The Chinese Form of Innovation

We’re here with NYU colleague Clay
Shirky a professor at the Tisch School and a recently appointed vice provost of
educational technology – did I get that right? That’s exactly right. And has recently
returned from three years in China so let’s start there. China has this
reputation for more for less – unbelievable skills around supply chain
and figuring out a way to get us something for less than we’re used to paying for it, but you talk a lot about what makes the china form of
innovation. Yeah, so when I started going over to help
NYU set up a Shanghai campus, I bought a phone while I was there – I needed a
Chinese phone – I just saw one I liked, I bought it when I got to the campus. We
only had freshmen at the time so that’s all these 18 year olds running around. I
pulled this phone out of my pocket and they go “Where did you get that?”
And I’m not used to being the envy of teenagers, like yeah, that does not happen – not
a familiar feeling before or since – but for the moment I had this I was like
“What is this thing?”, like that phone is sold out in all of China. It was the
Xiaomi mi3. Xiaomi was kind of the Apple of China, as it was often called.
About three years ago, two or three years ago? Exactly, 2013, and and Lejeune who is
the charismatic CEO was often compared to Steve Jobs. But Xiaomi’s innovation
wasn’t so much hardware-focused the way Apple’s was. It was building this
software ecosystem. They rewrote the operating system – they were using an
Android operating system – but they rewrote it to be especially tolerant of
low battery. You know, low battery draining dual SIM for people who are
swapping SIM networks for cost conscious consumers and so forth. So they took all
of the sort of Shan Zhai tradition – the very rapid creation of electronics in
this relatively open way and they used it to drive the hardware cost down, but
they also innovated on sales and marketing and delivery. They only sold
online. They would have these flash sales where you had to apply for a ticket to
have a chance to buy a phone. What that let them do was it let them aggregate
demand at larger scale than they could deliver. Then they’d go down to Shenzhen
and say “We know we have a million customers for this phone,
give us the million unit price for these parts and so the whole thing was this – the innovation was in the ecosystem in a way. What Xiaomi was doing was
saying if you want a phone that is not just cheap as China has always been best
in the world at, but surprisingly much better quality for the cost you’re
paying if we want to in use design to inflect the cost curve up, it’s not
enough to design the phone. You have to design the sales, you have to design the
marketing. They insourced customer service. Usually that’s a
function people want to get rid of. They said no, no, if someone is talking to a
customer about our product and that customer is not happy, we want to know it
first. And so, in Beijing – right in the neighborhood, in the kind of, you know, Silicon Valley of China as it
were, there are people answering the phone talking about Xiaomi, operating on
chat because they just rethought all of the things you could do as an
electronics company to control cost downwards as always while raising
quality. You talk a lot about sales and delivering innovation in China – speak
more about that. Yeah, so there are many things that are different about about
China, particularly if you’re living in a large city.
The combination of urban density and a large, educated workforce, but low wages
means that you can get these incredibly effective networks – the ability
to have almost anything delivered within a two-hour window is really
extraordinary. You buy something and a couple of hours later, a
guy on a motorbike drives up. You sign for it and off he goes. They’ve moved to
an almost completely cashless economy. My wife and I went to a new
restaurant that had opened up in our neighborhood. We sat down, we
couldn’t figure out even how to order and there was no menu. We asked for a
menu and the woman just pointed to the QR code on the table. You take a picture
of the QR code – those little two-dimensional barcodes – the menu pops
up on your phone, you select what you want, you press the button the order’s on
the way. So the entire the entire front end of
the restaurant is automated then it turns out the back end is automated too – we
said well, okay we’re ready for the check now. She’s like “Pay on your phone.” We’re like, “Well, we
don’t have WeChat setup for payment yet, but it’s hard as a foreigner to get into
some of the payment systems. She took pity on us. She took our money, put it in
her own pocket and used her WeChat account. There was not a cash register in
the restaurant, they couldn’t even take money if they wanted to and that’s, in a
way, I think, why the sales and delivery stuff is so important is it
doesn’t just speed up the way businesses used to do thing. It invites businesses
to say “If these systems exist and I can take them for granted,
what else can I reconsider?” So now you’ve got a restaurant with no menus,no
waiters and no cash register. What you’ve got are cooks and runners and it
is a different way to run a restaurant and because everyone walks in with a
phone you could offload a lot of the electronics and networking to the
devices the customers have already capitalized that are sitting in their own
pocket. So, let’s talk talk a little bit about payments, let’s stop there. So, payments
make a ton of sense, they were supposed to take off here. Apple Pay got a ton of
sign up from a retail standpoint, but it just hasn’t got a lot of consumer
adoption and some niche players – Venmo, PayPal – I don’t
