searches, such as feedsearch, 8fang, feedss, and Bokee’s Booso.

However, none of these blog search engines have the capability of searching podcasts, which is unfortunate as Podzinger is an English only podcast search engine.

USAToday reports that Toshiba, a Japanese electronics company, has developed mobile-phone technology that searches for product reviews on up to 100 Web journals, or blogs, in 10 seconds.

Although, there might be issues of trust (commentary) and accuracy (data), we like this concept very much and will be following its development closely.

In the same breath, there is a small Shanghai based venture called Kaible.com that is backed by Dragon Venture that does something similar, however its offering focuses on price comparison.

We are not a big fan of Kaible’s model as it’s less dynamic (real time pricing) and completely dependent on the participation of merchants providing reliable, truthful data. Furthermore, we don’t see the value in it for the retailers — why would they want to reveal pricing to their competition. And finally, anyone who has shopped in China knows plenty well that haggling (over the price) between customer and clerk is more the norm than the exception – how does Kaible account for this?

(One approach might be to encourage consumers to SMS/Email Kaible with price information in return for loyalty points, or a chance to with gift certificates – however the most powerful driver would be community.)

First, the creator of the MillionDollarHomepage went to ebay to auction off the last 1,000 pixels which sold for US$40,000

And, now it is RocketBoom’s turn…

Steve Rubel is SVP at NYC based PR firm Cooperkatz agrees with us that RSS is the New New Thing in direct marketing:

That’s all folks. The door has officially closed on email marketing. Maybe this will drive more companies to start up opt-in RSS feeds and blogs that facilitate dialogue.

And so does Polarman:

Fred, please change the business models from email to RSS. It’s time Email gives way to RSS. Everything that a email delivered service can do should be done by RSS.

But, Elliott Ng, an Executive at Intuit, gave us a different opinion:

I think RSS itself is a feature, but the larger story is about how customers and companies engage with each other, and how companies have a difficult time managing those dialogues.

Regardless where you stand on the RSS v. Email marketing debate (if in fact there is one and we aren’t making a mountain out of a, well, non-issue) one thing is certain: RSS marketing will have a major impact in China where two of the largest email service providers, 163 and Sina, already block thousands of smaller email servers — some good (permission based marketing) and some evil (spammers) — getting your company off their black lists and onto their white lists reeks of favoritism…

Some amazing developments in video blogging (vblog) over past year. We’ve mentioned vblogs a couple times in the past months, including China based Toodou.com — the following two sites are worth mentioning:

FireAnt (it’s a portal that syncs to almost any device)

ApolloPony (suggest watching Game: On Mashima)

In fact, one vblog out of New York City, RocketBoom, has moved from the web to the TV, or rather, to TiVo

And then again, this shouldn’t be all that much of a surpirse given Yahoo’s partnership with TiVo back in November 2005…

To all the China-based entrepreneurs — we are putting you on notice: The learning curve is moving quickly, as are expectations — this time around there will be no room for excuses, such as “we are a developing country…”