South East Asia: Blue Ocean or Red SEA?

Malaysia Serving Asia
Within a span of a few years, Tony Fernandez rose from relative obscurity to become the most visible global Malaysian trailblazer. He achieved this by tapping demand from the South East Asian consumer market and  turned a flailing airline into one of the fastest growing transportation enterprises in human history. However almost ten years before AirAsia was defibrillated, this model was established by earlier generation of younger trailblazing Malaysians - the technoprenuers.


Before Google, iPods and Napster were born, Mark Chang created MOL.com in 1995 and its spinoff Jobstreet in 1997. MOL was subsequently reborn and steered by Ganesh Banga into the regional virtual payment juggernaut. Macrokiosk, Asia's mobile messaging leader, were created by the enterprising Goh brothers in 2000. In 1989, even before the time of Netscape, Windows 3.0 and the Intel 80486 chip, Goh Peng Ooi started Silverlake. Silverlake have since dominated retail banking technology in South East Asia.

Successful Malaysian technoprenuers did not invent their respective products or service offerings. Similar to AirAsia, they excelled by applying their second-mover advantage in a burgeoning market. In fact, the cup of history is filled by enteprenuers that used the same formula.

The "Anheuser-Busch" phenomenon
In 1852 mid-west America, ten years before MIT and forty years years before Stanford University, a St Louis based venture was silently created between two German immigrants. They took over an ailing, debt ridden brewery. Eberhard Anheuser, a successful and experienced soap entreprenuer partnerned with his son-in-law Adolphus Busch, descended from a family involved in breweries. In order to survive, this new partnership had to do something different.


Much like Malaysia and South East Asia today, North America had no new knowledge or technology at that time. This forced Busch to look overseas for ideas. He trekked and researched Europe extensively, looking for something new for America. After much effort, he discovered and imported a new process called pasteurization which lengthened the life of their product to allow sale in distant markets. Before this venture, brewers could only conduct their business in local communities because the product had a limited shelf life. Busch also imported a new cooler taste that suited USA's warmer climate, especially newly minted states such as Texas and Louisiana.


The result was a hit. The combination of a burgeoning consolidated market, smart use of imported technology and guidance by an experienced entreprenuer created one of the largest companies in the world: "Budweiser".


Not all Blue Oceans need invented products
Irish playwright Oscar Wilde, born in 1854, once said "Talent borrows, genius steals". Prominent Americans of his generation tended to agree. Henry Ford, a first generation Irish-American born in 1863, built the largest car company in the world by selling cheap vehicles to Americans using the automotive assembly process developed by Frenchman Marc Brunel. Andrew Carnegie, born in 1835, was a poor Scottish immigrant who became extremely rich by importing the Bessemer process from England and selling cheap iron to the American market.


Another example of imported know-how is rubber. Today, Malaysia is a global leader in rubber industries and technology. This leadership came from English colonists who brought rubber production capability into Malaysia from South America in the 1870s to serve a burgeoning global market fuelled by the second industrial revolution.

Today, the next big thing in business is cloud, mobile, social media and the social enterprise. The big opportunity for Malaysians and others in the region is to localise and optimise the newest models in North America. This is the model used by successful Indian and Chinese technology firms in their markets.


South East Asia is turning into a Red Ocean market?
Coincidentally, South East Asia is also starting to fire all its pistons. After fifteen long years in the dark, South East Asia has finally shaken off most the stink from the Asian financial crisis. Its middle income population exceeds India's and continues to grow. The region is also swiftly gaining recognition from world-leading economists as a major market. In fact, CLSA forecasts the number of millionaires here should double within five years.

The internet giants of the 1990's ignored South East Asia and allowed Malaysian players to dominate during the crisis. This time will be different. South East Asia will be crowded by old school technology giants, web 1.0 and 2.0 titans, established Malaysian players, and newbies from around the region. You can also count foreign ventures such as iProperty and myDeals that use Malaysia as their home, testbed and international launchpad.

One can look at Malaysia's players in the same way the global market is looking at Google today. Some argue Google is a 15 year old company which  has lost some of its original excitement and lustre. Newcomers such as facebook, twitter, pinterest, foursquare and Groupon have found a more alluring and lucrative way to generate revenue from the same users and corporations that feeds Google coffers. They could do to Google, what Google themselves did to Microsoft's Office and Windows.