know if you call that a niche player But what is it about our society
and our culture where we don’t adopt payment and some of these
automated digital platforms as quickly as Chine? Yeah, so there’s there’s two different
things going on. One – China is very comfortable with monopoly. Right, because
the state is willing to intervene in businesses, they are very comfortable
saying one or a small number of companies will control a very large part
of the economy because they are – the government itself is a more active
constraint on what those companies are able to do. The government is also willing
to knock heads together in the direction of interoperability. If the US government
said”You can have any payment system you want as long as it looks like this on
the back end.” then Apple Pay and Samsung Pay and
Venmo and all of these various systems would be much more interoperable than
they currently are. The other is they don’t have investment in the previous
system. They’re doing what’s called technological leapfrogging
in the way that there are countries in Africa that have had extraordinarily
rapid mobile phone growth (they just skipped landlines
completely) There’s no copper in the ground to worry about. In the case of
China, they really went from super cheap Nokia-style, all it does is voice and
text, straight to smart phones and the mass of adoption coupled with a low cost
which, you know, drives those Network effects really everywhere
in the country means that it is a very – there’s a very short window to be one of
those early successful companies that’s getting drawn up and you’re not
competing with “Well, we already had a perfectly functional, you know, electronic
billing system or electronic checking system before.” There isn’t a lot of
credit cards, there aren’t a lot of credit cards, people use debit cards. The
electronic systems that were set up around those appeared all of a sudden.
They were useful for e-commerce, or time e-commerce was growing, and there was no
old system to kind of overcome and the U.S. credit cards have worked well
enough for long enough that they’re really deeply embedded and the value of
replacing credit cards with, you know, take a picture of a QR code on your
phone, it’s just a smaller step and the sunk cost of the previous
systems are larger, so yeah it is very weird to come back to New York City
and think , “It feels so primitive.” like just paying for things here feels really
primitive compared to China where I just stopped carrying cash as long as I had
my phone in my pocket, I could interact and by the time we were
leaving – it was just last July – street vendors who were making, you know,
pancakes and they’re making sort of street food – they’ve got a little QR code. Buy six dumplings, take a picture of the QR code, transaction’s done. So Xiaomei –
most valuable startup in history at one point or to date, kind of feels
like it’s sort of disappeared or it’s gone AWOL. Was it local competitors, was it Apple coming in and taking back – I mean, what
happened there? Yeah, so the Xiaomi story is interesting
because it was – I mean at the end of 2014 – was the most valuable startup in
history. 45 billion dollars, it took a billion and changed on an imputed
valuation of forty five billion dollars and Uber at the time was only worth 40.
So, there was this moment of “oh my god, this is it, this is when China is
breaking out into the world economy.” Several things could have gone wrong – all
of them happened. So the biggest one is exactly what you said – local competition.
There were a collection of low-cost phone providers operating mostly out of
Shenzhen, the electronics district just north of Hong Kong. Huawei, OPPO and Vivo
principally are the three brands and Americans are starting to know Huawei
because those phones are starting to show up here. They copied Xiaomi so
quickly. They saw that what Xiaomi was doing was was keeping price low, but
creating a better margin and that turned out to be relatively readily copyable in
that ecosystem, partly because China’s not a strong
enforcer of IP law but partly because Xiaomi based their operating system on
the open source Android platform so the copying was easier. The next thing is
Xiaomi’s imputed valuation came from the idea that every product a person
buys is gonna have the economics of a cell phone. Right, you buy a toaster, you
buy a rice cooker, you buy a watch, you buy a drone – whatever – they were making
all of these products that are becoming a kind of general industrial design firm
and there’s that Internet of Things idea floating around that somehow you want
your scale to talk to the elevator, but I don’t know what they would say to each
other. I don’t have anything coherent that my toaster needs to say to my
electric blanket and that idea turned out not to work well. Right, that
people weren’t in fact buying Xiaomi products with the idea that they would
have an all Xiaomi home that was networked and and tightly controlled by
them on there Xiaomi phone so those revenues didn’t
show up. Xiaomi bet on services revenues for things like cash exchanges that in
fact went to the platform that had the widest adoption which was first Ali pay
and now we chat so turned out a pure software play worked better for that and
then when they opened up in India, they got sued and they had to shut down sales
within four days of arriving because Qualcomm sued them over a patent issue.
So, really on every front, local competition, lack of Internet of Things
style network effects, lack of services revenues and headwind for international
expansion – they all hit at the same time. Perfect storm. It was a perfect storm and Xiaomi is still there, they’re still making phones, the phones are great, but
