Five for Friday | 五日(星期五)

Things that made my day this week:

Want to know what all the fuss is about with regards WeChat? Vivienne Wei put together this great (if unstructured) video about how WeChat is the swiss army knife of apps in China. Check it out

Carl Jr is a casual eating restaurant chain in the US. It is owned by the same people who won Hardee’s. Carl Jr is known for producing frat boy / brogrammer-friendly adverts like these

Wiser heads seem to have prevailed in the marketing department, so they came up with this ad to press reset using humour rather than the indignation of political correctness

Vice and New Balance have put together a documentary on the Japanese adoption of the footwork sub-culture. Japan has a history of adopting a subculture (like dancehall) and elevating it. Chicago’s footwork skills look like they are getting the same treatment

The King of Monster Island Godzilla is back in an anime film. The plot looks like Avatar – humans coming to wipe out planet for commercial / political benefits. Of course all of that plan will go to shit when they find out the inhabitants aren’t lanky blue people but the original kaiju bad boy and friends.

I got to see Baby Driver. It is a curious mashup of

  • 1980s style films popularised by John Hughes
  • 1990s to the present day gritty heist films

The iPod makes a come back in the film in a spectacular way, expect a minor cultural backlash against ‘radio’ as music service currently popular. Personally curated, shareable music and physical artefacts come to the fore. (Though I still can’t see young men proudly carrying rhinestone encrusted pink iPods just yet).

I watched Apple WWDC so you didn’t have to

There was a mix of hardware and software updates. Apple put a lot of focus on  virtual reality, augmented reality and prepping their operating systems for handling larger amounts of data.  There was work done to further optimise video and photo usage on device.

The event offered bad news for online advertisers and a number of consumer electronics manufacturers. Online advertising using retargeting or autoplay video is going to be blocked in Safari. The new HomePod speaker took aim at ‘casual hi-fi’ like Sonos, Bowers & Wilkins and Bose.

Apple is working very hard to try and understand user intent, which is one of the first pieces it needs to put in place to develop the experience of a truly programmable world. What do I mean by a programmable world? A ‘web of no web’ where device intelligence behaves as if it understands user intent like a good valet. It is moving in a stepwise manner towards this.

What was more surprising is how Apple has gone big on VR and AR creation and consumption. Whilst video post-production houses probably have the most to complain about when it comes to Apple’s Pro equipment, they are not name checked. Apple has started to move to address their concerns. The external graphics support in macOS implies that a furture Mac Pro will have the software to match hardware.

More details by platform:

macOS

The name High Sierra implied an OS update that might seem incremental to consumers, but has major technology changes under the hood.

  • Data – Apple File System as default (many features similar to Sun Microsystems’ ZFS). Faster for file swaps and giving a faster computer experience
  • Video – better quality video algorithms with smaller file sizes and integration with
  • Graphics – upgraded Metal API – Apple had been using it on machine learning applications within the OS. Metal 2 has been used to accelerate system level graphics and provides access to app developers. There is OS support for external graphics accelerators. The external graphics developer kit is based on AMD Radeon card.
  • MacOS supports VR through Metal for VR. Steam, Unity and Unreal supporting VR on the Mac. Apple seems to believe that VR and AR content is the desktop publishing of the 21st century, they have gone hard on making the best creators platform that they can
Safari
Focus on being the fastest browser experience, even in comparison to Chrome
  • Autoplay blocking – which will impact advertising network video views
  • Intelligent tracking prevention – positioned to target advertising retargeting and cross-site tracking
Mail
Productivity refinements including a split screen view
Photos
  • Uses machine learning to improve searching and photo recognition and integration with photo-editing

tvOS

  • 50 media partners integrated into TV app
  • Amazon is coming to Apple TV. Interesting move of detente between Apple and Amazon

iOS

iOS 11 – focus on underlying technologies:
  • Machine learning APIs – to help adoption of CoreML on device for third party apps
  • ARKit – to aid AR in apps. Clever work done on scaling and ambient light. This about providing a market for the content which which would be created on the Mac
  • Chinese specific features: including support for QRcodes, SMS spam filtering. Chinese users have a particular set of contexts and these innovations could become popular in the west
  • Interface tweaks in control centre and the lock screen.
Messages
  • Improving discoverability of app stickers and apps – much needed
  • Automatic synchronisation of Messages across devices, delete once, delete across all devices
ApplePay
  • Person-to-person payments as an iMessage app. Obvious competitor would be WeChat in China and PayPal in the west
Siri
  • Improved expressive nature of the voice.
  • Follow-up questions, presumably to improve context
  • Provides translation services
  • Siri integration into a wide range of apps including WeChat and OmniFocus They’ve tried to use on-device learning to try and improve context and being helpful. Siri knowledge is synched across devices. Uses web history to improve Apple News and custom dictionary spellings
Apple Maps
  • Indoor navigation for airports
Photos
  • Better image compression to save space on device. New depth API that can be accessed by 3rd party apps
  • Video autorotates a la Snapchat / Snap glasses
App Store
  • Apps now reviewed in less than 24 hours
  • First app redesign in nine years. Tweaks to improve discoverability and merchandising of apps including in-app sales
 watchOS
  • The biggest feature in watchOS 4 is the Siri-powered face. The Siri-powered watch face provides contextual information on the ‘home screen’. It takes into account past habits, time, location etc. Apple’s language around this was interesting, they described it as an ‘Intelligent proactive assistant’.

More details by hardware

Mac hardware
  • iMac – improved displays, brighter and support for 1 billion colours. Moving to Kaby Lake Intel processors. Up to 64GB of RAM on the iMac and 2TB SSD. Discrete Radeon graphics cards on larger iMacs. – big focus on VR development.
  • MacBook – Kaby Lake processors. Pro machines get updated graphics as well. The MacBook Air gets a processor boost.
  • iMac Pro – single piece machine with workstation specification including 10Gbit Ethernet. Presumably as an interim measure until the Mac Pro arrives next year. How upgradeable would the iMac Pro be, which is a key consideration for workstations
iPad hardware
  • iPad Pro – 20% bigger screen, 120Hz screen refresh rate. Doubling default memory sizes up to 512GB
 
Apple HomePod
Apple is going after Sonos and brown goods companies like Bose, Bowers & Wilkins and Bang & Olufsen. The Siri functionality is a hygiene factor rather than a serious competitor to Amazon Echo. There was a big emphasis on the privacy functionality of Siri in HomePod
Further reading

WWDC 2015: you know the Apple news, but what does it mean?
48 hours with the Apple Watch
Eight trends for the future: web-of-no-web
Eight trends for the future: contextual technology

Jargon watch: black technology (黑科技)

An all-compassing phrase that I’ve heard being used by Chinese friends Hēi kējì in Pinyin or black technology. It’s been around for a couple of years but recently gained more currency among people that I know.

Microsoft Hololens 💥

It is used as a catchall for disruptive / cool innovative products. What constitutes ‘black technology’ is subjective in nature but generally Chinese would agree on some examples such as:

  • Magic Leap
  • Microsoft Holo Lens
  • Bleeding edge silicon chips with an extraordinary amount of memory or machine learning functionality built in
  • Tesla self-driving cars

The key aspect is that the product as ‘magical quality’ in the eyes of the user. Technology companies have tried to use it in marketing to describe the latest smartphone and app features like NFC, gesture sensitive cameras and video filters. Your average Chinese consumer would see this as cynical marketing hype. Xiaomi had been guilty of this over the past couple of years.

As technology develops, the bar for what represents black technology will be raised higher.

