Not that we like to dwell on “I told you so” situations, but Zeitgeist has been rambling on about the missed opportunities of WhatsApp – relative to its Asian counterparts like Line and WeChat – for at least a year now. The platform, owned by Facebook, has had a real opportunity to borrow a page from its analogous peers in the East, particularly with regard to B2C opportunities, for some time now. It was hugely gratifying therefore when last week it was announced that WhatsApp will allow businesses to send messages to users of the platform.
Whatappening in business
The Financial Times suggests example messages along the lines of “fraud alerts from banks and updates from airlines on delayed flights”. It’s about random companies sending you somewhat-tailored messages. Snore. The potential here is so much more monumental. Think of the potential for a fast-food service, or a news publisher (we said think; we’re not going to do all your work for you). What the platform won’t do is start serving banner ads in the app. Firstly because Facebook surely acknowledge what a horrendous impact this would have on UX; secondly because WhatsApp strongly pushes their e2e encryption feature.
Interestingly, the way this will work is that Facebook will get access to your phone number (if you haven’t succumbed to their pleas asking for it already). It will formalise the link between your old-school Facebook account and your not so-old-school-but-not-quite-Snapchat-either WhatsApp account, as suggested by New York magazine. Apparently Facebook will also be able to offer you friend suggestions. Whew, yeah because that’s a tool I really am concerned about and wish was more useful and efficient.
The potential we referred to earlier (we’re still not going to do all your work for you) is around chatbots. Chatbots and this new era for WhatsApp surely make sense. And people are clamouring for them. According to eMarketer’s data from May, nearly 50% of UK internet users say they would use a chatbot to obtain quick emergency answers if the option were available. About 4 in 10 also said they would use a chatbot to forward a question or request to an appropriate human.
Whatsappening in the rest of the world
But to say WhatsApp has been missing the boat in terms of additional data insight or revenue streams outside Western markets is a touch unfair. As the FT detailed at the beginning of the month,
“Whether you are in the market for a nicely fattened goat from the United Arab Emirates or freshly caught fish in the port of Mangalore in India, you can place your order on WhatsApp”
Indeed, it seems though outside Western markets the app is used in an entirely different way. Even within Europe there are differences. In Spain it is extremely common to make and receive calls over WhatsApp. In the UK, many a caller has been befuddled by my attempts to reach them via the platform. The likes of WhatsApp though are particularly crucial in emerging markets like India, where many citizens have never registered for and may never now register for an email address. If this sounds ludicrous, it means you’re old. It’s why the aforementioned pleas from Facebook for your phone number, why Twitter occasionally does screen takeovers when you open the app asking for it, and why in a recent project engagement I managed, we recommended a major international film and TV broadcasting company that they do the same for their own login feature. The data below for emerging markets shows the astounding reach WhatsApp has managed (and the foresight in its purchase by Zuck):
While Benedict Evans of Andreessen Horowitz says the platform has struggled to acquire new customers for businesses versus Facebook and Instagram, it undoubtedly has been successful in strengthening relationships with existing customers. This is fine in Zeitgeist’s eyes. Retention is cheaper than acquisition; if you create a good CX you don’t need to worry about getting new customers. The emphasis should be on engendering loyalty, not on scrambling to reach the newbies all the time.