they are now out of the top five. The Chinese manufacturers are
principally Huawei, OPPO, Vivo so Xiaomi is still a multi-billion dollar company
that operates, you know, in the largest market in the world, but they are far
from the heights they were at at the end of 2014.
So you teach kids – we both teach kids – kids come to my office hours as I’m sure
they do to yours and they want to talk about career options and where should I
go to work. Yep. So a kid born in China,
speaks perfect Mandarin, educated in the US, speaks perfect English, and has an
offer from Amazon or an offer from Alibaba – one in New York, one in Shanghai – if they’re just an economic animal, not quality of life or anything like that –
where would you suggest they go to work? Let me put it this way, if you care
most about the global market, you go to work for Amazon, you go to work for
Google, you go to work for Facebook. If you care most about rapid growth, you
go to China. So, gone for three years, you come back, you don’t see the gradual
changes, you kind of come back and see how things have changed in three
years – what surprises you most about social media and the big four and big
tech that’s happened in the last three years while you’ve been gone? Not even so
much what was going on with those companies. Except for Amazon, most
development has seemed to me to be incremental, Amazon is the only one
consistently doing really surprising things. What’s surprising is the change
in attitude – Ben Smith recently wrote about this
beautifully saying the era in which big tech got the benefit of the doubt is
over and they’re heading into a world of normal politics and normal regulation.
People have simply decided that what’s happening in Silicon Valley is not magic,
it’s just the market and that there are issues and constraints that will come up
largely around antitrust, monopolistic practices, obviously workplace practices
and that change in attitude happened while I was in China. At the
same time, what has surprised me that was true when I left and is still true now,
but China inflected it – China is incredibly optimistic right now. I mean, it has it’s problems, what country
doesn’t? But I was dealing all the time with both my Chinese colleagues but
also about half my students are Chinese citizens, with this sense that they’re in
a country that can do anything and I remember that growing up. America felt
like that in the seventies and eighties and nineties and it went away
obviously largely because of the financial crisis, which then got
people talking about other problems the U.S. had, but the contrast
was incredibly striking the U.S. is – it seems to me that there’s this sense that
nothing can get better and in China, literally if you just sit there and
time passes, things get better. You get back to New York LaGuardia, my god right.
No I I left from PVG, I left from the Shanghai International Airport, I landed
in JFK. It’s like, okay one of these airports is in a developing country and
one of these airports is in a developed country, but I’d swear they were swapped.
You expect to see chickens running around JFK. But having said
that, so China’s more optimistic, we look at China, how can they build, you know,
these kind of Skidmore Owings designed airports that are just incredible, but
the observation – I’m sounding like the ugly American here – is that all the Chinese students I have in my class are
desperately trying to figure out ways to stay in America. I don’t see that
same – still when given a choice, I find that the majority of young people
with options would rather be here. Yeah, but that is true. There is a sense
and it may be slightly muted among my population because many come to me,
they’re into social media and China is clearly where the action is in a way. It’s
easier to say “I want to go work for $0.10.” – was the parent company of WeChat
than I’m gonna stay in the U.S .and take my chances in the
Internet industry here, but there is a way in which if you want to do global
business or if you want to be part of
any global community, you’d be better off here, but that’s true in comparison with
almost any country in the world, but I also know people who want to study here
but go back, sometimes because I see the opportunity in China, but sometimes
because they want to change China. There’s a kind of patriotism among young
people that isn’t my country right or wrong, it’s my country. China
can do anything, so why don’t we fix these problems and the tension between
people saying “Well, let’s just get rid of the pollution.” and Beijing saying “No, no,
those people running the polluting industries are also government
officials so it’s not so easy to shut it down.” Like as this cohort ages, that
tension is going to become part of how they figure out how to govern, but
anywhere in the world, the people making the most cosmopolitan choices are gonna
come here. There’s no – as the U.S. withdraws in the world somewhat under
Trump, there’s no obvious replacement. It’s not like we’re shrinking back and
some other cosmopolitan center is coming forward, it’s like we’re shrinking back
and maybe the global interconnectedness is just going to come under pressure, but
certainly anyone and and I think anyone who’d find their way either to Stern or
to you is gonna be minded to be thinking on a global
canvas. I can bet that most of the students want to work elsewhere.
So a book, articles, website, where can people find more information from
Clay?, of course, but the most recent book is is “Little Rice”, which is
published by Columbia, the global Columbia Global Report series and then
here comes everybody and cognitive surplus, my two books about social media
remain on the bookshelves. Good, thanks very much. Great, thank you!

, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Post navigation

100 thoughts on “The Chinese Form of Innovation

  1. Professor, you should mention this about Chinese phones: The gov and company staff can see anything on the phone you bought. This is the key difference between Chinese and American brand phones. You are brain washed by the business and gov there.

  2. Professor, your payment activities on these Chinese phone have no privacy and securities, these payment companies and gov staff know all of your purchase. U.S.A consumers want privacy and securities.

  3. "Shenzhen, the world capital of memeufacturing, to see how your Black Friday sausage gets made." The other interesting topic, payment networks in the hands of consumers

  4. It's pretty strange how the US has failed to adopt NFC/contactless payments. I just recently moved from Canada to the US and none of my credit cards here have the technology, and barely any stores accept it. In Canada, it's everywhere.

  5. I have seen the patriotism and dedication of Chinese students firsthand. They really want to break the barriers. L2 that's was great talk. PS: Clay Shirky is secretly bald Tom Hanks !

  6. China innovates nothing. It steals/copies/pirates everything from foreign companies that set up in China OR by hacking or stealing designs. China is THE MOST CORRUPT SOCIETY IN THE WORLD. I've lived in China for 6 years, unlike this talking mouth piece who was sent to China by a university, and now THINKS he's an expert on Chinese tech. Total BS! Those Xiaomi phones don't work well after 30 days and the buttons fall off, etc. Total junk. You get what you pay for. Most Chinese know Xiaomi is a shit product. It's a bit of a stretch to claim you can get anything within 2 hours after ordering it. You're lucky if you can get an order placed in 2 hours. You're also lucky if your order doesn't come damaged. The menu technology you're referring to is nothing new. It's been around for more than a decade. They didn't innovate this technology. Chinese find ways to use technology, regardless of what it is; they use the trial and error method of research. Some things catch on, the majority of others don't. Market research is basically non-existent. Also, getting WeChat or other tech companies to use your APP is impossible unless you can bribe someone and give them a kick-back on the profits. The Kroger Company was experimenting with this scan technology more than a decade ago. Chinese tech companies are protected from foreign competition by the government so the government picks the winners and losers. In China, there's really no competition with the pay on your phone APPs. They're operated by one company and censored/controlled heavily by the government. Chinese consumers don't really have a choice and that's why everyone uses the same things! Why? Because the majority of investors in Chinese tech companies are government thugs!! They get the earnings by promoting what they want to see succeed!