According to Baidu Baike (a Quora-like Q&A service / Wikipedia analogue) it is derived from the Japanese manga Full Metal Panic! (フルメタル·パニック! |Furumetaru Panikku!).

In the manga black technology is technology far more advanced than the real world. An example of this would be ‘Electronic Conceal System’ – active optical camouflage used on military helicopters and planes in the manga. It is created by the ‘Whispered’ – people who are extremely gifted polymaths who each specialise in a particular black technology.

In the manga they are frequently abducted and have their abilities tested by ‘bad organisations’ who support terrorism. Whispered also have a telepathic ability to communicate with each other. If they stay connected for too long there can be a risk of their personalities coalescing together.

More information
黑科技 (动漫中出现的词语)- Baidu Baike
Full Metal Panic – Amazon

The crowdfunded product problem with PopSlate as an unfortunate case study

I’ve go in involved in a few crowdfunded products and some of them have worked out but the majority haven’t. The latest example was the high profile e-ink phone cover PopSlate. PopSlate got over $1 million dollars of funding and was widely covered by the media.

“popSLATE 2 is E-Ink for your iPhone done right.” – Slashgear

“It’s an evolution, not merely refinement.” – Wired

Generally I’ve found that they tend to fail for three (non-criminal) reasons:

  • They underestimated the cost or complexity for batch manufacture of items. They have problems with getting tooling moulds to work and have to go through iterations that burn up cash
  • They get gazzumped; their product is sufficiently easy to make that Chinese manufacturers who go through Indiegogo and Kickstarter for ideas get the product into market faster
  • The engineering is just too hard. This seems to have been the problem for PopSlate who couldn’t innovate and get their product into market as fast as new phones came out

On the face of it its a great idea, bringing the kind of dual screen technology to the iPhone that had been in the Yota phone for a number of years. Huawei had a similar snap-on e-ink back available for the the P9 handset in limited quantities.

popSLATE – The smart second screen on the back of your phone

PopSlate had already launched a mark I version of their product.  With the mark II version of their product PopSlate tried to do too much: they tried to make it a battery case but still ridiculously thin.  The following email was sent out on Saturday morning UK time:

Critical Company Update

This update provides serious and unwelcome news.

Based upon your support, we have spent the last year continuing to develop our vision for “always-on” mobile solutions. Our goal was to solve three fundamental issues with today’s smartphones: we wanted to simplify access to information, increase battery performance, and improve readability. Unfortunately, the significant development hurdles that we have encountered have completely depleted our finances, and we have been unable to raise additional funds in the current market. As a result, popSLATE does not have a viable business path forward.

This marks the end of a 5-year journey for our team, which started with a seed of an idea in 2012 and led to our quitting our jobs to start the company. Although we are very disappointed by the ultimate outcome and its implications for you as our backers, we are proud of our team, who worked tirelessly over the years to commercialize the first plastic ePaper display, globally ship thousands of popSLATE 1 devices as a first-in-category product, and re-imagine & further extend the platform with the second generation product. Despite a strong vision, high hopes, and very hard work, we find ourselves at the end of the journey.

We are out of money at this juncture for two key reasons. First, we have spent heavily into extensive development and preparation for manufacturing;  as you are aware, we hit some critical issues that multiplied the required spend, as described in previous updates.

Most recently, we learned that the fix for the Apple OTA issues would involve more significant redesign. While we initially suspected that the Lightning circuit was the culprit, it turned out that it was a much more fundamental issue.  Namely, our housing material is not compatible with Apple OTA requirements. You may think, “Wait, isn’t it just plastic?  Why would that be a problem?” While the housing is indeed largely plastic, we used a very special custom blend of materials that included glass fibers. The glass fibers were used to solve two issues, both of which were related to making the device super-thin: a) they enabled uniform, non-distortional cooling of the housing mold around our metal stiffener plate (the key component that makes popSLATE 2 thin but very strong) and b) they added tensile strength to the very compact form factor. Unfortunately, we have concluded that these added fibers are attenuating the RF signal and that we would have to spend additional cycles to tune a new blend with required modifications to the tooling. This is an expensive and timely process.

Second, we have been unsuccessful at raising additional financing, despite having vigorously pursued all available avenues since the close of our March Indiegogo campaign (including angels, VCs, Shark Tank and equity crowdfunding, both in the US and abroad). Many in our network of fellow hardware innovators have encountered this difficult new reality. You may have also seen the very public financial struggles of big-name consumer hardware companies—GoPro, Fitbit, Pebble, Nest and others—as highlighted in this recent New York Times article [link]. The most dramatic example of this phenomenon is the recent and sudden shutting down of Pebble, paragon of past crowdfunding success.

There is no way to sugarcoat what this all means:

  • popSLATE has entered into the legal process for dissolution of the company
  • Your popSLATE 2 will not be fulfilled
  • There is no money available for refunds
  • This will be our final update

While this is a very tough moment professionally and emotionally for us, it is obviously extremely disappointing for all of you who had believed in the popSLATE vision. Many of you have been with us since the March campaign, and a smaller set helped found the popSLATE community back in 2012. To you—our family, friends, and other unwavering backers—we are incredibly grateful for your enthusiasm, ideas, and support throughout the years. Just as importantly,  we deeply regret letting you down and not being able to deliver on our promise to you. We truly wish there were a viable path forward for product fulfillment and the broader popSLATE vision, but sadly we have exhausted all available options.

Sincerely yours,
Yashar & Greg
Co-founders, popSLATE

The problem as a consumer you have for much of these gadget is this:

If a product can be easily made in Shenzhen, it will be so you should be able to get it cheaper on lightinthebox or similar sites

If it can’t be turned out in a reasonable time, it has a low likelihood of succeeding

There have been successes of more hobby based products; I have a replica of Roland’s TB-303 synthesiser. It’s the kind of product that can be assembled whilst not relying a China-based supply chain. It also is based on well understood technology and there weren’t issues of with designing for very tight places or Apple’s requirements (in the case of iPhone’s accessories).

What about the poster child of Pebble? Pebble managed to go for longer with a sophisticated product but couldn’t withstand the gravity of declining sales in the wearables sector.

Jargon watch: 996

As with many things in China, numbers become important. Chinese start-up culture has a reputation for flogging the guts out of people to a degree that would even make Sports Direct blush.

996 is a summary of many Chinese tech companies core working house 9am – 9pm, six days a week. Apparently it’s already implemented at companies like Xiaomi and there are claims about its spectacular benefits in terms of productivity.

9/9/6 – Does The New Chinese Startup Work Practice Help Or Hurt Productivity? – TechNode

Have we reached peak streetwear?

At the end of January I wrote a blog post about the landmark collection by Louis Vuitton and Supreme.

I delved into the history of streetwear and the deep connection it shared with luxury brands. This linkage came from counterfeit products, brand and design language appropriation.

This all came from a place of individuality and self expression of the wearer.

obey

I reposted it from my blog on to LinkedIn. I got a comment from a friend of mine which percolated some of the ideas I’d been thinking about. The comment crystalised some of my fears as a long-time streetwear aficionado.

This is from Andy Jephson who works as a director for consumer brand agency Exposure:

The roots of street and lux that you point to seem to be all about individuality and self expression and for me this is what many modern collabs are missing. To me they seem to be about ostentatious showmanship. I love a collaboration that sees partners sharing their expertise and craft to create something original. The current obsession with creating hype however is creating a badging culture that produces products that could have been made in one of the knock-off factories that you mention. Some collabs that just produce new colourways and hybrid styles can be amazing, reflecting the interests of their audience. But far too many seem gratuitous and are completely unobtainable for the brand fans on one side of the collaborative partnership.