WeChat’s inimitable template
At the start of the piece we mentioned China’s WeChat (or Weixin) messaging platform, of which Zeitgeist is a big fan. Others are too, which is why by some estimates it’s worth $80bn. One of the advantages inherent in both WeChat and WhatsApp is that users have naturally gravitated to these applications without the need for them to be incentivised or “walled garden”ed into such interaction. And such engagement doesn’t start before you’re old enough to even lift a mobile device, again, you’re too old. As The Economist detailed in a piece earlier this month,
“[Four year-old Yu Hui] uses a Mon Mon, an internet-connected device that links through the cloud to the WeChat app. The cuddly critter’s rotund belly disguises a microphone, which Yu Hui uses to send rambling updates and songs to her parents; it lights up when she gets an incoming message back”
For the child’s mother, WeChat has replaced such antiquated features as a voice plan, as well as email. The application also integrates features for business use that mimic that of Slack in the US. According to the article she even uses QR codes to scan business associate profiles more than she uses business cards. QR came a little late to Western markets and despite the intentions of agencies like Ogilvy in the 2010s, has failed to take off. Its owner, Tencent, has used its powerful brand and powerful authentication convince millions to part with their credit card details. The likes of Snapchat and WhatsApp have yet to make the convincing case for this. It is this crucial element that allows the father of said family to use the app for eCommerce, contactless payments in store, utility bills, splitting the bill at restaurants, paying for taxis, paying for food delivery, theatre tickets and hospital appointments, all within the WeChat ecosystem. It is then no surprise that a typical user interacts with the app at least ten times a day.
Although we mentioned no incentivisation has been necessary, a state-backed campaign last Chinese New Year saw a competition for millions of dollars in return for people vigorously shaking their handset during a TV show, the way to both have the app interact with a TV programme as well as the way for users to make new friends who are also users, according to The Economist, which reported that “punters did so 11 billion times during the show, with 810m shakes a minute recorded at one point”.
McKinsey reported last year that 15% of WeChat users have made a purchase through the platform; data from the same consulting firm this year shows that figure has now more than doubled, to 31%. Can such figures be replicated in the West? Time and culture have led to WeChat’s pervasive effectiveness and dominance. Just like QR codes have never taken off in the West, so SMS and email never took off in China, so there was never a competing platform to ween people off when it came to messaging. What some people had used was Tencent’s messaging platform QQ, the successor of which became WeChat. QQ contacts were easily transferable. Gift-giving idiosyncracies, leveraged and promoted with a big marketing push, as well as online games (from where over half of revenues derive) are both still nascent behaviours and territories for consumers and platforms, respectively, in the West.
It’s fascinating of course that none of these apps for a moment consider charging for voice calls; that would anachronistic and simply bizarre. With WhatsApp’s latest announcement, it takes a step in the right direction, opening up additional revenue streams while also trying to develop a more cohesive ecosystem for its user base. Whether users in Western markets will be comfortable with a consolidation of features on one platform – owned by a company that is viewed by some as already having consolidated too much data on them – is an open question, and surely the first hurdle to begin tackling.
UPDATE (30/9/16): While messaging platforms are great, there are other opportunities to consider too. Shazam, the app that was a godsend for Zeitgeist while at university wanting to know what song was playing in the club, has been around for a while. It’s impressive then that is has managed to double its user base in the past two years, continuing its expansion into TV content. Product placement in the US has helped, and Coca-Cola worked with them on a big campaign last year. The company is breaking even for the time since 2011. An interesting platform to consider, for the right partner…
“Any media company is a laboratory right now. There is no established way to do anything.” Thus spoke Adam Moss recently, in his role as editor in chief of New York magazine. The publication has altered its cadence and is expanding into the worlds of cable television and live events. His comment referred to print media but it might just as well have been applied to the entertainment industry at large.
The film industry, in particular, could benefit from more experimental, “agile” thinking and delivery. Over the weekend, The New York Times ran an article that was laden with anxiety over the state of cinema-going. As with all popular past-times that have been ingrained in our culture, we have a tendency not only to sentimentalise the activity but also to remove such activities from their contextual moorings. Going to the cinema has not been a consistent experience, as A.O. Scott sagely illustrates,
“The nickelodeons of the earliest days gave way to movie palaces, which were supplemented by humbler main-street Bijoux and Roxys. In the ’30s, the major home-entertainment platforms were radio and the upright piano in the parlor, and movies offered a cheap, accessible and climate-controlled escape. And millions of people went often, less out of reverence than out of habit, returning every week to take in double features, shorts and serials, newsreels and cartoons…
In the postwar years, the rise of car culture and the growth of the suburbs planted drive-ins in wide-open spaces, while grindhouses, art houses and campus film societies flourished in the cities and college towns. Moviegoing has never been just one thing.”