Time for a Malaysian vanguard
If Malaysia attracted or started to build world-class technology universities in the mid-1990's, the game for other nations in the region would be over by now. Malaysia would also be in pole position for the next race. Although this still may not happen for at least another 15 years, there is still a great advantage. Malaysians already have a small army of seasoned, successful and battle hardened technopreneurs. They are also joined by a stream of digital media firms such as Les' Copaque, Animonsta, Third Rock and KRU who have taken the region by storm. Like Google, the Malaysian entreprenuers are far from dead. They are strong, well managed, and have considerable room to capture new markets.

So the question is why are the key players in the market not leveraging on each together? One example is smart capital. If you look at the best venture capital firms, they are stocked with successful entreprenuers. It is the perfect time for fund managers from public and private sectors to find ways for successful Malaysian technoprenuers to become venture capitalists.

Every successful startup had partners, every entreprenuer who made it had world-class mentors. The "lone wolf" entreprenuer is a fallacy. All the successful Malaysian technoprenuers had mentors who played a critical role in their success. It is the same case for American icons, including Steve Jobs. Malaysian startups must find successful entreprenuers to guide them or face oblivion. Likewise, successful leaders of Malaysian industry should pay forward and payback to the industry, or face obsolescence.

South East Asia is going to be an interesting battle ground for Malaysian players. Even without world-class universities, Malaysia has a good chance of consolidating leadership in the region. The challenge is not to spoil what has been built. The opportunity is to identify where our strength truly lies and leverage on it. But the window is closing fast.


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Box: I wrote last year about Singapore's potential to attract more top-tier venture capitlalists because of their commitment to world class education. Well it has happened through Tim Draper, who runs DFJ. His father founded and ran Sutter Hill Ventures in 1964. His grandfather founded and ran the first venture capital firm in the California, in Palo Alto. Tim Draper invested in a Singapore based incubator last year and there are prospects for more to join.

Girls and Games. The perfect match

(published in NetValue November 2011)


Thirty years ago, computer games were universally associated with anemic nerdy boys. Back then, I was among a circle of friends who spent endless hours wasting a tonne in twenty cent coins at arcades or burning our retinas in home console games. I was also among a smaller circle of friends who were also hackers. In the early 1980s, hackers had little to do with cybersecurity. We were known as a group of geeks who looked at as much code as possible to improve our algorithms, often to the detriment of social life or popularity.

For games, the intent was also to play more titles, play better games or increase play duration. One way to do this was to trick arcade consoles to give you more credits via physical hacks. Another way was to write your own game to play at home. Though I am not going to admit anything about illegal physical hacks, I was definitely a code hacker.

One of my creations was a 3D racing game on my high school's Apple IIe green screen in 1983. This suprised my teachers because they did not imagine these computers were capable of doing this. I had fun building and playing my games. But it took a lot of effort, requiring sacrificing endless nights and weekends. This effort meant time spent away from other interests such as girls. So the following year, I stopped chasing game and graphic algorithms and chased girls instead. Although girls never caught the video game bug, the business of "toys for boys" has grown to become a big industry.

After over twenty years, men and boys poured pay money and pocket money into sophisticated video games. For example, Activision's Call of Duty franchise pulled in three billion dollars. Microsoft's Halo generated $160 million in one day. This is more than Spiderman 3 the movie's revenue in its first three days. Blizzards' World of Warcraft attracts 30 million hours of game play every day, culminating to a total of six million years played. That is around 120 times the duration of human existence.

Considering its business arises from only one fourth of the consumer demographic, the traditional console game industry has done very well. However around four years ago, the industry hit a ceiling. Most game publishers lost a lot of money because of declining revenues, higher costs and increased competition. The industry would not grow because there is only so much time and money a guy can spend on games. They have families, friends and girlfriends too!

The Rise of Social Games

Whilst the game industry started to falter, a totally new genre of interactive entertainment started to rock the world. The social game phenomenon had suddenly and breathtakingly overrun the globe. Whereas complex massively multiplayer online role-playing games (MMORPG) such as World of the World craft attracted 12 million subscribers after 17 years, games like Farmville gained almost 82 million users after 17 months.

In the past, casual and social game developers were shunned and mocked due to their timid game play and simplistic art. This mocking has now stopped thanks to facebook games. Farmville, Citiville, Badoo, Cafe World and others successfully convinced consumers to dole out money to beautify their virtual farms, pets and cities. To go "viral", the games also convinced players to share virtual gifts and showcase their creations to other friends hooked on facebook. Facebook has become very addictive especially for women.