The streetwear business is mad money

From Stüssy in 1980, streetwear has grown into a multi-billion dollar global industry. Streetwear sales are worth more than 75 billion dollars per year.

By comparison the UK government spent about 44.1 billion on defence in 2016. Streetwear sales are more than three times the estimated market value of Snap Inc. Snap Inc., is the owner of Snapchat.

Rise of Streetwear

It is still about one third the size of the luxury industry. Streetwear accounts for the majority of menswear stocked in luxury department stores. Harvey Nichols claimed that 63% of the their contemporary menswear was streetwear. Many luxury brands off-the-peg men’s items blur the boundary between luxe and streetwear.

The industry has spawned some technology start-ups acting as niche secondary markets including:

  • Kixify
  • K’LEKT
  • THRONE
  • StockX
  • SneakerDon
  • GOAT

Large parts of the streetwear industry has become lazy and mercenary. You can see this in:

  • The attention to detail and quality of product isn’t what it used to be. I have vintage Stüssy pieces that are very well-made. I can’t say the same of many newer streetwear brands
  • Colour-ways just for the sake of it. I think Nike’s Jordan brand is a key offender. Because it has continually expands numbers of derivative designs and combinations. New Balance* have lost much of their mojo. Especially when you look at the product their Super Team 33 in Maine came up with over the years. The fish, fanzine or the element packs were both strong creative offerings. By comparison recent collections felt weak
  • The trivial nature of some of the collaborations. This week Supreme sold branded Metro Cards for the New York subway
  • Streetwear brands that sold out to fast moving consumer products. This diluted their own brand values. While working in Hong Kong, I did a Neighborhood Coke Zero collaboration. The idea which had some tie-in to local cycling culture and nightscape. Aape – the second-brand of BAPE did a deal wrapping Pepsi cans in the iconic camouflage

Hong Kong brand Chocoolate did three questionable collaborations over the past 18 months:

  • Vitaminwater
  • Nissin (instant noodles)
  • Dreyer’s (ice cream)

By comparison, Stüssy has a reputation in the industry for careful business management. The idea was to never become too big, too fast. The Sinatra family kept up quality and selective distribution seeing off Mossimo, FUBU and Triple Five Soul. Yes, they’ve done collaborations, but they were canny compared to newer brands:

“The business has grown in a crazy way the past couple of years,” says Sinatra. “We reluctantly did over $50 million last year.”

Reluctant because, according to Sinatra, the company is currently trying to cut back and stay small. “It was probably one of our biggest years ever — and it was an accident.”

Sinatra characterises Stüssy’s third act as having a “brand-first, revenue second” philosophy, in order to avoid becoming “this big monstrosity that doesn’t stand for anything.”

The Evolution of Streetwear. The newfound reality of Streetwear and its luxury-like management academic study uncovered careful brand custodianship.

It’s not clothing; it’s an asset class

Part of the bubble feel within the streetwear industry is due to customer behaviour. For many people, street wear is no longer a wardrobe staple. Instead it becomes an alternative investment instrument. Supreme items and tier zero Nike releases are resold for profit like a day trader on the stock market.

Many of the start-ups supported by the community play to this ‘day trader’ archetype. It is only a matter of time for the likes of Bonham’s and Sotherby’s get in on the act.

A key problem with the market is that trainers aren’t like a Swiss watch or a classic car. They become unusable in less than a decade as the soles degrade and adhesive breaks down.

There is the apocryphal story of a Wall Street stock broker getting out before the great stock market crash. The indicator to pull his money out was a taxi driver or a shoe shine boy giving stock tips.

Streetwear is at a similar stage with school-age teenagers dealing must-have items as a business. What would a reset look like in the streetwear industry? What would be the knock-on effect for the luxury sector?

More information
USA Streetwear Market Research Report 2015 | WeConnectFashion
Louis Vuitton, Supreme and the tangled relationship between streetwear and luxury brands | renaissance chambara
New Balance Super Team 33 – Elements Collection | High Snobriety
New Balance ST33 – The Fanzine Collection | High Snobriety
1400 Super Team 33 (ST33) trio | New Balance blog – the infamous fish pack
How Stüssy Became a $50 Million Global Streetwear Brand Without Selling Out | BoF (Business of Fashion)
The Evolution of Streetwear. The newfound reality of Streetwear and its luxury-like management by de Macedo & Machado, Universidade Católica Portuguesa (2015) – PDF

* in the interest of full disclosure, New Balance is a former client.

Oprah Time: reading over Chinese New Year

I have managed to catch up on a lot of reading over the Lunar New Year festival.

Joe Studwell’s How Asia Works is fascinating reading. It talks about how Korea, Japan and China have grown while their counterparts haven’t. Studwell highlights a number of factors that contribute to economic growth:

  • With an agrian economy, a market garden approach to agriculture rather than farming at scale delivers the best results. But only if rent seeking interests are removed through effective agricultural reform
  • Industry requires total mastery of technology – which is the reason why low grade heavy industry is the starting point
  • Exports planned into industrial development from the beginning and a continued relentless focus on exports is required
  • Governments are best at keeping businesses focused on total technology mastery, raising cheap finance and weeding out failures that might be a resource suck

Studwell critiques how different countries throughout Asia have managed to process in this manner including both the strengths and the weaknesses of their respective approaches.

It was fascinating to read how Taiwan managed to succeed in spite of nationalised industries and the challenges in China’s agricultural model.  How General Park ‘motivated’ Korean chaebols and the tragedy of development in Thailand, Malaysia and the Philippines.

China’s Crony Capitalism by Minxin Pei explained the mechanism of how corrupt officials, state enterprise employees and businesspeople managed to bilk the Chinese government and people of vast amounts of money. Much of the challenge is structural. China has a federalised government with power lying at provincial, city and county level. Pei is hawkish on the country’s prospects.

For an outside observer Pei’s research into the mechanisms, one can appreciate the challenge that the central government faces in combatting corruption and bad behaviour. President Xi’s ‘tigers and flies’ campaign to root out the worst corruption in the party and business is part of the solution; but according to Pei there is also careful structural reform required. This will only be possible through a massive aggregation of power towards the centre.

Louis Vuitton, Supreme and the tangled relationship between streetwear and luxury brands

The recent collaboration between New York’s Supreme and Louis Vuitton seems like a natural fit.  The reality is that luxury and streetwear have been dancing around each other for a good while.

Snide started it all

Snide was slang in the 1980s for fake or counterfeit. Hip Hop and the Caribbean-influenced Buffalo movement in the UK each used counterfeit and real luxury in their own way.

Daniel Day, better known as Dapper Dan was a was a Harlem-based craftsman and business man who dressed a lot of New York based artists from the golden age of hip hop. Dan’s first hip hop client was LL Cool J back in 1985. Dan’s style was luxe, the finest silks and furs were standard issue – think Puff Daddy before Puff Daddy. They went for customised outfits with their branding on which Dan provided. As the scene took off Dan incorporated suit lining material (which replicated the likes of the Fendi, Bally  or MCM brands) and Gucci or Louis Vuitton branded vinyl to make one-off products.

He customised trainers, clothing and even car interiors. Dan’s own Jeep Wrangler had an interior retrimmed in MCM branded vinyl.