  7. It's the same in Denmark, cash is useless, you either pay with your phone, which is dominated by MobilePay- local banks system or a card.

  8. His comment on optimism is spot on. So much possibility and growth. Its obvious all over this country. The American dream is the China dream now.

  9. why are you so afraid of saying the reason why people don't want to be in China is because they're fucking communist?

  10. Chinese and Japanese are high-IQ people. blacks and latinos are dumber, that's why china will win long-term. USA is no longer white

  11. Isn't what makes the blockchain work so well the large quantity of individuals giving processing power to the network? If you were to use the blockchain without the promise of earning currency how would you recruit the very element that makes the blockchain so successful and transparent as it currently is under bitcoin?

  12. This is great Scott! I attend Rice Jones University in Houston Texas. I just came back from a trip with the school to Beijing and Shanghai. I had an awesome experience and was blown away by the innovation and way mobile is being used. It really blew my mind. Low cost labor + Technology + Mobile Payments = Commerce Utopia! Of couse I am just watching Chinese consumers use WeChat on the train : P I felt like I was in the 80s using cash their

  13. Agree with everything except the fact that in just 2 years as Xiaomi went down, also people's mentality changed. As for my experience all of my Chinese students wanted to go back to China and work there, but then again I'm in Europe not the Us. And finally, travelling in China and having relation with China for a while in my opinion you can see that something is seriously wrong there. Sooner or later they'll have to face that real estate market craze that they built and at that point I think they will either fail due to lack of experience or the government will find a way to save everything thightly controlling what happens even in private sector

  14. The 小米 5s and Miui are fantastic (long long long time Apple user). The innovation doesn't end with the dual SIM slots. It has dual desktop capability, allowing separation of home and business apps and data, each with its own unlock password. It also allows definition of multi definition apps, set up 2 definitions of apps (one business use, one personal or different userids to some service). Features and capabilities unavailable on iOS. A pity they aren't marketed in the USA, so service is difficult. And very affordable.

  15. How about Phones aren't getting that much better with each iteration, my last high end phone is not that much better than what they are offering me in a new phone and Hugo Barra got poached by Google.

  16. Opportunities the US are more stable, if Andrew Ng had problems with Baidu, you will probably be faced with the same problems. Read his story…

  17. On the chart where Chinese are quite optimistic about what goes on their country compared to other countries (14:20). I wonder if this is the effect of the censorship and media restrictions. Could be a case of: "the less you know … the more happier you are …"

  18. The Chinese makes it cashless for higher flow of living, but if and when we do it the focus is gonna be on government control of your finances with "responsibility" hooks and pins.

  19. Very good video. It focuses on discussing the issues instead of judging from a superior point of view. Pretty fair and square in all the aspects.

  20. calling China a communist country is like calling US a christian country, it's simply not true. The cover of China is red but the content has changed since Deng's cat quote and reforms


  22. With regard to Scott's question why so many of his students from China still try so hard to stay in US when there seems to be plenty of opportunity for growth within China, I think Clay at least partly addressed it pretty well. The point is that if one wants a career that's more connected on a global scale, United States is a really good destination, therefore it is a positive feedback loop that the students who want that global connectivity tend to want to study in US and thus are more likely to want to stay. Other than that US still is better place with regard to environment, benefits, welfare and just general quality of life, although that gap between US and China isn't so obvious as 20 or even 10 years ago. Nowadays there is increasing number of Chinese students who just want to get a quality education from US and goes back to China to put their feet on the ground and do something with that education. But still more than half simply want a less stressful and more comfortable lifestyle and therefore they want to stay in US.

  23. I'm Indian and I would like to say that America is still the best place on Earth, period! I find it strange when Americans say that their country is in decay. You guys don't realise what a freat country the USA is! Please learn to appreciate your country. China is no where near what the US has!. To begin with, the US is a free society, its a democracy, China does not even have Facebook or YouTube! They have no elections. Is that what you are aspiring for?

