Why culture and community always win, and why I want no part of that winning
This is the third and final entry of my series on China. Read Part One here and Part Two here.
Anyone who has witnessed China’s tech scene first-hand will tell you that something big is happening there. In the words of Hugo Barra, Xiaomi’s VP of International and former VP of Android at Google:
“It would be very difficult for me, now that I’ve seen what China’s about, to even consider the possibility of going through life without spending time in China.”
Why is China such a fascinating place for tech?
After spending three weeks in Beijing, Shenzhen and Hong Kong, Cyriac Roeding, a Silicon Valley based entrepreneur and investor, noted six major themes in an article on RE/CODE:
- Beijing will be the only true competitor to Silicon Valley in the next 10 years, in terms of access to capital, talent and a scalable market.
- We pride ourselves on being fast in the Valley. Chinese startups are faster. The notion of work-life balance does not exist. Work is life there.
- The argument that Chinese entrepreneurs are cloning Western startups is outdated. Cloning may have been the start, but startups have moved on.
- A wave of innovation is coming from China, especially in hardware.
- Things Chinese startups lack: high quality product dev in parallel with rapid distribution; also expertise on expanding outside of China.
- We’re too well-fed, too perked out in Silicon Valley. Chinese entrepreneurialism feels raw and authentic.
I agree with Roeding. China’s tech world is a pressure cooker. The hunger is real and the drive is tenacious. Things are bumping into each other wildly. The pressure to come out on top forces startups to innovate like never before. Despite the idiosyncrasies of the country, there remain many valuable lessons relevant to the rest of us. I will discuss two of them below.
Lesson 1:
Productify a Cultural Practice
— WeChat Payments
Red envelopes (aka red packets) have been a holiday tradition for centuries. During Chinese New Year, elders give children and young adults red packets containing a small amount of money (for young kids, the amount may seem astronomical) as a token of good luck and best wishes. Bosses and managers also give their employees red packets. However, in the years since 2014, the rise of WeChat has changed that tradition.
If you visit China today during the New Year’s, you’ll notice that people irrespective of age, gender and economic status will be checking their phones for WeChat notifications. They’ll smile, laugh or grimace, often displaying all those emotions in a matter of a few seconds. Most likely what they are doing is collecting digital red envelopes on WeChat — a new digital tradition that was unfathomable a few years ago.
We know that one can’t simply build a product and expect users to show up. Human habits are notoriously hard to change, let alone centuries-old traditions. So how did WeChat do it? How did WeChat execute a perfect coup d’etat on the mobile payments industry?
WeChat’s unfair advantage was its massive user base.
By 2016, it had 700 million monthly actively users. Back in 2014, almost none of its user base was using the mobile payments feature in the app. To change this, WeChat did things differently from AliPay, an incumbent that owned nearly all of the market share for digital payments. The advantage that WeChat had was its massive network of connected users. It exercised considerable biz dev muscles to land a deal with New Year’s Gala, a TV program watched by hundreds of millions of people on New Year’s Eve.
Shake-to-Win
The partnership showcased WeChat’s Shake-to-Win feature, where users could shake their phones for a chance to win digital red envelopes containing cash, gift cards, and other deals. The supply of these rewards was provided by major brands — likely another result of leveraging its user base. WeChat itself also injected millions into the campaign.
Essentially the app was transformed into a virtual slot machine. Instead of putting in nickels or quarters, people casually shook their phones, kind of like shaking a piggy jar (it even made the coins sound). They were amused and found themselves shaking the app during commercial breaks or whenever the conversation lulled.
Shake-to-Win went viral overnight.
People would see others shaking their phones. They’d ask what it was. Judging by the reactions on Weibo (China’s Twitter) the next day, most of them were quite delighted by it. Unbeknownst to them, the long-term impact of this seemingly innocuous New Year’s “gimmick” was that a large percentage of China’s population, whom previously had no intension of handling money on their mobile devices, suddenly got used to the idea of receiving real money on their phones. This was a momentous breakthrough not only for WeChat, but for China’s entire tech industry.
The campaign has been repeated each year since. In 2015, the total amount of money distributed rose to ¥500 million RMB ($76 million USD). Ads were plastered everywhere to promote it. Seeing WeChat’s success, China’s other tech giants all followed suit, launching their own versions of red envelope and shake-to-win.
“Good Luck Group Packets”
Two other features also drove WeChat Red Envelope’s growth. The first was a one-to-one or one-to-many payment feature where a sender specifies the amount of money sent. The second was called “Good Luck Group Packets”, where a sender can specify a total amount of money to be randomly distributed within a chat group.
