Shanzhai and Growth Hacking are new models towards innovation - grow first, then innovate.

1. Shanzhai and Growth Hacking
DR. VIRGINIA CHA
OCTOBER 8, 2012
C H I E F, R E S E A R C H A N D I N N O VAT I O N ,
INSTITUTE OF SYSTEMS SCIENCE,
N AT I O N A L U N I V E R S I T Y O F S I N G P O R E
A D J U N C T P R O F E S S O R , S C I E N C E E N T R E P R E N E U R S H I P, I N S E A D
ENTREPRENEUR-IN-RESIDENCE, INSEAD
EXECUTIVE ADVISOR, NUS ENTREPRENEURSHIP CENTRE
ENTREPRENEUR-IN-RESIDENCE, SINGAPORE MANAGEMENT UNIVERSITY

2. What is Innovation?
2

3. Product Innovation
Image Source: Google Images 3

4. Process
Innovation
4

5. Process
Business Model Innovation
Innovation
5

6. Service Innovation
Image Source: Google Images 6

7. Why do firms pursue innovation?
7

8. Innovation leads to growth
8

9. Innovation Frameworks
• Blue Ocean Strategy
• Business Model Canvas
• Disruptive Innovation
• Design Thinking
9

10. Tool/Strategy: Blue Ocean (Value Innovation)
Indicative Case: Cirque du Soleil
Framework: Strategy Canvas
Approach: Eliminate/Reduce/Raise/Create individual factors
VS
Source: W. Chan Kim and Mauborgne. Blue Ocean Strategy.
Harvard Business School Press. 2005
10

11. Tool/Strategy: Business Model Canvas
Indicative Case: Nespresso
Framework: Systematic approach to describe, challenge, design, and
invent new business model
Source: Alexander Osterwalder and Yves Pigneur. Business Model Generation. 11

12. Tool/Strategy: Disruptive Innovation
Indicative Case: Wii
Framework:
F k Performance T j t
P f Trajectory Ch t
Chart
Approach: Lower cost product targeting marginal customers with niche
feature and grow performance overtime to win mainstream
Image Source: http://www.thefgi.net/theory-disruptive-innovation/ 12

13. Sustaining Strategy
Bringing a better product
g g p Customer willing to accept
extra product performance b t
t d t f but
into an established market not willing to pay
Performance
P f Industry Performance
Trajectory
demanded at the high
end of the market
Produc Performance
ct
Performance
Disruptive
demanded at the low
technological
end of the market
innovation
Low-End Disruption Addressing over
serviced customers with a lower cost
“good-enough” business model
Time
Source: Clayton Christensen. The Innovator’s Dilemma.
Harvard Business School Press. 2005
13

14. Tool/Strategy: Design Thinking
Indicative Case: Redesigning the Shopping Cart, IDEO
Approach: Collaborative and human centric design
human-centric
Source: IDEO 14

15. Design Thinking: IDEO
Zinio Reader Heartstream Defibrillator
http://www.techdecoded.com/wp-content/uploads/2010/10/Zinio-Reading-Experience-e1286233330137.jpg,
http://msnbcmedia.msn.com/j/msnbc/components/photo/_new/110901-defribulator-hmed230p.grid-6x3.jpg 15

16. Redesigning the Shopping Cart
Source: http://www.youtube.com/watch?v=M66ZU2PCIcM 16

17. Source: http://www.google.com.sg/imghp?hl=en&tab=wi 17

18. Design Thinking Encourages Prototyping
Tab Interface
Tab Interface
iPhone Stencil
g
Ticketing
System
Source: http://www.google.com.sg/imghp?hl=en&tab=wi 18

19. Common Characteristics of Innovation Approaches
• Start with Design/Strategy
• Market Understanding
• New Markets/Applications
• Creating Original/Novel Works
• Purposeful go to market model
go-to-market
19

20. Introducing Shanzhai
I t d i Sh h i
Chinese: 山寨, shānzhài
20

21. What is Shanzhai?
Copied, Pirated or Imitation Goods
• Electronics
• Clothing
• Food
• Drink
• Ads
• Mobile Phones
Source: http://www.google.com.sg/imghp?hl=en&tab=wi 21

22. Source: http://www.google.com.sg/imghp?hl=en&tab=wi 22

23. Everything can be shanzhai-ed in China…
Shanzhai McDonald and Shanzhai Watson’s
Shanzhai Pop stars.
Source: Baidu.com and Google Images 23 23