  24. This is a great video and I agree with most of views in this video! Hopefully Americans are getting more educated and less arrogant…

  25. What is he talking about? Xiaomi is actually coming back strong and on top again, and their ecosystem is working great too.
    And the students who wanted to stay in the US, most of them are just looking for an edge in the short term, they want to get a few years of work experience so they can go back and get better jobs and money.

  26. The overwhelming majority of transactions in china is STILL done with cash.
    Only 2% of transaction in Sweden is done by cash. It's the first and the REAL CASHLESS country in the world. But do these Americans know that ?

  27. the only reason Chinese students in US want to stay in US is because the entrance salary is 7 times higher than in China. but growth oppotunity is bigger in China than US, that is true too.

  28. I guess this video is so concise and balanced in its observations that all the haters and trolls got nothing else to do but laugh at these guys' baldness. It's pretty sad that while China's working diligently on gaining parity then surpassing us in all fields, all we're doing over here is being crybabies and whining about how they "terk ur jerbs!!!"

  29. I'm living in shanghai, just like this guys said, I don't get any cash from bank for several weeks, because we don't need to pay any cash at all. alipay and wechat can pay everything you think. this is not a big deal.

  30. Chinese copied every technology that they cannot invent, the west must do something to stop Chinese of copycat and intellectual piracy, because chinese sell cheap on the things they copied from and that in turn destroy the original products who lose the competition and the trade to the chinese!

  31. Many chinese students who come to the US are on the assignment to do spying and information gathering and even stealing american technology, many of them are actually spies, dont be too naive to think of chinese students are come to learn !

  32. You didn't understand the real nature behind this Chinese digital economic momentum : Younger generation get monitored by the government by trying these so-called high-tech, which actually can be easily fulfilled by a credit card outside China; Elder generation would be abandoned by the fast running society because they don't have or they don't know how to use such fancy devises to get out to dine or shop or social.Their voice won't be heard by the society and the government would easily get rid of them as their heavy burden.

  33. Very interesting to see how in many ways China is already more advanced than the USA. Please have more content about China, India and the rest of the world.

  34. USA is on the decline because it wages 7 concurrent wars for the last 16 years; deploys troops,weapons and naval ships to nearly 1000 military bases around the world; delivers death and destruction to millions of men, women, and children of the Middle East and Central Asia; operates death-torture camps at Gitmo, Bagram, and CIA rendition centers in Eastern Europe nations. The Laws of the Universal cannot sustain or condone such evil deeds. China is on the incline because it has not invaded any nation and wage war ; it does not station troops, weapons, and naval forces on the coastlines of foreign nations; it does not operate death-torture camps; it has not delivered death and destruction to innocent men, women, and children of the Middle East and Central Asia. Instead, China builds infrastructures , industry, and manufacturing abroad and at home that lift people out of poverty and the standard of living. Those who turn plowshare into swords shall perish. Those who turn swords into plowshare shall flourish.

  35. Why Chinese programmers are back to china? You'd better asking your Indian CEOs. We are so much appreciated about the way they kicks out those Chinese back to China.

  36. How much are they paid to sell the death of cash? Economic privacy is THE MOST IMPORTANT RIGHT WE POSSESS.—Therefore
    CASH In this case is COOL, —Tech is tyranny.
    -see The Corbett Report

  37. Nothing about if a foreign company wants to enter China, they have to let a Chinese company own 51% of the venture and turn over there corporate trade secrets?

  38. The Chinese are 100% deceptive. Lying,cheating and stealing is a Chinese virtue, there is nothing nothing innovative about china.

  39. I just love American mentality that is no one is better than me even they clearly better than us. Better putting others down, so can we feel better and less worry. I think that is exactly why China is rising but the US is declining because the US love to fool its people and distract people with dirty and bad stories from China. So at the end, China got improved but the US is still living in the American Dreams that eventually will turn into American Nightmares.

  40. The only thing that might prevent China from being a world leader is the lac of English speaking population.

Leave a Reply

Your email address will not be published. Required fields are marked *