Much has been made of Sean “Napster and Facebook” Parker’s Screening Room initiative – offering newly released films at $50 for home viewing – that has very publicly split Hollywood in two. It has been referred to as “weaponised VOD“, in tones not dissimilar from those who worried about the end of cinema back when TV arrived on the scene. Such a technology, and more importantly such a way of consuming media, is hardly new. Millions of people have been watching films in this way (i.e. at home while the film sits in scarcity-inducing cinemas) for years, just without a legal way of doing it for the most part (shining exceptions include platforms like Curzon At Home).
The unfortunate trap this article falls into is to assume that any money spent on watching films using platforms such as the Screening Room platform is money necessarily lost by exhibitors. This thinking is overly simplistic and lacks any basis on quantitative data. It is the same argument made against those, referred to above, who pirate content. In reality, data from 2014 show that “people who illegally download movies also love going to the cinema and do not mind paying to watch films“.
Current industry inertia is not merely preventing new innovative consumer products and platforms from arriving, it is also hurting existing business models. While a sizeable minority of independent films are increasingly turning to day-and-date SVOD releases, they remain a minority, in an industry where risk is baked into multi-year franchises at $300m a go, but is nowhere to be found when considering if a film might need to be released in a tailored manner. Films showing up in such fashion look more often to be those that the studio don’t mind breaking even on, rather than a film that might hit home with a demographic who would be more likely to pay a premium to stream it from home. Last week, The New Yorker wrote about the antiquated distribution strategy of “limited” and “wide” release. This is where cinema can play a proactive role: in supporting independent cinema
“Because there’s no comparable venue now, far fewer independent films get proper releases; some of the best of the past few years… are still awaiting release.”
The article points out that such definitions of release, in an era of instantly available content, is not only anachronistic but harmful to films.
There are thus several opportunities for new revenue streams to be explored in the film industry. These can be adopted with a more experimental attitude toward distributing films; the kind of attitude that gave birth to the industry in the first place. It also requires that some of the risk of potentially destabilising tentpole film franchises be redirected into exploring the potential of films to reach a much, much wider audience.
On the face of it, organisations around the world seem – to borrow a phrase from last year’s Bond film Spectre – like “a kite dancing in a hurricane” as they try to counter the creative destruction that is being wreaked on them by new customer trends, sales channels and competing entrants, facilitated by digital.
In February, McKinsey published a podcast entitled Achieving a Digital State of Mind, saying that digital profoundly impacted “business models, customer journeys, and organizational agility”. That same month, Boston Consulting Group, another consultancy, upped the ante. For those lost at sea in a world of hashtags and start-ups, BCG offered Navigating a World of Digital Disruption. In it they continue the naval navigation analogy, warning of the impending third – and most destructive – wave of digital disruption about to hit, with “profound implications not only for strategy but also for the structures of companies and industries”.
So what to make of news in The Economist this week that indirectly shows the rather pathetic impact – not to mention particularly calm seas – of all this disruption? While stories of Uber disrupting Luddite taxi firms around the world are commonplace, The Economist reports that things are only getting better for the successful legacy companies at the top: “A very profitable American firm has an 80% chance of being that way ten years later. In the 1990s the odds were only about 50%”. How to account for increased chances of long-term, consistent success in a world where your USP and customer base are stolen from right under your nose by a newer, nimbler, digital doppelganger, supposedly the moment you turn your back? The article continues:
Unfortunately the signs are that incumbent firms are becoming more entrenched, not less. Microsoft is making double the profits it did when antitrust regulators targeted the software firm in 2000.
The Economist reasons that increasingly concentrated ownership, coupled with an onerous regulatory environment, are to blame. It is sad to see that while digital takes on work cultures, shapes strategy and provides new opportunities, it cannot compete with themes as old as business itself: monopolies and red tape.