For example, a user can send a lump sum of ¥100 RMB ($15.25 USD) in eight packets to a chat group. The first eight people to tap the red packets will receive a randomly generated portion of that ¥100. After eight taps from different people, all of the ¥100 will have been distributed.
To retain the red packet money, each user would then need to link up their personal bank cards, thus clearing another major obstacle on the road to mobile payments.
Leverage
WeChat picked the right tradition to complement and augment. During the holiday season, people have more free time and the general atmosphere is joyful. It’s the perfect opportunity for gift-giving. Second, it leveraged group dynamics to amplify the experience of sending and receiving money — even gamifying it. The random dollar amount of Good Luck packets are displayed in the chat window after the packets have been distributed, giving members a chance to banter, tease and lampoon on the amounts each received. This is an innately fun thing to do in a group setting, and it actually enhances intergroup relations.
WeChat understood the excitement of opening gifts.
Opening a red packet feels like, in the words of Forrest Gump, opening a box of chocolates — you never know what you are gonna get. By gamifying the experience through Shake-to-Win, WeChat created a new mental model for digital red envelopes. Unlike physical red envelopes, people didn’t need to worry about how much money was too little to put in the packets. It felt like a game anyway. Old friends separated by hundreds of miles now had a new and novel way to stay connected, by sending each other red packets, even if they only contained a few dollars. After all, it’s the thought that counts.
Taking a bird’s-eye view, the aggregate result of these individual interactions has been monstrous. In 2016, 32.1 billion red packets were sent on WeChat, 8 billion of which were sent on New Year’s Eve alone.
WeChat showed us a perfect example of chat-as-a-platform — leveraging its core advantages to explore cultural openings where technology can:
- Create moments of delight.
- Benefit people in meaningful ways .
- Augment real-life practices to make them more rewarding.
Red envelopes not only expanded WeChat’s market share in mobile payments (from 0% in 2014 to 21% in 2016), it expanded the entire industry. The quintessential industry-expanding product was the original iPhone. It kickstarted the rise of smartphones which not only revolutionized the way we communicate, it later led to the availability of cheap mobile components, which in turn fueled new exciting industries such as drones and IoT. Similarly, the rise of digital red envelopes we’re witnessing right now may very well be the beginning of a new exciting era — when commerce becomes ubiquitously digital and mobile.
Lesson 2:
Build Communities first, then Products
— Xiaomi’s “Secret”
Started in 2010 with $10 million (usd) in funding, its valuation grew to $40 billion in just four years. By 2014, five out of the top eight Android phones shipped by volume in China were Xiaomi (pronouced Sheeau-Me). In 2015, it led China’s smartphone market in terms of devices shipped, beating out Apple, Samsung and Huawei.
It’s a Software Company
The first thing to note is that Xiaomi has always been a software company. Selling hardware just happened to be a great way to distribute software. In fact, for the first two years before making its own phone, Xiaomi had been known for MIUI (pronounced Me-You-I), an Android aftermarket firmware that had to be side-load onto users’ devices. It was a niche product to say the least.
Back then, the majority of Android phones suffered from performance issues and poor user experience. Xiaomi aimed to change that with MIUI. After developing the v.1 in four months time, its engineering team scoured forums and online messaging boards where its target users would aggregate. It went through thousands of postings on China’s version of Reddit and Hacker News to look for the right people to join its beta program. After much pleading, they convinced 100 experienced, perceptive and vocal Android users to join the program.
These super users became deeply involved in the design and development of MIUI. Xiaomi knew something that most of us didn’t back in 2010 — only when you have a group of passionate and engaged target users who are invested in your success, can your product truly take off. Before even building a product it built a community. This focus on community is the secret to Xiaomi’s success.
As MIUI became better and better through a continuously iterative process of design, development and feedback, its community grew as well. It created MIUI’s official forum, where anyone can register, download the ROMs, and participate in product discussions. By 2016, MIUI OS has reached 170 million users around the world. These users can be categorized into three tiers: general users, die-hard fans, and super users who are involved in product decision-making.
The super user group includes seasoned forum members, moderators, and admins of regional fan clubs. They have the means to directly communicate with products teams within the company and even some VPs. In essence, what Xiaomi has created here is a powerful open-source think tank, made up of opinion leaders and product enthusiasts around the world.
