Wednesday, August 30, 2017

Pull Your Head out of the Silicon

A local practiced his English on me while we were standing at a Shanghai intersection. He was not dressed very well, but as we spoke he kept flashing his fancy phone. So I commented, “Nice phone, but not so nice your clothes.” He held up his hand and said “No problem.” He explained, “First the phone. Then a car.” And with a small smile he added, “Then a house. Then a wife.” This man had a plan. But notice that the plan had no place for a computer.



Wait. 

You think I'm going to talk about "native mobile" trumping technologies born on the desktop. No. My point is that native mobile is just part of a larger pattern. We may be sharing the same technologies around the world, but the way we use them is very different. Because conditions vary so much from place to place, businesses born in different places look very different too. But we won't see that if we our heads are stuck here in the valley.

Take the online gaming world. While silicon valley's Zynga, having been born on a desktop, is down to 1/3 of what it was at its peak, mobile games like Devsisters' "Cookie Run" proliferate on mobile platforms created elsewhere - South Korea's Kakao in the case of Devsisters. With globalization, we're seeing not one big "flat" world - but big differences from place to place. As a result, new innovative business models are emerging from around the world, based on logics not discovered in the silicon valley.

One of my favorite serial entrepreneurs, Croatia's Jan Jilek, laments that VCs often do not take notice of the many startups originating outside the valley. Why not? I wonder, perhaps folks here in the valley may be living in the past (when we could ignore the "rest of the world")? I told a friend of mine, who knows a lot about success in the silicon valley, that I am studying MercadoLibre. “Ah,” he said, “The eBay copycat.”

Wrong.

In fact, the company that once was a South American version of eBay is nothing like that now. MercadoLibre has evolved in response to the unique circumstances of Latin America. Latin American companies needing an internet channel turned to MercadoLibre. Customers without credit cards found MercadoLibre’s payment backbone, MercadoPago. (And, MercadoPago, meanwhile, looks nothing like eBay’s PayPal.) As it evolved, MercadoLibre developed innovative services perfect for the Latin American context - from escrow services to alternative money transfer systems. In short, MercadoLibre may have started out like eBay, but today it has evolved its own business model in line with its markets. Although Marcos Galperin, its founder, went to Stanford, the business evolved into something that would not have been created in the silicon valley.

In industry after industry, worldwide, new business models are taking shape that would not have been invented in the valley. The ecotourism lodges run by Rainforest Expeditions in Peru balance the interests of the local population, the environment, and the need to do business in ways unknown in developed countries. The internet-based mass education and training systems run by Educomp are successful worldwide.  Notably, the company started in India where it initially developed the capability to create and deliver online curriculum in that context. Those capabilities allowed it to outcompete its rivals from the developed world. Large scale production and export of ceramic products by RAK Ceramics of Ras-al-Khaimah takes advantage of the resource endowments and location of this company in the UAE. The innovative mobile payments company M-Pesa in Kenya allows customers to transfer money, pay bills, and even access microfinance without involving a traditional bank – an attractive business logic where banks are suspect. The list goes on. Such companies are not playing “catch up” with the valley. Rather, they are evolving their own business logics, in response to the unique characteristics of their own environments.

It is true that we are a small world geographically, but globalization is increasing variety when it comes to business models. These varied approaches to business reflect the various logics of the world’s very different markets, technologies, cultures, and institutions. The countries of the world are logic laboratories, giving rise to new kinds of businesses that never could have been invented in the Silicon Valley, New York, or London. Business leaders would do well to ditch the illusion of convergence. Pull your head out of the silicon, and you'll see business innovations blossoming worldwide, reflecting the logics of other places - successful precisely because they were not invented here.



The importance of differences across the world economy is studied many, including Pankaj Ghemewat.