According a survey by AIS media, over 55% of women who use facebook bring their mobile phones to the bathroom to use it. A survey by Lightspeed Research shows that a third of women use faceook before brushing their teeth or going to the bathroom in the morning. Over half of mobile social gamers are women. They are also the dominant player group for 35 years or older. Middle aged women have become the new power gamers.

But this type of change is not new. Middle-aged female consumers have become the bedrock of traditional industrials. The financial industry's resurgence in the 1980s was fueled in part by their recognition of the modern women's strong influence in the buying process. The traditional media industry has also been transformed by women. Movies, cars, electronics, healthcare and even the computer industry has also been transformed by women as customers. So it was only of time that they play a big role in interactive entertainment.

Women should take control

Although women represent the majority of players, the developers continue to be male dominated. In a crowded gathering of talented Malaysian game developers held in Puchong recently, there was only one woman present. Internationally, it’s a similar picture. Social game companies are male dominated. Morever, many of them are being bought by traditional macho game developers. For example Playfish, the publisher of Monopoly Millionaires and Pet Society, is now owned by Electronic Arts. Crowdstar was almost purchased by Microsoft nine months ago. Playdom, with 42 million subscribers, is now owned by Disney.

It does not make sense for men to totally dominate content development for female consumers. It is now time for the fairer sex to take control of games on which they spend their precious time and hard earned money. In the era where Adrianna Huffington now dominates internet news, IBM will be helmed by Virginia Rometty, Meg Whittman transformed eBay and is now tasked with turning around HP, it is inevitable that of future game companies will enriched by women. There is sign of hope. A few months ago social game major RockYou promoted Lisa Marino to CEO position.

Considering that many social game companies are founded and used by Asians, it also seems to make sense that social game companies of the future should be led by Asian women. But there are no Asian women leaders in this space. For now. This is a great opportunity for Malaysian women, especially when game development tools like Game Salad, Corona and Rocketpack allows non-programmers to create games. Malaysian women should pickup these tools and create the games they want to play, then share it with their friends. If nothing else, more girls in the gaming industry will certainly make our local developer gatherings a lot more interesting.

Ecosystems are for birds. The world needs creators and engineers

Published on The Edge, @Netvalue2.0 on 6th March 2011


Sputniks and Beatniks
In his recent State of the Union Address, USA President Barrack Obama called for a "Sputnik revival" as a response to foreign innovation and on-going American economic slump. His intention was to recreate a scientific, economic and creative renaissance spurred by the Soviet Union launch of Sputnik 1 satellite in 1957. The satellite must have really spooked the US government as it menacingly passed over USA seven times a day.

A few months later, USA president Eisenhower quickly enacted three "Sputnik responses". One was the creation of a 200 person agency called DARPA, which gave us things such as hypermedia (used by Adobe Flash) and the mouse. Apple’s Machintosh graphical user interface technology was developed by a Californian DARPA project leader. The second response was NASA with 8,000 employees, which spurred semiconductors, fibre optics and satellite communication technology. The other was the seemingly insipid Small Business Investment Act. This Act hurled the venture capital industry further into modernity by providing soft loans to VCs willing to invest in high technology.

It took these three Acts over thirty years for the Americans to overcome their cold war enemies. During this period, an additional effect was the acceleration of broadcast communication and giving highly educated youngsters access to alternative entertainment, music, ideas and concepts. The era of hippies and beatniks started. This era created the practice of creativity and internal revolution, a standard practice used by successful corporations today.


Venture firms create the spark
Steve Jobs is probably the world’s most successful hippie ever. Recently, Jobs, Mark Zuckenberg along with other technology chiefs, venture capitalists dined with President Obama. These firms represent the pinnacle of what America has done, and what more can be achieved. Venture backed companies enables America to retain their world dominance and high-value job creation. Companies such as Google, Intel, Cisco and Apple contribute around 10% of American jobs. They played a major role to overcome Russian and Japanese jauggernauts. Obama is now looking for them to do the same with a surging China and India.

The beauty of the American technology industry, is its well known “innovation ecosystem”. It works much like lighting a match in a Californian barbecue. VCs invests in a portfolio of companies with the expectation that many investments will not be profitable, but one or more will catch fire. Iconic companies such as facebook, twitter, skype and Zynga were created during this process over a short span of time. There is little doubt this will continue to happen.

However, the VC industry itself has not been doing well lately. In fact, the VC industry just completed a long, lost decade. Venture investment during 2000s yielded the lowest returns in its history. In 2000 alone, almost 50% of USD 100 billion invested by VCs, was placed into internet companies. Less than twelve months later, it disappeared. Today, the situation has improved, but not by too much. VC investments yielded lower returns than Dow Jones, NASDAQ. It even yielded lower returns than boring government bonds. Much of the technology created during the Sputnik years has played itself out.

