My Diary 500 --- Thoughts on the secret of success and Unicom

ZT, FROM David Cui 

Do you know the most common feature of elite hockey players in Canada? Some may say talent; some, hard work; some, passion; and some, even intelligence. But have a look at the paragraph below about a Memorial Cup finals' match where players' names are substituted by their birthdays:

March 11 starts around one side of the Tigers' net, leaving the puck for his teammate January 4, who passes it to January 22, who flips it back to March 12, who shoots point-blank at the Tigers' goalie, April 27. April 27 blocks the shot, but it's rebounded by Vancouver's March 6. He shoots! Medicine Hat defenseman February 9 and February 14 dive to block the puck while January 10 looks on helplessly. March 6 scores!

The above passage is from Malcolm Gladwell's "Outliers - The Story of Success". According to him, most elite hockey players are born in the early part of a year simply because, in Canada, the eligibility cutoff for age-class hockey is January 1. So a boy born on January 1 plays alongside someone who doesn't turn ten until the end of the year - and at that age, a 12-month gap in age represents an enormous difference in physical maturity. As a result, he is more likely to be selected for advanced training with better coaches and more practice, which in turn results in more opportunities down the road. Gladwell's conclusion is that success is the result of what sociologists like to call "accumulative advantage" - someone starts out a little bit better than his peers for whatever reason, that little difference leads to an opportunity that makes the difference a bit bigger, so on and so forth.

Business success stories probably have a lot in common with professional sport achievements. The best business model is the one that starts a bit better than its competitors and its initial success can feed into more success. Take Google as an example. When its service was launched, there were many established search engines in the market, including big names like AltaVista, Lycos and Excite. Google's breakthrough was an algorithm - dubbed PageRank after one of its founders Page - that manages to take into account both the number of links into a particular site, and the number of links into each of the linking sites. This algorithm enables their search results to be a bit more relevant than its competitors'. But what truly distinguished Google from competition (largely key word based), other than a laser like focus on search, is its ranking system improves when the web expands - as it analyzes links, so the bigger the web, the more the links, the better its system's intelligence. You see, better search service -> more attractive web -> more users -> bigger web -> more links -> better search service. Wal-Mart is another perfect example - when it sells more, it can charge less which in turn enhances its key competitive advantage - everyday low price. On the other hand, if a business targets people seeking to express their unique personality, say Crocs shoes, it can only sell so much because once its product is mass market, it loses the very reason why people want to buy it in the first place. That's why when your aging suburban strategist bought a pair last year, you know Crocs was probably reaching saturation in Shanghai soon:-)

The most common success-feed-into-more-success model is based on economy of scale but the most powerful, on network effect. The classic example of network effect is the fax machine. The more people own it, the more valuable the machine is to each owner. Ebay is one of the latest examples, more sellers attract more buyers who attract more sellers. Telecom business can benefit significantly from both economy of scale and network effect and that's probably a key reason why China Mobile has become so dominant. The network effect is particularly important for 3G because a key feature of 3G is its seamless access to the Internet; A key feature of the Internet is community (chat, blog, MySpace etc); A key feature of most communities is network effect. Another example is video call - the more people are using it, the easier it is to convince more people to use it.

The thing with network effect is that early mover advantage is critical. That brings me to Unicom which in a way is really a hockey player who is born on Jan 1, or perhaps more fittingly Jan 7, because of the WCDMA 3G license officially handed to it last week (vs. China Mobile's TD and China Telecom's CDMA2000). I was following Hutchison as an analyst in 2003 when it launched its WCDMA 3G services in Italy and the UK. I still remember the headaches that the company had to go through to sort out handset, software and network problems, not mentioning heavy handset subsidies. Unicom will have none of these problems: WCDMA is now a mature technology with the biggest variety and cheapest 3G handsets available (90% of the world's 3G customers are using WCDMA right now), in addition to all sorts of applications developed for it. If you walk on the streets of big cities in China lately, you may be surprised by how many people are using iPhones 3G (WCDMA based) even though 3G service is not yet available.