24. Everything can be shanzhai-ed in China…
24
Source: http://china.globaltimes.cn/editor-picks/2010-05/529441.html 24

25. Everything can be shanzhai-ed in China…
Photo from http://enovatechina.com/blog/shanzhai-phones-the-great-socialist-experiment/
25 25

26. Shanzhai 1.0 Copy & Graft
Source: Baidu.com and Google Images 26

27. Products of Shanzhai 1.0
Photos taken by author/research assistants on trips to Huaqiangbei, Shenzhen, 2010-2011 27

28. Products of Shanzhai 1.0
Photos taken by author at Huaqiangbei, Shenzhen, 2012 28

29. Components of Shanzhai 1.0
Photos taken by author/research assistants on trips to Huaqiangbei, Shenzhen, 2010-2011 29

30. Shanzhai 2.0 Apple Peel
Released July 2010 as a ‘ ki ’
R l dJ l ‘skin’
iPod Touch Apple Peel for the iPod Touch
It acts like a phone without a
screen.
Inside contains
• GSM module
• Antenna
• SIM card slot
• Extra battery
½ price iPhone
Photo source: Virginia Cha 30

31. The Brothers Behind the Apple Peel
Source: TVB Pearl Special Broadcast on Shanzhai and the Apple Peel 31

32. 32
32
Photo source: Virginia Cha

33. Shanzhai 2.0
No longer just copying hardware (fake iPhones )
Building on existing electronics and through incremental innovation
creating products around th
ti d t d them (A l peel)
(Apple l)
Source: http://www.google.com.sg/imghp?hl=en&tab=wi, Photo source: Mili, apple, dx-power company websites. 33

34. Photo source: http://www.szgaoju.com
34

35. Apple Pan (Apple Peel 2.0)
Thumb drive for iPhone,
Th b d i f iPh
iPod, and iPad
No iTune needed
Costs 288 RMB
Photo source: http://www.szgaoju.com
35

36. Shanzhai 2.0 Peel Concept for Software
Photo source: Xiaomi 36

37. Shanzhai 3.0 Innovation Platform
Local smart mobile phone developer with own R&D
p p
development, such as K-Touch, Meizu and Xiaomi
All grew first then developed innovations
Platform approach: Software + Hardware + Service
Image sources: http://cdn.slashgear.com/wp-content/uploads/2012/01/meizu-mx-1.jpg 37
http://www.whatsondalian.com/ent_images/Xiaomi_phone_a881b31faf416736.jpg

38. Tianyu and Product Innovation
38
Android 2 2 smartphone
2.2
uses dual-core processor NVIDIA Tegra 2
512MB RAM and 8GB of internal memory
480 × 800 resolution 3.8-inch size touchscreen
5 Megapixel camera which can record 720p video
0.3 Megapixel front camera for video chat
supports GPS / A-GPS, Bluetooth and WiFi connectivity.
pre-loaded with applications f Si W ib QQ K i i
l d d ith li ti for Sina Weibo, QQ, Kaixin,
Youku
FM-tuner, microSD card slot, digital compass,
accelerometer and ambient light sensors
100GB free of online storage cloud computing
Released in China in mid-April 2011 through China
Unicom to about 3500 Chinese yuan
Photo source: Virginia Cha 38

39. Xiaomi M1
Xiaomi M1
Photo source: Xiaomi 39

40. Image source: China Daily 40

41. Progress of the Shanzhai Model of Innovation
Copy & Graft Layer & Innovate
on Modularity
• I t
Interesting
ti • L
Layer in
i • N f
New forms of f
combo of features to fill consumption
features at low in gaps of • Platform
cost performance approach and
• Product & • Single multi-
multi
GTM dimension disciplinary
capabilities R&D capability R&D capability
Success at each stage l d to growth
h leads h
41

42. Failures and Winners
Not all Shanzhai Producers Make Progress
Shanzhai producers who can follow growth path
Those who just copy fade away
j py y
Source: www.booz.com/global/home/what_we_think/featured_content/shan_zhai, http://www.google.com.sg/imghp?hl=en&tab=wi 42

43. Case Study 1: Tencent
Source: www.booz.com/global/home/what_we_think/featured_content/shan_zhai, http://www.google.com.sg/imghp?hl=en&tab=wi 43

44. Case Study 2: Renren
Renren Group
SNS Online Games
Social Shopping
(ala Pinterest)
Source: Renren Annual report 44

45. Case Study 3: BYD’s Manufacturing Cost Innovation
• The BYD F3 is an exact
copy of the Toyota
Corolla, but costs 50%
less to manufacture
• In Zhengzhou, F3
owners can spend a few
hundred Yuan to have
the BYD emblem
h bl
replaced with a Toyota
one
• BYD Strategy: Cheap products for masses
• Copy through reverse-engineering
• Can you open new markets with cost innovation?
Source: http://www.google.com.sg/imghp?hl=en&tab=wi 45