This is a far cry from the returns delivered by American Research and Development Corporation when it invested $70,000 in Digital Equipment Corporation (DEC) the same year the Russian’s launched Sputnik I. A year after its IPO, DEC was valued at a staggering $350 million dollars and went on to become a major global corporation. This epochal event created a surge in venture backed investments in university born  technology, culminating in one of the most remarkable phenomenon in human history - the digital age.

Though there are fears that over-hyped era of the late 1990s may return this year, the VC industry has  looked a lot better in the past few months. The last quarter of 2010 yielded the highest number of IPOs since 2000. “In 2010 we moved from ‘abysmal to viable’ in the venture-backed IPO market,” said Mark Heesen, president of the NVCA.

Universities Creates the Fuel

Interestingly, this condition was helped by the very same foreign competitors that Obama wishes to overcome. Over half of the IPOs are by Chinese companies. Also, for the first time in a while, California attracted less than 40% of VC deals in a quarter. As I opined two years ago, a new generation of innovation is needed to serve the unique needs of a rapidly innovating and increasingly wealthier emerging economy. Micro transactions, agile applications such as social networks is transforming the consumer product and entertainment industry. They also have a large pool of scientific talent, a similar mix enjoyed by Americans during the cold war.

As a result of relentless pursuit for technological prowess, China now has superpower technology, ranging from stealth fighters to the world’s most powerful supercomputer, the Tianhe-1A. They have renown scientists working in Tsinghua, Peking and other “C9” universities. India too, has developed scientific capability. Indian universities such as Madras, Mumbai and Calcutta predate most top Japanese institutions and regularly produce world-class talent and a healthy number of Nobel laureates.

This is the reason pioneering venture firms such as Draper International and Kliener Perkins have setup in these markets. They are doing in China and India today what they did in the 1960s and 1970s in California. Whilst venture firms are highly effective in creating the spark needed to innovate, they will not be able to do so without the fuel: world-class universities. In fact nations like Finland, Korea, Taiwan and Japan developed their technology sectors without much help from venture capitalists. One thing that they had was an army of great scientists, technologists and engineers.

South East Asia: Talent First Please
Sadly, almost none of the universities in South East Asia are ranked equal to our Asian neighbours. The exception are the top Singaporean institutions. In addition to outclassing its neighbours, Singapore’s NUS also outranked universities from Australia and France. Singapore has attracted some venture capitalists but fail to land big names so far. However, it will probably on be a matter of time before they do. So the game continues.

It is important to have critical factors such as access to large markets, business and technical networks, townships, telecommunications, venture capitalists and risk capital. There are plenty of proposals to improve how investments are made and managed. However, these are all useless without a cluster of top-shelf, world-class universities.

The good news is there exists a window for other nations in SEA to become a generator of breakthrough technologies and intellectual property. Whilst we continue to wait for universities to reach Singapore or top Chinese university "C9" levels, some players have taken bold action. Two years ago, UK Newcastle medical school, one of the top three in the United Kingdom, announced it will move into a greenfield location in Iskandar Johor. Lets hope for more action really soon. It seems like a terrible waste to keep ploughing money into an ecosystem without investing in the correct foundation. It would be like planting seeds in a barren desert. Obama himself is now asking for major education reform in order to avert economic and social disaster. Perhaps its something Americans and Malaysians have in common.


Sidebar: Born almost sixty years before Jobs was the father of modern venture capital, Georges Doriot . Like Steve Jobs, Doriot was a son of a foreign national. He was also involved in simultaneous major initiatives, including founding INSEAD in 1957. He was also a college dropout. But unlike Jobs, he became a professor of Harvard Business School and a World War II brigadier general. He received the Distinguished Service Medal, the highest U.S. military medal given to a noncombatant, as well as being decorated a Commander of the British Empire and awarded the French Legion of Honor. 



Doriot during his later years, in Harvard Business School

After the war, he setup ARDC and invested $70,000 the same year as Sputnik’s launch. DEC was the "Apple" of the 1960s and 1970s, showcasing unprecedented interactivity, efficiency and elegance that others struggled to emulate. Doriot maintained a good friendship with Ken Oslen, the founder of DEC, until Doriot’s death in 1987. Ken Olson passed away recently, in February 6, 2011.