In the course of history, many smart people have been scared by the rapid progression of technology and its impact on the way we live. Forget the printing press; Socrates was concerned that even the technology of recording via written documents (i.e. writing) would “create forgetfulness in the learners’ souls, because they will not use their memories”. One need only look at the graphic above, representing swings in market share for tech titans, to see significant change in just the past 35 years.
January has been a difficult month for the stock market, with share prices around the world taking a tumble. A lot of the liquidity in the market rests on the valuation of a growing number of technology firms, whose route to profitability varies wildly. The oft-written about “Unicorns” are seemingly due for some market correction – no bad thing for the tech sector – but what about the bastions of the industry, how are they looking?
Twitter – The firm would have breathed a sigh of relief at the end of last year, when original co-founder Jack Dorsey committed to returning to the company. There were promising sounds at first, but recently it has been mulling a move away from the 140-character limit that defines its modus operandi. It has the potential, according to Forrester, to repackage such long-form fare in the mode of Facebook’s Instant Articles. But attempting to emulate what has already been done cannot hold any hope for actually catching up with its rival. An article in The New Yorker this week derides the social network, calling out its lack of direction, and questioning its relevance in a growing pool of competitors. Twitter’s US penetration has been flat for the past three quarters, and Snapchat is nipping at its heels in terms of engagement. While overall Twitter is seeing steady growth, it’s rate of growth continues to decline
Facebook – By contrast, Facebook is doing well, particularly concerning its financial performance. Its increasing collaboration with telcos as it explores new revenue opportunities pave the way for sizeable rewards in the medium term. And it is slowly learning from the likes of WeChat and Kakao Talk in Asian markets on how to better integrate various functionality into its Messenger app; it’s first foray is working with Uber to allow users to hire a car without leaving Messenger. (This week Whatsapp also begun to get the message, no pun intended). We commented in our last article about how the social network is fast having to adapt to an ageing user base and lower engagement, but Facebook is attempting to combat such trends with numerous tactics. Sadly, its attempt to provide free internet services in developing markets has run into obstacles. In both Egypt and India, government regulators have interceded to stop the network from running its Free Basics service, under the guise of net neutrality (which in our opinion stretches the definition, and the spirit, of net neutrality).
Yahoo – The troubles for this company are more than we can summarise in this short review. Let it suffice to say that Marissa Mayer’s wunderkind sheen has been significantly tarnished since her arrival at the company in 2012. In an editorial in the Financial Times last month, the company was described as a “blur of services and assets of different values”. As her inescapably significant role in the organisation’s lacklustre performance becomes increasingly apparent – hedge fund Starboard Value has issued an ultimatum for her to either leave peacefully or be replaced by shareholder vote come March – reports are that Mayer will have to lay off around 10% of the company. The FT puts it well,
[R]ather like AOL, it is considered a service stuck in internet dark ages. It is what grandma uses to look up the weather. It is not for Snapchatting teenagers. And it is not what investors crave most of all: the prospect of growth.
Amazon – Until this week the company had been faring extremely well, and its most recent concern was not getting investors too excited about its recent profit announcement. And while it’s reporting this week of a 26% YoY rise in sales was welcome, its fourth-quarter profits of $482m were one-third lower than what Wall Street analysts were expecting; the stock plunged 13% as a result. The disparity between rising sales and profits that don’t align to such a rise are nothing new for the company, unfortunately.
Holistic sector frailty – Two excellent articles in The Economist this month reveal a sector that is experiencing growing pains as the current digital era reaches a period of relative maturity. As the hype dies down, what hath such new ways of thinking, making and working wrought? The first article examines the seemingly glamorous role of a techie working in a startup firm, and the pitfalls that come with it. The article reports that “Only 19% of tech employees said they were happy in their jobs and only 17% said they felt valued in their work”. In looking at the explosion of demand for the inadequately named Hoverboard, the second article identifies that globalisation has vastly sped up a product’s journey from conception to delivery at a consumer’s home, at the expense of a proper regulatory system; it is unclear with so many disintermediated players who should shoulder the burden of quality control. The Economist sees such risk as a parable for the tricky place the sector as a whole finds itself in.
