Tag Archives: world

Leverage: Sprint Softbank Japan & Sumo vs Judo

Sumo: how to throw 20B of mass

You’ve probably seen the 20+ billion dollar deal that will leave Softbank of Japan owning 70 percent of U.S. telco Sprint. There are layers upon layers of rationale for any deal of that size, but here are some of the common themes:

LEVERAGE:

  • Yen to dollar exchange rate is shockingly close to a 10-year low
  • Corporate tax rate in Japan is quite high
  • Bank of Japan prime lending rate is between 0.0 and 0.1 percent
  • Japan networks and mobile user behavior is very advanced

A point that doesn’t by itself produce leverage (but creates a strong motivation for overseas expansion) is the saturation of the Japan market and the slower growth there.

This chart from Chetan Sharma (2011) reveals that Softbank is the top carrier in the world with respect to mobile data as % of total Average Revenue Per User (ARPU) and also with respect to total Data ARPU.

As you can see, the top three carriers in Japan are way ahead of the rest of the world in Data ARPU. Amazingly, Japan leads the world in how advanced their mobile user behavior is and how spendy those mobile consumers are.

 K.O. how to lose your leverage

This kind of extraordinary financial leverage has led to another Japanese invasion in mobile gaming, with Gree having acquired OpenFeint (104M acquisition) and DeNA acquiring ngmoco (303M acquisition).The Gree and DeNA acquisitions have been recently criticized for example, Pocket Gamer citing Gree’s acquisition price to be 368 times OpenFeint’s annual revenue. http://www.pocketgamer.biz/r/PG.Biz/PG.biz+Opinion/feature.asp?c=34579 Another concern that was expressed was the culture shock of the Japanese management model.

So the leverage was lost in management and operational integration as well as messy technology and product integration issues.

Judo how to throw from the hips

Good fences make good neighbors. The existence of huge economic leverage is not sufficient to create a good “throw” as we can see from the Gree and DeNA case studies, above.

The Judo throw is simply for the thrower to make the center of gravity of the system (both the thrower and the thrown) the same as the center of gravity of the thrower.

In business operations, this requires good boundaries between organizations, proper management structure and proper API contracts to enforce clean separation of technology concerns.

Kii Corporation’s recent launch of its Mobile Backend-as-a-Service, (picked up by TechCrunch http://techcrunch.com/2012/10/11/kii-cloud-opens-doors-for-mobile-developer-platform-with-25-million-end-users/) leverages some of these cross-border synergies. The operational approach
is to take a mobile backend that has been serving tens of millions customers in Asia and to open those APIs and SDKs globally. This approach does not presume that mobile user behaviors in Japan are the same as those in the U.S. Rather, it merely takes the cloud power and offers it to the developers of the world. Similarly, the investment strategy of Kii is to invest venture capital in small mobile application developers, which avoids some of the pain of heavy-handed, cross-border corporate takeovers. As with most early stage VCs, Kii gets a board seat, but the company management continues to operate the company, as it should.

But these efforts by Kii not only take advantage of simple economic leverage kept squeaky clean by API contracts and VC term sheets. Kii also adds a layer of cross-border synergy to the mix. Kii partners is a powerful distribution channel for app developers looking to partner with large carriers and handset makers.

So Kii is entering the MBaaS space as its largest provider and as an 800 lb. Godzilla, but formed from the strategic merger of a Tokyo-based company and a Silicon Valley startup. This approach leverages what is best in each region; separates out cultural issues in the apps via a
clean set of SDKs and APIs; separates out cultural issues in management by creating appropriate equity holding relationships (like venture capital); and of course, best of all, creates bona-fide operational synergies between Kii and its app maker partners. These are some of the unique
concerns about operating a cross-border concern like Kii Corporation.

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The widening gyre

For years, the industry has struggled with the emergence of the new layer of abstraction that’s been called SOA… it’s been very slow to be born

SOA evokes WB Yeats and his poem “The Second Coming”, the idea of a “Rough beast, it’s hour come round at last”.

In the enterprise, things have fallen apart. The center is not holding at all. What is the center? Enterprise Applications? SAP? Oracle? The Mainframe? IBM? The desktop? Microsoft? The data center? HP?

Java was a system at it’s core that was elegant–sure purists will attack it for all of its compromises. But it was filled with elegant compromises. I know that sounds oxymoronic, but the enterprise is by it’s nature a compromised creature. What made Java interesting is that it recognized a few things–that the sacrifice made in speed by introducing the virtual machine was made up for by creating a language that was familiar and productive to folks who previously used C and C++ syntactically. Human speed became more important than machine speed. Strong types made it reasonably conversant with enterprise structured data, while late binding enabled it to be flexible and dynamic.

But of course the market wants alternatives even to alternatives. The alternative to Java is pretty clearly .NET. But of course once the initial cracks were formed in the foundation, it invites many other alternatives. I think Bill Gates was absolutely right about “many languages” up to and including domain specific languages. Languages are part of the “user interface” and different languages are better at expressing different thoughts. But JVM bytecode is Turing Complete–so you could bring PHP, Ruby, Groovy and anything else into bytecode the way you can bring Visual Basic, C# and others into IL for the CLR.

Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.
Surely some revelation is at hand;
Surely the Second Coming is at hand.
The Second Coming! Hardly are those words out
When a vast image out of Spritus Mundi
Troubles my sight: somewhere in the sands of the desert
A shape with lion body and the head of a man,
A gaze blank and pitiless as the sun,
Is moving its slow thighs, while all about it
Reel shadows of the indignant desert birds.
The darkness drops again; but now I know
That twenty centuries of stony sleep
were vexed to nightmare by a rocking cradle,
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?

In Boston, I spoke with a SOA Naysayer, Rachel Chalmers from the 451 group. I was very sympathetic to her views because she is probably on the side of history–that technological revolution typically comes from the outside of the enterprise and goes in. Client server, the web application server, mobile technologies, social software, cloud apps, Saas, all have their revolutionary origins outside the enterprise. Why subject yourself to the complexity of SOAP when you can just build elegant web apps in the cloud? You get scalability for free. You get availability (we hope) for free. The google app outage this week shows you dont always get availability for free–but the availability is pretty darned good, certainly as good or better than most Enterprise apps.

Her objection was that SOAP was flawed from the get go, and that everyone should embrace REST. In time, perhaps this will be true. The preference of SOAP style over REST style is really based on the notion of a world where resources are limited and controlled, not a world where they are unlimited and free. On the web, the Google style is to assume that the system is always going to be scalable, always available and free.

At the heart of the Enterprise there are antiquated systems that manage financial reporting, accounting, supply chains, human resource management among other things. Some of these are packaged apps like SAP and Oracle, but others are custom apps like IBM mainframe apps. To date, efforts to rip and replace these core systems at the heart of the Enterprise have failed. The paradigm in Enterprise is fraught with requirements to secure these systems, ensure reliability, meter and regulate scalability and enforce interoperability when possible. As soon as SOAP headers appeared, all of these complex agendas that were handled by internal systems and tightly coupled legacy apps started to regurgitate themselves out into the headers and the endless spawn cycle of WS standards began.

It’s not a pretty sight, admittedly. SOAP is inelegant and you can end up with very large SOAP payloads and cumbersome headers that delivery systems dont always fully support as you go across enterprise boundaries.

But as I’ve said before, short of abandoning the core systems, Enterprise is stuck. Perhaps the tax of dragging these legacy systems is so large that large enterprise is finished and will be overwhelmed by more efficient small and midsized companies that run everything, financials, transaction processing, custom apps, business processes in the cloud. Perhaps.

But this will take time and there’s not much historical precedent (doesnt mean it wont happen). Historically, large enterprise has become larger, legacy and all.

In the meantime, SOA continues to slouch towards Bethlehem, to be born.

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Japanese technology leadership: a view from Silicon Valley

After speaking at the Business Innovation Forum in Japan, I did some thinking about the unique form of technology leadership found in Japan.

Japan has been going through some tough times economically… but it’s important to reflect on the unique strengths of Japan with respect to the digital age and the emerging global network culture. If you study the “hits” that have come from Japan from a Silicon Valley perspective.

One of the biggest “hits” from Japan lately is the Nintendo “Wii” console. I’ve been playing with the Wii Fit balance board this weekend and find that it’s quite an amazing extension of the immersive technology first seen in the Wii console. This goes beyond the kind of early-90’s “virtual reality” goggles immersion and gets closer to haptic and cybernetic interface that maps to an understanding of kinesthetics. How can kinesthetics impact the human/technology interface? Yoga is a “technology” that has been developed in Asia for at least 5000 years. Yoga explores the connection between the body and mind–so what can computer add to this? The Wii Fit console provides instruction, guidance and tracking of goals that stretch from weeks to months to years–a personalized experience of your own body. The quality of the yoga instruction isnt comparable to, say raviana.com, but this is for beginners working on basics.

What’s uniquely japanese about the Nintendo Wii? A great many things, including the connection to the fantasy universe of Nintendo designer Shigeru Miyamoto. But the distinguishing feature that I think is both exportable worldwide and deeply japanese is the harmony between human nature and the machine world.

One of the roots of Western thought is the philosophy of Descartes, whose philosophy proposed a separation between the mind and the body (mind-body dualism). Another separation that is fundamental in western thought as documented in the Old Testament is the position of humans as distinct from animals–made in God’s image and assigned to rule over the animals of the earth. The philosophy that illuminates Japanese theology is Shinto, which is animistic–in which spirit occupies humans and nature in equal measure. Now I’m only highlighting these differences because I believe the combination of the human and the natural is reflected in the Japanese approach to technology.

Japan has leadership in climate modeling supercomputers. The robot dog, Aibo was born and bred in Japan. The Toyota Prius, the worlds most popular hybrid car. The ability to blend the technological, the natural and yes, the spiritual aspects of human experience is part of Japanese technology leadership.

One aspect of Japanese technology that is hard to export is the social aspect. Whether it’s the famous shinkansen high speed rail system or the iMode cell phone ecosystem–it’s hard to separate technology adoption from technology invention.

The ability to blend the world of technology with the world of nature gives me confidence that SOA Governance will take root in Japan… The ability to combine an understanding of human nature, tribalism, organizational behavior and advanced technology will be a key driver in the adoption of these technologies in Japan.

My 2 cents,
Miko

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