46. Case Study 4: WingTech 闻 泰 集 团
46
Photos taken by author on visit to Wingtech factory, Jiaxing, China. Aug. 30, 2011 46

47. Case Study 5: Rigol Technologies Inc.
Photo taken by author, Huaqiangbei, Sept 14, 2011 47

48. 48
Photo taken by Virginia Cha, Huaqiangbei, Sept 14, 2011

49. 49
Photo taken by Virginia Cha, Huaqiangbei, Sept 14, 2011

50. Question:
Without design or plan, how do
they develop their Go-to-market
y p
(GTM) capabilities?
50

51. Shanzhai Mobile Phones – How did it start?
Release of MTK Turnkey chipset (2005) created a platform for bazaar
High R&D Cost
Short Long
R&D R&D
Cycle Cycle
The Advantage of Turn-Key
The Turnkey platform shortened the
R&D cycle from 9-12 months to < 3
months and lowered the technology
costs for middle and small mobile
Low R&D Cost
phone manufacturers.
MTK mobile phone
manufacturers
Vertically integrated mobile phone manufacturers
51

52. Shanzhai and the Bazaar – The Ecosystem
Provides the fuel to a faster churning supply chain ecosystem
Shanzhai Industry in Shenzhen
Phone
Manufacturers 3000+
Component
Manufacturers 3000
Phone Mold
Manufacturers 200
Industrial Design 100
Logistics, Trade and
Tertiary Businesses
2000+
52

53. Shanzhai and the Bazaar – The Ecosystem
Quick R&D, Quick Design, Quick Manufacturing, Quick Shipment
• A typical large-scale, vertically integrated, international phone
manufacturer (e.g. Apple) takes up to a year from idea to product
launch
• In Shenzhen, the main “Bandit city” of Shanzhai, manufacturers just
need 20 days.
• Shanzhai manufacturers share ideas
• Like Linux: Release Early and Often
53

54. Product Releases Through Feedback
Supply Chain
Custo Trade Manuf
mer r acturer
Speed of feedback collection in Shenzhen?
7 Days 1 Day < 3 Day
Customer Trader Manufacturer
Synthesized based on interviews conducted from multiple trips to Shenzhen (2010-2011) 54

55. Fast Iterations from Feedback
Shanzhai iPhone 4
2 months
• Traditional back cover • Irremovable back cover
• internal SIM Card slot • External SIM Card slot
Source: http://www.google.com.sg/imghp?hl=en&tab=wi 55

56. Can Fast Growth Lead to Innovation?
Shanzhai firms grow and develop own sources of innovation
Source: http://www.google.com.sg/imghp?hl=en&tab=wi 56

57. 4F’s of Shanzhai Innovation
Rapid Product Iterations Low cost
Experimentation Modular components
Quick Response Affordable
Fast Frugal
Fit Fad
Localization
L li i Trend setting
d i
Targeted features Early adoptor
Customized Status seeking
57

58. Velocity of Implementation -- FAST
iPhone and Ciphone
Can you tell the difference?
y
Source: http://www.google.com.sg/imghp?hl=en&tab=wi 58

59. Relentless Cost Reduction -- FRUGAL
Samsung
iPhone Galaxy 2 小米
4s S3
S
=
RMB RMB RMB
5,880 4,999 1,999
1 999
Image source: Google Images
59

60. Localization -- FIT
• Online Dating
Platform
Pl f
• 5.5 million
monthly active
users
• Sell “Stamps” for
2 RMB (0.40
SGD)
Source: http://www.jiayuan.com/### 60

61. Fashion Oriented -- FAD
Collectibles to let fans (mifan) buy into the xiaomi lifestyle and culture
61

62. Shanzhai Progression
1.0 is about copy + grafted on improvements
2.0
2 0 is about a fusion of genuine products +
accessories to stretch utility
3.0 is about creating own innovation platform
GROW FIRST THEN INNOVATE
62

63. The rules f 21st century
h l for
Innovation have changed
63

64. Alternate Innovation Model for
the 21st Century
FIRST GROW
THEN PURSUE INNOVATION
64

65. Is this a China only
phenomenon?
INTRODUCING
GROWTH HACKING
65

66. What do these companies have in
common?
Growth h ki helped to d i growth at these companies i their
G h hacking h l d drive h h i in h i
beginning (start-up) stages:
66