It’s sequel season. While the Mission: Impossible franchise looked set to continue unabated – with, in Zeitgeist’s opinion, a superb Rogue Nation – others were not so fortunate. The revival of the Fantastic Four franchise by Fox saw far less solid returns and though it publicly remains committed to the franchise, it does have several directions it can now go, according to The Hollywood Reporter.
Two of this year’s – and of all time – uber-franchises are of course Star Wars and James Bond. Slated for release at the end of the year (December and November, respectively), trailers for the films are already out in the wild; the Star Wars second trailer set a Guinness World Record. Incidentally, both franchises have made a home out of Pinewood studios in the UK, where a mix of highly-skilled labour and tax incentives are a potent attraction. Both franchises, with roots going back decades, will look to exploit a popular desire for nostalgia that is also playing out in television with the arrival of reboots like Twin Peaks and The X-Files. Recently, however, both franchises have faced existential questions; one over how to promote a film that for many already has high awareness, while managing equally high expectations; the second over ownership.
How to market Star Wars?
Last month’s Comic-Con, a densely-packed meeting place for mega-nerd and studio exec alike, would have been, one would think, a superb place for some exclusive footage, interviews or other filmic crumbs from the Star Wars reboot to be shared to the salivating masses. However, as The New York Times reported, the presence of Star Wars: The Force Awakens was “strangely invisible”, while films as far away as 2017 adorned many a banner or trolley cart. It was not until the end of the week that J. J. Abrams emerged, refusing to divulge any plot details. Much as with knowing the ideal time to start the promotional blitz so that a film remains in an Academy voter’s mind come Oscar voting time, Disney does not want to risk creating excitement in the marketplace too soon, only to have such buzz die down by the time the film is released. Eagle-eyed fans will also be on the lookout for the equivalent of a Jar-Jar Binks in this franchise, something that will immediately turn them off. These fans don’t want to be left out in the cold either, as they very much felt they were when George Lucas tinkered with the original trilogy to add new digital elements (i.e. “Why was I not consulted?”).
Disney have played this long game before. Five years ago we wrote about the careful marketing activity behind the sequel to Tron – another franchise with a long history and a rabid fan base that formed part of a nerd’s cultural pantheon. All in all, the marketing activity spanned three and a half years. Adding to the difficulty of the long lead time is the industry’s second biggest market, China, where Star Wars was never theatrically released. Different tactics for raising awareness might be needed here, but in full knowledge that any materials will quickly make their way online and around the world.
Until now, prominent activity has been otherwise limited to a Vanity Fair cover article and a Secret Cinema screening of Empire Strikes Back that has had most of London’s 20-30somethings raving all summer. It will be difficult to gauge how much or little the marketing activity has to do with the latest iteration of such a powerful icon of culture and film; Disney must do its best to ensure its fans are kept happy but craving until December.
Skyfall, released in 2012, was Bond’s most successful offering to date. But this year’s outing, Spectre, will be the last before a deal ends between Sony Pictures and MGM / EON, the latter being the rights owners, who plan to shop distribution rights to a different studio. This would be a significant hit to the brand equity of a studio that has seen too few box office successes of late, arguably too many Spider-Man reboots, and the too-sorry tale of a cyberattack that exposed painfully frank emails, budgets, and salaries. Its stable of franchises is low compared to its peers; Universal finds itself with a newly-rejuvenated cash cow in the form of Jurassic World; Warner Brothers has its DC Comics franchise.
Outside of the brand though, the financial impact could be limited. While Sony had a 50% equity stake in Casino Royale and Quantum of Solace, according to the FT this was reduced to 20% for Skyfall and Spectre. “While it’s a good piece of business the financial upside or downside is not significant on either end”, a person close to the studio told the paper.