Much of the luxury branding Dan used was coming in from Korean factories which at that time supplied the fake trade. Now similar products would have come out of China. I took a trip to the South China City complex in 2010 where fabric suppliers would offer Louis Vuitton labels and Supreme tags side-by-side.  I can only imagine that the Korean suppliers of the 1980s  had similar markets in textile industry centres like Deagu. Outside of hip hop, Dan was the go-to tailor for all the hustlers in Harlem – so you can see how he could have got the hook-up into the counterfeit suppliers.

At the time hip hop culture was not in a relationship with brands who where concerned about how it might affect them. LL Cool J was the first artist to get a deal with Le Coq Sportif. Run DMC got a long term deal with Adidas after their single ‘My Adidas’ became successful. But these were the exceptions to the rule.  So with Dan’s help they co-opted the brands to try and demonstrate success.

Over in the UK, the Buffalo collective of stylists, artists and photographers including Ray Petri, Jamie Morgan, Barry Kamen (who modelled for Petri), Mark Lebon and Cameron McVey. Buffalo was known as an attitude, which threw contrasting styles together and filtered into fashion shoots and influenced the collections of major designers including Yohji Yamamoto, Jean Paul Gaultier and Comme des Garçons. Even if you didn’t know what Buffalo was, you would have recognised the aesthetic from the likes of i-D, Blitz, New Musical Express and Arena. 

Buffalo mixed Armani jackets with Doctor Martens work boots, or a Puma bobble hat. Petri used music to sound track his process and this was pretty similar to the kind of stuff that influenced street wear pioneer Shawn Stussy over in California. Motown and hip-hop to dub reggae was the sound which explains the Feeling Irie t-shirts created by the white surfboard maker.

If you thought Bros looked cool in their MA-1 bomber jackets and stone washed Levi’s 501 jeans – there was a direct stylistic line back to Buffalo – rehabilitating the items from their link to skinhead culture.

Buffalo permeated into the street style of the decade; influencing the likes of Soul II Soul. Meanwhile over in Bristol The Wild Bunch were yet to morph into Massive Attack. Two members headed to London; producer Nelle Hooper and Miles Johnson (aka DJ Milo who went on to work in New York and Japan). A shoot was organised by i-D magazine and they turned up wearing their street clothes alongside DJ Dave Dorrell and model / stylist Barnsley. At the time, it was considered to be ‘very Buffalo’ in feel, but Dave Dorrell admitted in an interview that they had just came as they were. Dorrell wore his t-shirt as ‘advertising’ for it.

buffalo

The Hermes t-shirt and belt were snide, the Chanel Number 5 t-shirt sported by Dave Dorrell were being knocked out by a group of friends. Young people in London co-opted brands just like the hip-hop artists heading to Dapper Dan’s in Harlem.

Homage

From 1980, surfer Shawn Stussy had been growing an clothing empire of what we would now recognise as streetwear. Stussy had originally came up with the t-shirts as an adjunct and advertisement of his main business – selling surfboards. But the clothing hit emerging culture: skating, punk, hip-hop and took on a life of its own. It went global through Stussy’s ‘tribe’ of friends that he made along the way.

Stussy is known for his eclectic influences and mixing media: old photographs alongside his own typography. In a way that was unheard of in brand circles at the time, Stussy manifested his brands in lots of different ways. The back to back SS logo inside a circle was a straight rip from Chanel; the repeating logo motif that appeared in other designs was a nod to MCM and Louis Vuitton.

All of this went into the cultural melting pot of world cities like Tokyo, New York, London and Los Angeles. Stussy went on to do collaborations from a specially designed party t-shirt for i-D magazine’s birthday party to the cover art of Malcolm Maclaren records. Collaboration with mundane and high-end brands is backed into streetwear’s DNA.

Coke Zero x Neighborhood limited edition cans

(Neighborhood x Coke Zero was something I was involved with during my time in Hong Kong.)

Japan with its engrained sense of quality and wabisabi took the Buffalo mix-and-match approach to the next level. Japan’s own streetwear labels like Visivim, Neighborhood, W-Taps, The Real McCoy and A Bathing Ape (BAPE) took streetwear product quality, exclusivity and price points into luxury brand territory. That didn’t stop BAPE from making a snide versions of various Rolex models under the ‘Bapex’ brand.

Bapex

Some two decades later Supreme came up in New York. The brand takes design appropriation and homage to a new level. Every piece Supreme seems to do is a reference to something else. The famous box logo rips from Barbara Kruger’s piece ‘I shop therefore I am’. From taking a snide swipe at consumerism to ending up in the belly of the beast took Supreme a relatively short time. This heritage of appropriation didn’t stop Supreme from using legal means against people it felt had appropriated its ‘look’.

In an ironic twist of fate, Supreme was sued by Louis Vuitton in 2000 and yet the 2017 collaboration looks exceptionally similar to the offending items…

The last time I shared this story the page was just at 2k followers. With the collaboration officially announced today- and the page having 40k more followers since then- I figure it’s time to re-share. The year was 2000, and a 6 year old Supreme took their hands at referencing a high fashion brand as they did early on (Burberry, Gucci,) this time with Louis Vuitton. Box Logo tees (and stickers), beanies, 5 panels, bucket hats, and skateboard decks all featured the Supreme Monogram logo (pictured right). Within two weeks, Vuitton sends in a cease and desist and apparently, ordered Supreme to burn the remaining available stock. Clearly, many of the products from 2000 are still in the resell market, circulating today. Now we arrive at today’s FW Louis Vuitton fashion show. As most everyone is aware by now, Supreme is in fact collaborating with the luxury brand for a July- into fall collection. I’ve seen quite a few pieces from the collaboration (20+, check @supreme__hustle @supreme_access and @supreme_leaks_news for more pics) and it’s panning out to be Supremes largest collaboration to date. It’s interesting to see the references of both brands within the collaboration- from old Dapper Dan bootleg Louis pieces, to authentic ones, to Supremes monogram box logo and skateboard desks (pictured left). 17 years later and @mrkimjones proves that time can mend all wounds (amongst other things). Excited to see what all will release alongside this legendary collaboration. #supremeforsale #supreme4sale

A photo posted by Supreme (@supreme_copies) on

The new customers

North East Asia’s fast growing economies had been borne out of learning from developed market expertise, state directed focus on exports and ruthless weeding out of weaker businesses. Intellectual property was cast aside at various points. Korea, Hong Kong, Japan and China went from making knock-off products to displacing Europe and the US as the leading luxury markets.

Asian luxury consumers, particularly those second generation rich in China were younger than the typical customer luxury brands cater too. These consumers bought product as they travelled taking in style influences as they went. First from nearby markets like Japan, Hong Kong and Singapore and then Korea. This drew from a melange of hip hop, streetwear, Buffalo styling and contemporary western designers like Vivienne Westwood – as well as the more matronly styles of the traditional European luxury houses.

The luxury brands had to adapt. They brought in new designers who themselves were drawing from similar influences.  These designers also collaborated with sportswear brands like Alexander McQueen and Puma or Jeremy Scott and Raf Simons for Adidas.

Luxury brands got seriously into new product categories making luxe versions of training shoes that could be charitably called a homage to the like of Nike’s Air Force 1.

Bringing things full circle

As the supreme_copies Instagram account notes the collaboration with Supreme and Louis Vuitton brings things full circle with the pieces having a nod to Dapper Dan’s custom work as well as Supreme’s own ‘homage’.  Luxury brand MCM (Michael Cromer München), which Dan borrowed from extensively in the 1980s was restructured in 1997 with shops and brand being sold separately. The brand was eventually acquired eight years later by the Korean Sungjoo Group. Korea now has its own fast developing luxury fashion and cosmetics brand industry. Textile city Deagu which was the likely source of Dapper Dan’s fabric is now a fashion and luxury business hub in its own right. The Korean entertainment industry is a trend setter throughout Asia. For instance, Hallyu drama My Love From A Star drove breakout sales for the Jimmy Choo ‘Abel’ shoe.