67. What is Growth Hacking?
Growth hacking is a set of tactics and best practices for growing users
Hacking in any method to achieve goals. In this sense the only goal is growth.
“A growth hacker is a person whose true north is growth. Everything
they do is scrutinized by its potential impact on scalable growth. Is
positioning important? Only if a case can be made that it is important
for driving sustainable growth (FWIW, a case can generally be made) ”
(FWIW made).
Sean Ellis
formerly of Dropbox, now
founder and CEO of Q l
f d d f Qualaroo
Source: http://startup-marketing.com/where-are-all-the-growth-hackers/ 67

68. Growth Hacking from Airbnb
Airbnb, i il to
Ai b b similar t couchsurfing, b t with
h fi but ith
intervention (not p2p).
Airbnb reverse engineered its posts to
Craigslist, a functioning trustworthy site
with a 10M+ user base
Leveraged Craigslist traffic to
automatically link to airbnb, without
sanctioning from Craigslist (‘stole the
traffic’)
ffi ’)
Airbnb has listings in more than
26,0000 cities and 192 countries.
6 iti d t i
Source: http://andrewchen.co/2012/04/27/how-to-be-a-growth-hacker-an-airbnbcraigslist-case-study/ 68

69. Pinterest
Pinterest i a website started in 2010 that
Pi t t is b it t t d i th t
allows users to post photos
Users can easily post things from other
websites to Pinterest
Pinterest prompts users to “Describe your pin…”
Currently 11+ million daily unique views
As of March 2012 Pinterest is the #3 social
networking site in the US with over 104
million unique visitors per month.
"YOU ACKNOWLEDGE AND AGREE THAT, TO THE
MAXIMUM EXTENT PERMITTED BY LAW, THE ENTIRE RISK
ARISING OUT OF YOUR ACCESS TO AND USE OF THE
SITE, APPLICATION, SERVICES AND SITE CONTENT
REMAINS WITH YOU. "
Source: http://mashable.com/2012/04/06/pinterest-number-3-social-network/ 69

70. Dropbox Then:
1. Si
Signup D i
Driven Homepage
H
Common now, pioneered here
2. Easy Signup Process
Name, Email, Password
Now:
3. Refer a Friend
With incentives. Also works as a way to track and
analyze users activities
Source: http://blog.kissmetrics.com/dropbox-hacked-growth/ 70

71. 4. Social Media
Incentivize sharing, make your users see a
benefit in marketing your product
5. Sharing with Simplicity
Very little effort to use service. Simplicity is
key
6. Availability on Multiple Devices &
Platforms
Accessible from mobile and tablet devices
Designed specifically for mobile and tablet
devices.
d i
Source: http://www.slashphone.com/dropbox-updates-its-mobile-apps-on-various-platform-2311873 71

72. Dropbox Analytics
• Simpler Referral
Program
g
• 22-25% of new users
were referred by friends
Jan-08
No Growth
• TechCrunch50 • UI Refresh
Hacking
Launch • Simpler
Homepage
• Mac, Windows, Linux
and Mobile Versions
go live Analytics, A/B Testing
Source: http://techcrunch.com/2009/04/24/dropbox-now-effortlessly-syncing-files-for-1-million-members/ 72
Source: http://www.crunchbase.com/company/dropbox

73. De-emphazing Planning – Other Approaches
Source: Eric Ries and Steve Blank
73

74. Innovation Approach vs Growth Approach
• Start with design/strategy • Start with growth as objective
• New markets/applications • New customers
• Novel/original works • Not important to be original
• Market research/prototyping
/p yp g • Experimentation/release early,
as test vehicle before product release frequently. Continuous
launch beta instead of official releases.
• Purposeful to-to-market
p • Launch first, then iterate the
product
• Cathedral • Bazaar
74

75. Summary
Innovate for Growth
• Blue Ocean Strategy
• Business Model Canvas
• Disruptive Innovation
• Design Thinking
Grow first, then Innovate
• Shanzhai as a new form?
• Growth Hacking
Which model works for the 21th century?
75

76. Where Good Ideas Come From
http://www.youtube.com/watch?v=NugRZGDbPFU 76

77. Thank
Th k you!
!
77

78. Photo Credits
http://www.flickr.com/photos/smartjunco/384290043/
http://www flickr com/photos/smartjunco/384290043/
Andrew W. Sieber Attribution-NoDerivs License
http://www.flickr.com/photos/aqaba/304927371/
John Parkinson Attribution-NoDerivs License
http://www.flickr.com/photos/pixelbuilder/7187652204/in/photostream/
Weslie Leung Attribution-NonCommercial License
Attribution NonCommercial
78