Likely suitors look to be 21st Century Fox – which has enjoyed a long relationship with MGM as its home entertainment distribution partner for a decade – or Warners, which distributed MGM’s Hobbit trilogy. Furthermore, the FT reports that “Kevin Tsujihara, the Warner Bros chairman, is a close friend of Gary Barber, his opposite number at MGM. The two have invested in several racehorses together, including Comma to the Top, which they bought for $22,000 and which had career earnings of more than $1.3m”. As with all things, timing will be everything as MGM ponders an IPO, which might see a higher valuation with a new studio deal in the offing.
“In the 1950s… 80 per cent of the audience was lost. Studios tried many ways to win back this audience, including new technologies such as Cinerama, but none of these worked. What did work was to view the entire business as basically an intellectual properties business where they optimised on as many platforms as possible. That’s the business today.”
– Ed Epstein
Strategy is something that this blog has in the past accused the film industry of lacking, particularly when it comes to issues of development (over-leveraging risk with expensive tentpoles) and distribution (a lack of progressive thinking when it comes to day-and-date openings across platforms). This piece takes a look at how, in some areas, there are kernels of hope for the industry, as well as some specific areas that are ripe for improvement.
Given our initial contention, It was refreshing to discover this gem of an illustration (see top image) from none other than Walt Disney himself that was recently recovered from the archives, according to Harvard Business Review, showing “a central film asset that in very precise ways infuses value into and is in turn supported by an array of related entertainment assets”; all that’s missing is the strategic goal. Such forethought, of complementary assets combining to drive value, is arguably a symptom of the much-ballyhoed “synergy” and convergence the industry has undergone over the past ten to fifteen years; here was Walt writing about in 1957. The HBR article contends that it is not just synergy that is important, but in identifying those areas where you possess “unique synergy”. Disney’s current state, with Pixar, Marvel and Lucasfilm as content production houses, is an impressive pursuit of such a unique synergy, helped in no small part by having the impressive Bob Iger at the helm. The recent announcement of a Han Solo origin story, with the pair behind 21 Jump Street attached to direct, would have been to music to many a filmgoer’s ears. Unfortunately, the danger of undue risk from arranging a surfeit of tentpole releases remains, and is unlikely to be challenged while films such as Tomorrowland tank and Jurassic World soar. A brilliant piece on the evolution of the summer blockbuster, featured in the Financial Times recently, can be found here.
The film industry in China is a subject we last wrote about around a year ago. It’s a booming scene out there (last year China added as many screens as there are in all of France), which despite a quota on foreign film has proved enormously profitable to Hollywood. And while some films have had to seek opaque deals that ensure the inclusion of Chinese settings and talent in order to get the thumbs up for exhibition in China – e.g. the latest iteration of Transformers – others pay scant attention to such cultural pandering, and meet with similar success. In June, the Financial Times wrote that Furious 7 had no Chinese elements, but still managed to break “all-time box-office records since its release in China in April, taking in almost $390m”. Importantly, the figure beat the US’s taking of $348m. China is due to be the largest movie market in the world in less than three years. As we have written before, part of this is due to the cultural interest in moviegoing; people will see pretty much anything in China while the experience is still new and tantalising. While good for revenues, it does imply that content produced will be increasingly skewed – at least for a while – to lowest common denominator viewing that titillates rather than stimulates. The sheer volume of takings for such fare is ominous; of the fastest films ever to reach $1bn globally at the box office, three are from this year. China has played no small role in this development.
However, all is not as rosy as it could be. Traditional players in the industry are wary of new entrants. Domestic companies Baidu, Alibaba and Tencent, YoukuTudou and Leshi have either partnered with studios for exclusive distribution deals over online platforms – irking the exhibitors – or simply investing in developing their own studios and content production. The FT writes, “[c]ollectively, these internet firms co-produced or directly invested in 15 films in 2014, which earned more than Rmb6bn ($965m) at the box office last year – a fifth of total receipts… Industry participants worry that these internet giants may soon seek to cut them out of the equation altogether“.