The only question I still have is why did a move like Louis Vuitton’s collaboration with Supreme take so long? The luxury brands spend a lot on customer insight, they were using social listening far longer than they had been on social media. They know that a customer wearing their jacket could have a Visivim backpack slung over the shoulder and a pair of Adidas Stan Smiths on their feet. Customers mix-and-match Buffalo style for all but the most formal occasions. For streetwear brands, collaboration is in their DNA and they get an additional leg-up in the quality stakes.

More information
Ray Petri
How Buffalo shaped the landscape of 80s fashion – Dazed
Dave Dorrell interview part one | Test Pressing
Dapper Dan
Barbara Kruger Responds to Supreme’s Lawsuit: ‘A Ridiculous Clusterf**k of Totally Uncool Jokers’ | Complex
Volume and wealth make Chinese millennials a lucrative target market: GfK | Luxury Daily
Just why are Louis Vuitton and other high-end retailers abandoning China? | South China Morning Post – although Chinese shoppers consumed 46 per cent of luxury goods around the world, their purchases in their home market accounted for only 10 per cent of global sales, falling from 11 per cent in 2012 and 13 per cent in 2013
How a Jimmy Choo Shoe Became a Global Best Seller – WSJ

Jargon watch: lights out production lines

If you are of a certain age, ‘hand made by robots’ brings to mind the Fiat Strada / Ritmo a thirtysomething year old hatchback design that was built in a factory with a high degree of automation for the time.

Fiat subsidiary Comau created Robogate, a highly automated system that speeds up body assembly. Robogate was eventually replaced in 2000. The reality is that ‘hand made by robots’ had a liberal amount of creative licence. Also it didn’t enable Fiat to shake off its rust bucket image. Beneath the skin, the car was essentially a Fiat 127. Car factories still aren’t fully automated.

Foxconn is looking to automate its own production lines and create products that truly are ‘hand-built by robots’. Like Fiat it has its own robots firm which is manufacturing 10,000 robots per year.

Foxconn has so far focused on production lines for larger product final assembly (like televisions) and workflow on automated machine lines: many consumer products use CNC (computer numeric control) machines. That’s how Apple iPhone and Macs chassis’ are made. These totally automated lines are called ‘lights out production lines’ by Foxconn.

Foxconn is looking to automate production because China is undergoing a labour shortfall as the population getting older. Foxconn uses a lot of manual workers for final assembly of devices Apple’s iPhone because the components are tightly packed together. It will be a while before Foxconn manages to automate this as robotic motor control isn’t fine enough to achieve this yet.

More information
Foxconn boosting automated production in China | DigiTimes – (paywall)

Working class truths, populism and dark futures

Following president Trump’s election and the British plebiscite on European Union membership there has been lots of hand wringing about workers who traditionally participated in legacy industries being outside society.
We won't pay for their crisis - Mancunian protest sticker
Here is what we have to deal with:

  • The ‘traditional’ jobs aren’t coming back
  • Middle-class roles are already being disrupted
  • There is a declining  return on investment in further education, yet lifelong learning is a compulsory requirement
  • Globalisation is working at an aggregate level, but isn’t working at a local level
  • Western society has fractured. It will become more fractious once the realisation takes hold that:
  1. It can’t be resolved by simple measures, populists might listen – but can’t solve anything. Jobs are governed by a multiple factors that affect both cost and demand considerations
  2. It can’t be solved in a relatively short time frame. You can’t build the necessary eco-system and supporting industries to bring the jobs back; even if the economics made sense
  3. Governments don’t have their hands on the levers of control, the best governments can do is actively manage decline. Technological disruption puts the levers of control with a smaller group of people
  4. There is a lack of willingness by those with the money and the power to solve it – primarily due to the pressures that drive their behaviour
  5. Existing social welfare safety nets aren’t sustainable

The realisation that populism doesn’t deliver is likely to cause a further visible outburst of anger. Which should be good news for the private security industry. This could result in civil or international conflict. It has already happened. Factors that contributed to the Arab spring and the Syrian civil war included a large under-employed population living in stagnant economic conditions with no hope in sight. This probably sounds familiar.

I am ruling out some sort of positive ‘black swan’ event which changes the game completely and provides meaningful work with great wages across societal boundaries. If I could reliably predict these, I would be writing this from my private Airbus A380.

Instead I can see four broad categories of outcomes, all of which are ugly:

  • Carry on – carrying on isn’t likely to be sustainable as societal pressures go to breaking point
  • Managed decline – from a rational point-of-view the most ‘possible’ solution. Unpalatable from a voter perspective. It begs the question at what point would the UK economy bottom out? Managed decline makes the most sense as an interim measure whilst a country works out what its new place in the world is and charts a path towards it based on careful strategic investments with limited capital
  • Massive investment – presents a number of challenges that make it nearly impossible for western countries. It would require a long term view – unlikely without consensus driven politics with a high level of comity, huge access to credit – again unlikely with highly indebted economy and a slowly declining credit rating like the UK. Would take too long to satisfy angry voters
  • Massive disruption – the dice is thrown in the air as society tears itself apart and the strong gain control – think China’s Cultural Revolution. Wages and worker rights may drop to make them more cost competitive for low skilled manufacturing allowing for an employed but disgruntled workforce. Power is unlikely to shift too much, the corresponding upheaval in population numbers may provide some supply side pressure on wages when its all over. In all likelihood, it would just reduce pressure for change, increased willingness to work together on a longer term solution, but not provide much medium term economic benefit

Disruption

Here is a chart of numerous successful business, some of them are over a century old. AT&T and Verizon can trace their history back to 1877 and the Bell Telephone Company set up by Alexander Graham Bell’s father-in-law. General Electric goes back to work by Thomas Edison in 1880. These companies took from 117 – 137 years to become $200 billion businesses. Facebook took ten years requiring only 3% of the people AT&T needed.

It would be reasonable to assume that the future is going to create less jobs with given investments rather than more.

Company #Employees Year its market capitalisation became US$200 billion
Facebook 9,199 2014
Microsoft 27,000 1998
Apple 46,600 2010
Alphabet (Google) 46,600 2012
Amazon 165,000 2015
Verizon 176,800 2014
General Electric 239,000 1997
AT&T 302,000 2007

So large private enterprises will:

  • Employ less people which means less ancillary demand for services in the locale. Less restaurants, shops, artisanal coffee shops, micro breweries, nail bars, car valets, hotels and hair salons
  • Employ even less unskilled people – what unskilled labour is required will be employed on a flexible basis. Their roles will be competing on ‘total price’ with a global workforce and robotics

This hypothesis is supported by data from the MIT Technology review which showed that modern US manufacturing managed to increase productivity by 250% whilst reducing staff numbers by over 40%.

Win-Win to Winner Takes All

Technological progress and globalisation has resulted in a decline in the middle class in western countries. Pew Research claims that the US middle class declined from 61 per cent of the population in 1970 to 50 per cent by 2015.

Corresponding average ‘real wages’ for US ‘good producing’ workers peaked by the mid-1970s and have been broadly stagnant since. A pattern mirrored in other developed economies. Hong Kong saw a similar peak from 1967 riots through to the early 1990s until factories moved across the border.

Manufacturing productivity had grown steadily over that time. You can argue over the data points but the overall trend seems to hold true.