It’s an Ecommerce Company
The second thing to note about Xiaomi is that it is an ecommerce company. While tech giants have followed Apple’s footsteps in opening retail stores, Xiaomi haven’t done so. (It does however have experience centers where people can try its products, but the purchasing is still done online.) Almost all of the sales happen on its website and T-Mall (China’s Amazon).
Selling exclusively online cuts out the intermediary, reduces cost and creates direct relationships with customers. Promoting upcoming products and taking pre-orders early lets Xiaomi accurately forecast demand, negotiate better deals with suppliers and reduce the need for a large inventory. In fact it frequently clears its remaining inventory in “flash sale” events where a batch 50,000 to 100,000 units are sold with significant discounts at a publicized date and time. Due to the popular demand of Xiaomi phones, the limited supply is often sold out in a matter of seconds.
The flash sale event creates a great sense of scarcity, generates significant media buzz and becomes a spectacle in itself, marketing Xiaomi for free in the process.
For Xiaomi, commerce is about building direct relationships with customers, so much so that it spends next to nothing on buying media. Instead it relies on its community’s acting on its behalf as brand ambassadors.
Perhaps Xiaomi’s real innovation is in its business model. It has shown us by working closely with a small group of invested early adopters, continuously growing a passionate community, learning from customer feedback, and by relying heavily on ecommerce and social media, high quality yet low cost may not be an oxymoron after all. Once economies of scale are reached, immense value can be created in a short amount of time.
Epilogue:
Why I Don’t Work In China
As a kid who emigrated to Canada with his parents fifteen years ago, I’ve always been fascinated by the story of China. Later as I grew up and worked in Silicon Valley, I continued to pay attention to the country, and even made a few industry connections there. I also speak the language and know the culture well. Given all that I’ve written for this three-part series on the technology landscape in China, it would make perfect sense for me to go work there. So why am I not doing it?
The short answer to that question is simply a personal one, which is that I like the life I have in North America. My friends are here, and my hobbies, my interests, the kind of environment I prefer are all here.
A more nuanced, longer version of that answer will inevitably lead me to discuss my thoughts on the kind of work environments in China, specifically in the technology sector.
Despite the innovation and excitement, China remains a difficult place for information-related work. While governments around the world are invading the privacy of their citizens, the situation in China is especially dire. Surveillance is pervasive and the party line is firm and ever-present. Articles and comments that are critical of the government do not see the light the day. Entrepreneurs, artists, and intellectuals who speak out on Weibo are removed from the platform or outright banned from media appearances.
For Chinese startups, the government is an inherent (and sometimes large) cost of doing business. Domestically, they need to cater to the request for surveillance and censorship. Internationally, they face resistance because of it. For Western companies that intend to adhere to their core values while operating in the country, there’s a constant moral struggle. Say what you want about Apple’s fight with the FBI, one thing is clear—Apple did not want to set a precedent for the Chinese government.
It’s easy to take the freedoms of the Western tech industry for granted. In China, anyone putting up a website, whether personal or corporate will need to register with the Ministry of Information for approval. More stringent rules on permissible content apply to games and apps, and approval is never guaranteed. The day-to-day reality of a tech worker in China is often stifling and frustrating.
For people interested in working in China, the question becomes: can you put up with all of that?
In 2005, Google’s answer to that question was that it can. It justified the censoring of Google.cn by thinking about the greater good it brought. It sought to push the needle on censorship throughout its five-year existence there. The Chinese government however, never backed down. In 2008, it instructed Google to censor the Chinese language version of its global site — Google.com. This is an outrageous request. It meant that not only was the Chinese government repressing its own domestic Internet, it aimed to spread that repression to all Chinese speakers in the world. When Google refused and continued its haphazard application of censorship, the government struck down with brute force. It hacked Google’s core intellectual property and the Gmail accounts of Chinese dissidents.
Google couldn’t stomach that and it lifted up the censorship in January 2010. Soon it was blocked and forced out of China. Back then many argued that Google’s move was an unwise one as China’s behavior over the next two to three decades is toward more openness. However, six years have passed, and the situation has not improved at all.
For anyone who’s interested in jumping into China’s tech scene as encouraged by Hugo Barra, this issue needs to be considered. I can’t say that I won’t ever work in China, but as it stands right now the answer is a no for me. While living in China is an otherwise interesting experience and the tech sector is definitely fascinating, the Chinese government remains a dark cloud looming above.
It might not rain at all, but if it does, be prepared to get wet.
Thanks to Peter Cho for reading drafts of this.