How to respond to such disruption? Well, they might for a start take a step up in their customer engagement management, from developing more complex segmentation to encouraging retention, whether it be to a particular studio or a particular cinema. At a simple level, this might mean things like not revealing the twists of films in the trailer. At a more complex level, it might involve working with social networks, perhaps even some of the very ones otherwise considered as competitors, listed above, to gain Big Data insights that can better inform messaging, targeting and identification of high-value users. Earlier this year, Deloitte worked with Facebook to produce a piece of thought leadership that looked to do just that, helping telcos with what was defined as “moment-based”, dynamic segmentation, with initial work and hypothesis from Deloitte and their Mobile Consumer Survey correlated against Facebook’s data trove. Using different messages over innovative channels, for example on WeChat, would also likely prove fruitful. Luxury brands, long the laggards in digital strategy, have recently been making headway in customer engagement via such methods. Looking further ahead, they might also consider how their “unique synergy” will be positioned for future consumer trends. The Internet of Things is set to fundamentally change the way we go about our lives, including the relationship businesses have with their customers. How will it impact movie-going and people’s relationship with the cinema? For all the global talk on the impact of such devices, the film industry has yet to develop any coherent thinking on it. One bright area is the subject we mentioned at the beginning of our article; collapsing release windows. Paramount announced earlier this month they have reached an agreement with two prominent US exhibitor chains, Cineplex and AMC, to “reduce the period of time that movies play exclusively in theaters” to just 17 days for two specific films, according to The Wrap. It’s not clear what financial (or otherwise) incentives the theater chains received for such a deal.
So while the threat of disruption is ever-present – as it is for so many industries around the world right now – there are ample opportunities for studios and exhibitors to up their game, through better targeting, better communication, better distribution deals, and, just maybe, better product.
It is said that imitation is the sincerest form of flattery. If true, it should follow then that China are huge fans of most consumer electronics brands. We’ve written before about threats to intellectual property. The impact of such imitators is most keenly felt by the end user, and can be mixed. In India, back in 2011, counterfeit DVDs of The Dark Knight sold for over $600 a pop. In China, where a limited embargo on foreign films exists, scarcity has spurred innovation, leading to grey-market DVDs with more special features for viewers to enjoy.
Such innovation still flouts the law, however, and is nothing new. In his book A History of Future Cities, Daniel Brook writes in detail of the Westernisation of Shanghai at the end of the 19th century:
“As early as 1863, the British food company, Lea & Perrins, was taking out ads in the North China Herald to warn Shanghai consumers of ‘spurious imitations of their celebrated Worcestershire sauce [with] labels closely resembling those of the genuine Sauce’ and threatening lawsuits against anyone who dared to manufacture or sell the knockoff product”
Today, China still struggles to build powerful brands that work outside the country as well as they perform domestically. An editorial earlier this week in the Financial Times confirmed this status, with a focus on handset manufacturer Xiaomi. The editorial rightly points out Xiaomi have made good attempts at brand cultivation, including a strong social media following that cultivates a sense of belonging that results in people attending new product releases in the same uniform and plush toys (see header photo). More could be done though. Ultimately the brand can be as glitzy as you want, but without an exciting business beneath, generating excitement will be hard: “It is a sound business, but not an innovative one”. Its product specs borrow from Samsung, its product design and launch motif from Apple, albeit with some mildly diverting software additions of there own, such as a way to navigate automated phone systems.
The risk of failure in markets outside of China has potentially been heightened by the centrally planned market environment present there, which rewards and protects national incumbents while doing its best to hinder new, foreign entrants. A domestic market with over a billion people is not a bad starting place, but as the FT concludes, “If Chinese brands are going to take on their rivals around the world, they need to dazzle us with something we have never seen before, much like Sony did with its life-altering Walkman“. Sony though will feel keenly that such dazzlers do not a sustainable competitive advantage make.