Owners of capital have enjoyed increased returns versus the providers of labour. Knowledge work, a key part of middle class roles could be easier to export than production lines. A classic example is the bank back office roles that have been exported to India.

Supply chain

At the moment UK manufacturing jobs operate as part of a complex supply chain that primarily addresses the European Union as a market. The supply chain is built around a number of factors:

  • The value of the product
  • The weight of the product
  • The volume of the product
  • The cost of shipping versus the cost of production
  • How well the product travels
  • Distribution of product demand
  • Proximity to suppliers
  • Proximity to talent

This is why companies may package a product in one country and manufacturer in others. Washing powder is a classic example of this. Chocolate travels well, so Cadbury could move production lines of internationally popular products to Poland. There is a greater incentive to move low skilled work out of areas that aren’t geographically central to a given supply chain.  European freedom of movement may have kept jobs in the UK by allowing low and semi-skilled workers to move rather than the factories. This would be of little consolation to UK workers, but would benefit UK tax coffers.

This complex formula is the reason why jobs move in and out of the UK.

Cutting the UK out of this supply chain with a hard Brexit ensures that suppliers have to make complex choices. BMW will probably be wondering what UK presence it needs to maintain in order to keep the Mini brand values. It may decide its easier to evolve the quirky Britishness out of the brand over time and just keep it quirky. The Audi TT hasn’t been harmed by actually being assembled in Hungary.

The majority of components in the supply chain for the Mini production line is based in Germany.

A post-Brexit UK could be in the position of importing more rather than less products once companies take into account the bigger picture of the supply chains and the EU single market.

Role of eco-systems

Richard Florida is a Canadian professor who has spent much of his time looking at urban studies from the perspective of prosperity. He is known for is work around the creative class and urban regeneration (or gentrification). His work is controversial. One key concept he has of relevance to working-class communities is one of ‘clusters’ where eco-systems exist.  When you apply it to traditional working class industries one can see how the jobs aren’t just going to come back. The UK has a series of traditional clusters that are in overall decline, this is best illustrated by the state of chemical, oil refinery and coal sectors which underpin a wide range of manufacturing industries.

Where new clusters spring up (Silicon Roundabout and the FinTech businesses within the Square Mile) they create employment that much of the UK population is ill-equipped to fulfil.

Let’s look in greater depth at traditional manufacturing industries.

Factories build on suppliers, who build on raw materials processors, who build on utilities and extractive industries. Take for example industrial revolution era Stoke-on-Trent which was close to high quality clay pits and coal that could be cheaply shipped in from mines in Lancashire or South Yorkshire.

Unfortunately for Stoke-on-Trent; clay is readily available around the world, opening up the possibility of production in areas with cheap labour. Automation raised the quality of production and fashion can quickly dictate whether an ‘area’ brand is in demand.

If we look at the industrial landscape of the United Kingdom, the manufacturing industry has been hollowed away during the 1980s and 1990s. The UK lost 18% of its manufacturing capacity in the space of 18 months during the conservative government of Margaret Thatcher.

There has been a corresponding (likely terminal) decline in the necessary facilities to support an industrial economy. Now let’s look in-depth at three essential types of facilities that underpin manufacturing:

  • Oil refineries
  • Coal mines
  • Chemical plants

This base of the UK industrial eco-system is running on ‘life support’ in critical areas.

I was fortunate to have a great science teacher at school, he once said to me that you could measure the size and health of an industrial economy by the amount of sulphuric and hydrochloric acid it manufactured and consumed. In order to manufacture hydrochloric acid you need a chlorine gas plant – neither chemical is something you want to transport over long distances. The side effects of a leak would be catastrophic.

The UK currently has one plant to make chlorine gas that is government subsidised because there isn’t a sufficiently large industrial base to support continued profitable production. What industrial capacity is in the UK is perilously close to being snuffed out.

What is left of the UK chemical industry has consolidated in the North East of England Process Industry Cluster (NEEPIC). Some of the products created are intermediary chemicals for use elsewhere in the European Union. Brexit is likely to have a disruptive effect on some of these manufacturers. The cluster is a key reason why Nissan decided to build a manufacturing plant in Sunderland. NEEPIC is dependent on oil refining capacity for key chemical building blocks (feedstock).

Oil refineries are considered by the public as providers of petrol (gasoline), diesel and jet fuel. The reality is that they provide feedstock (chemical building blocks) for most things in everyday life:

  • Foods
  • Medicines (or we can go back to leeches and blood letting)
  • Paints (containers, large manufactured goods, civil engineering)
  • Plastics (the modern world as we know it) – structural plastics, coatings, fibres including clothing textiles

As I write this is, it is easier to look around my desk and count the products that don’t have an oil-derived input – one item, the desk itself which is unpainted. Though I would put good money on it that the trees it was made from were felled with petrol chain saw and transported on a diesel powered lorry to the saw mill.

Yet the UK has lost a huge amount of oil refining capacity. From 1974 – 2012 refining capacity almost halved from 148 million tonnes to 77 million tonnes (Energy Institute). This decline happened despite start of UK North sea oil production in 1975.

Peak production on North Sea oil occurring in 1985 and 1999 (two peaks due to technological innovation). There were 22 active oil refineries in 1974, at the time of writing there are now seven.

Part of this was driven by changing energy consumption such as the decline of home heating oil and more fuel efficient cars. But a good deal would be due to reduced ability to compete against foreign petro-chemical feedstocks and reduced industrial capacity.

Oil refining capacity has moved to closer to where the industry is.

Belgium and the Netherlands have oil refining capacity beyond their internal needs because of their ease of access to continental European markets. Germany as Europe’s industrial powerhouse has the largest refining capacity in the European Union – which matches its industrial economy.

Much of the capacity to provide chemical feedstocks for industrial use has moved to the Far East; notably Singapore, Japan, Korea, Jamnagar in India and China. Overall industrial production has moved to East and Southeast Asia.

Coal production in the UK is roughly 10 percent of what it was in 1980. There are no deep coal mines active in the UK, only a handful of open cast mines. Coal is not only useful as a fuel but also a alternative supplier of feedstock for a diverse range of products including fertilisers, plastics and medicines. Even if coal comes back to prominence as oil reserves run out it would take a lot of effort to get UK production going again – perhaps too much effort.

Managed decline

The purpose of managed decline would be to concentrate efforts where they can make the most impact. London would draw in more people from the hinterlands. Cities like Liverpool would continue to decline in population. Low quality housing (think trailer parks or shanty towns) would cater for the internally displaced workers and there would be a likely increase in casual or gig economy roles.

So what would managed decline look like? We have a clue from government discussions after the 1981 Toxteth riots. Lord Geoffrey Howe wrote a letter which was considered too controversial at the time

“I fear that Merseyside is going to be much the hardest nut to crack,”

“We do not want to find ourselves concentrating all the limited cash that may have to be made available into Liverpool and having nothing left for possibly more promising areas such as the West Midlands or, even, the North East.

“It would be even more regrettable if some of the brighter ideas for renewing economic activity were to be sown only on relatively stony ground on the banks of the Mersey.”

“I cannot help feeling that the option of managed decline is one which we should not forget altogether. We must not expend all our limited resources in trying to make water flow uphill.”

Howe realised that even discussing the concept at the time would be explosive.

In practical terms, it would mean:

  • Re-centralising government departments
  • Not spending on infrastructure beyond critical maintenance
  • Rationalising government support infrastructure: police, hospitals, social services
  • Re-zoning areas from a planning perspective to encourage development only in future clusters
  • Allowing local government to go into bankruptcy protection and under go US-style emergency management
  • Once population decline hits a critical mass, turning off the last services, rather like the city of Detroit has done
  • Focus infrastructure investment on ‘clusters’
  • Connecting benefits to re-location

This process would then give time for western countries; in particular the UK, to re-invent themselves and think about their economic purpose in the world beyond consumption.

The Chinese government have already started on this process whilst their economy is still in a high state of growth – looking to move up the manufacturing value chain, moving into the professional and financial services sectors that the west currently occupy. On the flip side they have not flinched from closing down excess capacity in the steel industry and low value industries. This is causing economic hardship amongst unskilled workers in Guongzhou and the steel towns of Hubei province.

Former clothing factories are being bulldozed to make way for corporate campuses. Small electronics factories in Shenzhen are making way for a financial services centre including a stock exchange.

If one thinks about the Chinese experience and their migration to higher value work, where would the UK go next?

More information
The Current Moment | Poverty, Inequality and Productivity
Manufacturing Jobs Aren’t Coming Back | MIT Technology Review
The American Middle Class Is Losing Ground | Pew Research Center
Toxteth riots: Howe proposed ‘managed decline’ for city | BBC
Detroit’s Least Bad Option | The New Republic

The internet of hacking or WTF is happening with my smart home?

Mirai – is a bot network that is powered by a range of devices including infected home routers and remote camera systems. It took over these systems by using their default passwords. The network of compromised machines is then targeted to overload a target network or service. Last week the Dyn DNS service was targeted which restricted access to lots of other services for users on the east coast of the US.

DNS is like a telephone directory of internet destinations, if no one knows where to go it becomes a lot harder to get in touch.

DDoSing
Mirai didn’t spring miraculously out of thin air. It finds its history in passionate gamers who used distributed denial of service (DDoS) attacks to slow down or even kick opponents off online gaming platforms. Eventually the gaming companies got hip to it and went after the cheaters, not to be outdone the cheaters went after the gaming companies.

Taking a service offline using DDoS became a source of extortion against online banking and e-commerce services. Attacks can be used as a form of ‘digital hit’ to take out opponents or critics like online security commentator Brian Krebs.

Computing
Moore’s Law meant that computing power has become so small and plentiful that it is surprising what we often have in the palms of our hands. The first Cisco router was built on the circuit board of a Sun Microsystems workstation. Home routers now are basically small computers running Linux. A CCTV camera box or a DVR are both basic PCs complete with hard drives.

Back in 2007, BlackBerry co-founder Mike Lazaridis described the iPhone as

“They’ve put a Mac in this thing…”

The implication being that the power of a sophisticated PC was essentially in the palm of one’s hand. The downside of this is that your thermostat is dependent on a good broadband connection and Google based cloud services and your television can get malware in a similar manner to your PC.

Security
For a range of Chinese products that have been acknowledged as part of the botnet; the manufacturer acknowledged that they were secured with a default admin password. They fixed the problem in a later version of the firmware on the device. Resetting the default password is now part of the original device set-up the first time you use it.

The current best advice for internet of things security is protecting the network with a firewall at the edge. The reality is that most home networks have a firewall on the connected PCs if you were lucky. The average consumer doesn’t have a dedicated security appliance on the edge of the home network.

Modern enterprises no longer rely on only security at the edge, they have a ‘depth in defence’ approach that takes a layered approach to security.

That would be a range of technology including:

  • At least one firewall at the edge
  • Intrusion detection software as part of a network management suite
  • A firewall on each device
  • Profile based permissions across the system (if you work in HR, you have access to the HR systems, but not customer records
  • Decoy honey post systems
  • All file systems encrypted by default so if data is stolen it still can’t be read

Processes:

  • Updating software as soon as it becomes available
  • Hard passwords
  • Two-factor authentication

Depth in defence is complex in nature, which makes it hard to pull off for the average family. IoT products are usually made to a price point. These are products as appliances, so it is hard for manufacturers to have a security eco-system. The likelihood of anti-virus and firewall software for light bulbs or thermostats is probably small to non-existent.

The Shenzhen eco-system
Shenzhen, just across the border from Hong Kong has been the centre of assembly for consumer electronics over the past 20 years. Although this is changing, for instance Apple devices are now assembled across China. Shenzhen has expanded into design, development and engineering. A key part of this process has been a unique open source development process. Specifications and designs are shared informally under legally ambiguous conditions – this shares development costs across manufacturers and allows for iterative improvements.

There is a thriving maker community that allows for blurring between hobbyists and engineers. A hobbyists passion can quickly become a prototype and then into production . Shenzhen manufacturers can go to market so fast that they harvest ideas from Kickstarter and can have them in market before the idea has been funded on the crowdsourcing platform.

All of these factors would seem to favour the ability to get good security technologies engineered directly into the products by sharing the load.

China
The European Union were reported to be looking at regulating security into the IoT eco-system, but in the past regulation hasn’t improved the security of related products such as DSL routers. Regulation is only likely to be effective if it is driven out of China. China does have a strong incentive to do this.

The government has a strong design to increase the value of Chinese manufacturing beyond low value assembly and have local products seen as being high quality. President Xi has expressed frustration that the way Chinese manufacturing appears to be sophisticated, yet cannot make a good ballpoint pen.

Insecurity in IoT products is rather like that pain point of poor quality pens. It is a win-win for both customers, the Chinese manufacturing sector and by extension the Party.

More Information
WSJ City – Massive Internet Attack Stemmed From Game Tactics
Your brilliant Kickstarter idea could be on sale in China before you’ve even finished funding it | Quartz
Asus lawsuit puts entire industry on notice over shoddy router security | Ars Technica
Europe to Push New Security Rules Amid IoT Mess — Krebs on Security
Why can’t China make a good ballpoint pen? | Marketplace.org

Oprah Time: The Dark Forest by Cixin Liu

The Dark Forest is the second book in Cixin Liu’s Three Body Problem trilogy. I reviewed the first book here. In the second book the tone changes from being a hard bitten conspiracy story to a fully-blown space opera.

The Dark Forest of the title is a metaphor for a philosophical thought experiment. The universe is thought to be teaming with life. Each civilisation is like a hunter in a dark forest. Revealing oneself, leaves one open to being killed by another hunter. Since you don’t know a hunter’s intention it seems better to be quiet. Conversely if you become aware of another civilisation there is a strong incentive to get them before they get you.

Unlike the first book, The Dark Forest takes place over centuries as the protagonist is put into cryogenic hibernation and then woken centuries later. Living in the future provides a warning for readers against the perils of having all parts of our life automated and connected – it delves into similar themes as Michael Crichton’s Runaway.

Liu deals with complex arguments and grand societal change in a masterful way. I am waiting to read the last book in the trilogy Death’s End.

Oprah time: The South China Sea: The Struggle for Power in Asia by Bill Hayton

Hayton sets an ambitious goal for himself to try and unpick the claims and counter claims on territory in the South China sea. It is a massive convoluted story that encompasses colonial powers, oil companies and a plethora of Asian countries.

In the end no one comes out of it with glowing colours. China is easy to paint as a villain and it has played to type. But other countries and major powers have made constant mis-steps and it has become an intractable problem. The more hawkish may see the inevitability of war with China.

On the Chinese side, it makes sense for them to escalate a fight with one of their neighbours; as a Chinese idiom puts it ‘kill a chicken to scare the monkey’ and distract from the pain of change at home.  The history is wrapped up with rising nationalism and aspirations of China and its neighbours.

From the American perspective, it makes sense to have the war with China further away from the Homeland, so the South China sea rather than the Pacific ocean.

Hayton doesn’t take a standpoint one way or the other leaving the reader to decide.

From a reading perspective, the tangled nature of the claims makes the book more difficult to read in small bursts. I tried reading it as a commuting book and it took a while to get it done.

More details on The South China Sea: The Struggle for Power in Asia

Technology companies, we have to talk about China

Uber has been cited as an example of how US technology companies can’t succeed in China, but the wrong lessons are being learned. Let’s look at a couple of examples.

Facebook

Facebook is viewed as having ‘failed’ in China. There are two parts to this. First of all lets talk about Facebook’s business model, simply put it monetises consumers attention by selling advertising and related services to businesses.  In order to get consumers in a relevant market, it has to comply with local laws. In the EU it has a relatively easy ride as it is policed by the Irish government for compliance with EU regulations.

China has taken much more of hands on regulatory approach to the internet, like all media. Much of this is down to keeping a ‘harmonious’ society. You might not like the way they do it, but the party views internal pressures in a similar way to Western views on terrorism. Whether that terrorism in the name of Islam or black bloc anarchists.

China has an extensive censorship mechanism, it is a part of doing business there. Whilst the content maybe different, it is similar to the censorship structure for the UK in many respects:

  • Government steered industry practice
  • Legislation

One of the big differences in the UK is site blocking to protect commercial rather than government interests such as sporting event rights. Facebook chose not to implement systems that would make it compliant in China – so it isn’t available to ordinary Chinese consumers. Facebook does sell advertising in China to companies who want to reach western consumers. It has been successful in its advertising sales, sometimes to the detriment of western consumers. State-owned enterprise (SOE) Air China features as a case study for Facebook’s advertising business. San Francisco-based Papaya Mobile has built a successful business providing an online portal that allows Chinese businesses to target Facebook users abroad. I’d argue that Facebook isn’t failing in China.

If Facebook wanted to get Chinese consumers on board it had three market entry routes:

  • Build a separate Chinese product. This is something that US companies generally don’t do, they may localise the product but they avoid forking the product
  • Build infrastructure that complies with Chinese regulations. Google had done this in the past, before they chose not to
  • Have a local partner do the relevant work. Skype successfully entered the Chinese market with Chinese partner TOM. The Chinese client of Skype is known to allow government listening and weaker encryption. But in a post-Snowden world that shouldn’t be too surprising, the Chinese lack the subtlety of other countries security apparatus in their implementation but the goals are similar

Facebook somewhere along the line decided that they didn’t want to enter the Chinese market for consumers as is; but may do in the future if market dynamics change.

It is notable that Facebook’s growth in both Korea and Japan was slower than comparable western countries. Local platforms addressed the market better (KakaoTalk) and social norms of ‘nick name’ identities allowed to Twitter to become a comparative success in Japan.

Google

Google had entered China in 2005. They hired a local executive to run the business who had previously worked at Microsoft. Four years later they were third in the market behind local firms Baidu and Soso (Tencent subsidiary). Google had an estimated 29% market share.

So Google was in third place before it had legal issues in China. Why was it in third place? Google is thought to have under-estimated the growth rate in terms of number of web pages of the Chinese internet. In the same way that Yahoo! and Bing under-indexed the western web and paid for it by losing market share to Google, Google lost out to Baidu. This was about localisation and agility rather than the system being gamed against it. Google hasn’t indexed non-Roman languages as well as English, French etc.

Google was particularly beloved of those Chinese who had a more international life; scientific researchers, journalists, bankers, marketers and the more cosmopolitan members of the middle class. But for the average Chinese consumer, other search engines did a better job.

Google services ran into trouble with a YouTube video showing security forces and protestors in Tibet. Google took action in the Chinese market when Chinese dissidents had their Gmail accounts hacked. Again in a post-Snowden world this isn’t the shocking scandal it would have once been. Complaints in the US together with this incident meant that Google was prepared to give up on Chinese consumers. The business still has an R&D team in China and works with manufacturers on Android.

So why do American companies succeed elsewhere?

The simple answer is one of scale. The US is a single country with largely the same regulatory framework, a single language, good infrastructure and access to large amounts of capital. It is a market for approximately 324 million people. This allows businesses to grow rapidly to a scale that is internationally competitive.

By comparison although the EU has an addressable population of just over 510 million people, you have different legal systems (though it is becoming more harmonised by the EU). You have 24 languages, a common currency but diverse banking systems.

This comparative lack of scale in EU technology start-ups has two effects:

  • They are harder to grow as there isn’t a comparable domestic market to incubate businesses. If they do grow, the better access of capital allows an EU start-up to be bought out. Look at last.fm, DeepMind or ARM as examples of this.  Some businesses have managed to break like Spotify as they tapped into US funding. It is also pertinent to point out that Spotify isn’t make money
  • With some noticeable exceptions like Spotify, getting capital to grow a business internationally is much harder. It isn’t realistic for a European start-up to pursue the Amazon / Uber model of betting against competition by assuming that they will always have access to cheap plentiful capital

This has meant that Facebook, Google and the like have risen largely unopposed in Europe. They have found it so easy that they’ve gained monopoly levels of market share. This is unlikely to change anytime soon. At best Europe acts like a ‘feeder team’ of talent and IP to US start-ups. Where Europe is successful is largely based on past dominance in legacy industry sectors like vehicle manufacture and pharmaceuticals. This also partly explains Europe’s stagnant growth.

China is different

China is the polar opposite of Europe. It has an addressable market for 1.4 billion people. Whilst there are many dialects in China the party railroaded Mandarin as the lingua franca and simplified Chinese as a common written language.  Live and incomes in the tier one cities would be comparable to parts of Europe. Economic growth has slowed to 6 per cent a year, but the economy is still flush with capital.

A huge population means a huge pool of qualified staff. You combine this with a large amount of capital and you have a business than can out-Uber Uber.

The culture of China is different. Chinese consumers like to go to Starbucks and KFC, use Apple products and wear luxury fashion brands; but only because these fit into Chinese cultural constructs. That means that products need to be optimised for the local market.

China has been through huge change since the rise of the party, which means that the owner executives of these companies have have a greater desire for risk to capitalise on ‘the now’.

This means that most of the advantages Silicon Valley has: agility of action, talent and capital are negated in their competition in China. In addition, since they committed to an approach that already works, adaptation to local market needs are limited. This is interpreted by the Chinese counterparts as hubris; the reality is more subtle.

China does have strategic interests which means that it regulates ‘state secrets’ very carefully. Mapping technology is carefully controlled. It has tried to use its size to benefit its businesses. In the same way that the EU through ETSI defined the GSM standard, the Chinese government tried to do the same with TD-CDMA. The reality is that favoured companies like Huawei have managed to allow their clients to get cheap funding for purchases via Chinese state-owned banks.

Like the US government, the Chinese government uses research funding and infrastructure spending to direct some aspects of technological development. Since the administration of Hu Jintao, the Internet of Things (IoT) has been a government focus.

The danger of the invincible China myth

Whilst China wants to have a world-beating successful technology sector. There are problems that comes with a perception of invisibility, China will find it hard to keep open markets. Trade negotiations will become intractable as the other party sees no upsides to working with China. An eco-system where foreigners have a modicum of success is a better outcome for the Chinese government.

Uber’s problems were entirely of their own making, their choice to go into China was likely their first error. Not because it is excessively gained against them, but because they didn’t have any comparative advantages over Didi.

More information
Uber has destroyed the Western myth that companies can grow huge in China without being Chinese
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Spotify financial results show struggle to make streaming music profitable – The Guardian