“First-time Customer; I Give You Best Price”

I spent my second day in Beijing shopping for 5 hours in the Silk Market, a very popular tourist bazaar. It is in a one and half year old building with 6 floors (before that the shops were on the street).

I bought the following items: Prada shoes (150 RMB), Louis Vuitton tennis shoes (200 RMB), 2 Polo Shirts (45 RMB total), Armani dress shirt (40 RMB), 2 Cashmere Burberry Scarves (90 RMB total), and a stocking cap (20 RMB). Ash bought very similar items, as well as two silk bed sets for 400 RMB.

My first experience in the shop was pretty ridiculous—Ash, Avik and I walked in and immediately we were bombarded with question from the merchants: “Would you like Polo shirt?”; “Nice bag for your girlfriend?”; “You want shoes?” I was pretty overwhelmed at first—I don’t really like talking to salespeople in the U.S., but this is much more intense. If you stand still for more than a few seconds you are guaranteed to have someone grab your arm and drag you to their store.

When you finally find something you want, then you have to start bargaining. For something like shoes, they will start off with a price of about 800-1000 RMB. Then they will ask you for a price, and in general it is safe to knock off between 75-90%. They will then stare at you and tell you that you must be crazy, that it’s not possible, and ask you for your “real price.” The key is to stick with your original price while they bid themselves down. Most likely this will require walking away from the shop, because there are so many shops with the same gear that they will drop their price to keep you. Once they are in your general range then you can raise your bid to come to a compromise. Ash and I would do this once for an item, and once we figured out the general “best” price, we would use this to negotiate with other merchants. We got some items for so cheap that other merchants we spoke to that day didn’t believe we bought them for so cheap.

Ash and I got lunch in the Silk Market and met two women from Britain, one of which recently gave birth to a baby girl. She told us that she is going to move from Beijing soon because the pollution is so bad. She told us that on Stage 4 days children are not allowed outside, and on Stage 5 days no one can go outside. The government actually decides which days will be “blue sky” days—days when no factories will run to cut down on pollution. For the Olympics, no cars will be allowed in the city for a month, and all construction will be stopped.

Later that night the group went to a club which was okay, but afterwards I got to play the drums at another bar.

Beijing Part 1

Beijing has been crazy! We just got internet to the rest of our world restored yesterday because of the Earthquake in the south. Hopefully I will have more time to discuss what has happened and post some pictures--we're leaving pretty soon for the Forbidden City and the Great Wall. Yesterday we met with Motorola, MTV China, the largest Chinese film studio, and Sina.com, China's largest portal. I'll have more time to post tonight.

Cheers,
Justin

My Visit to Palm

I went to Palm's headquarters in Sunnyvale on Wednesday, December 20 for an MBA recruiting visit. They recruit MBAs from all over the West Coast for their internships in Business Development, Program Management and Software. During the summer an MBA would work with the product manager, who essentially "owns" the product, software or device. An intern works with engineering, sales, support and marketing to research market trends and determine the end user scenarios.

Palm's number one priority is user experience--in fact, the software product manager who ran the recruiting session emphasized that Palm is not a tech company, but instead a consumer company. And even though they produce the best smartphones (PDA+phone), they focus on the phone first. Another significant difference between Blackberry and Palm is that Palm tries to design their phones for end users instead of IT technicians.

Some of the projects interns have done in the past include:
-Macintosh strategy
-WiFi/Bluetooth sync
-DRM (digital rights management) strategy
-How to target new customers
-Web browser strategy

An intern performs a variety of functions from deciding whether to build or acquire, to analyzing what aspects of the value chain Palm should control. Fifty percent of an intern's time is spent on this type of strategic work, with the other fifty percent spent assisting the product manager (creating market research reports, etc.).

A couple of issues that I brought up that have not been sufficiently resolved include: Motorola's recent acquisition of Good Technology (Good is used on the Treo for email exchange, but Motorola is obviously a major competitor with Palm); the manufacturer of the actual Palm handsets has also become a competitor with Palm; Palm has not pursued a WiFi strategy, and in fact I got the sense that they won't until "they have to."

This is one theme that really drove home from my meeting with Palm; they are not focused on technology, and it seems that they wait until consumers ask for a technology before focusing on it. This is an issue because by the time the majority of consumers want to adopt a technology, a major competitor probably will have introduced it on their smartphones. Palm can only rely on their own brand name for so long, and even that has begun to erode with the introduction of the Blackberry and the Q.

Music Industry

I had a very interesting meeting with Dwight Wardlaw, a friend of mine in the Sloan program, who started his own record label. He invited me and a few other MBAs to talk about his experiences in creating the record label and working with the associated companies in the music ecosystem. His major artist is Gary Kyle (checkout video at youtube: http://www.youtube.com/watch?v=oKlCDaF7_nE).

First we discussed the ecosystem. Normally there are three major players: Record Label, Publishing, and Management.

Record Labels are run very inefficiently (no surprise!); an example is how they recoup their initial investment in a band. Typically they will pay for all recording costs upfront, as well as give the band an advance. Recording costs are approximately $250,000 for a major record label, with an additional $50,000 for the advance. The band doesn't receive a penny until the record label has recouped these investments. From here it is easy to see how to game the system--allocate as much cost as you can to the recording expense. This is exactly what the record labels do. They charge as much overhead as they can to the "recording costs", and the bands get practically nothing. For example, Dwight was able to professionally record his artist for a fourth of what a major record label would have charged.

Next is publishing, and basically the big mistake a band can make is lose their publishing rights--a friend of Dwight's is unable to release her album (it has been ready for over a year!) because of making this mistake.

Management covers a lot of different aspects of the band--personal manager, publicist, and distribution. Obviously, distribution used to be much more difficult than it is now, with digital music download sites like itunes, but it is still essential to sell albums (through commercial sites and at concert venues). All album sales are reported to sound scan, which is used by Billboard to rank the top albums and singles. This is the most common way for a band to build the credibility needed to "be discovered."

The rest of the meeting we discussed the innovations we see occuring in the music industry. For example, the website www.pandora.com is leading the way in music discovery for consumers. Another site, www.platinumblueinc.com, analyzes songs to determine the probability of them becoming a mainstream success. For $10, you can analyze a single song and receive a report within 5 days. Another interesting site is www.sellaband.com; from here you can purchase equity in a band in $10 increments. Once the band has raised $50,000 they can record an album with professional equipment, and every one who invested in the band receives a CD. From there the songs are downloaded from the site for free, with ad revenues from site traffic shared between the band and shareholders. It's a nice little Web 2.0 version of the record label industry.

MySpace has obviously changed the way bands build fan bases, but a very interesting development is occuring on a more radical social networking platform: Second Life. Real bands such as Duran, Duran and Talib Kweli have played to virtual audiences in the online world (http://www.wired.com/news/technology/internet/0,71593-0.html). For those unfamiliar with Second Life, you should check out a podcast created by one of my classmates: http://iinnovate.blogspot.com/. Search for the interview with Philip Rosedale, Founder of Second Life. Don't believe that an online virtual game has monetization possibilities? Check this article out: http://www.businessweek.com/the_thread/techbeat/archives/2006/11/second_lifes_fi.html?chan=search

I know Stanford will be hosting a panel of music industry experts in January--it will be interesting to see what they think lies ahead for the future of music.

Fantasy Basketball

So I've noticed that I spend an inordinate amount of time playing fantasy basketball... and a few of my fellow GSBers have asked me for some advice on how best to run a team. Here are a couple of my thoughts:

Scan the box scores every day
-This takes only a couple minutes, but is essential for understanding who is getting playing time, who is starting, and who is putting up significant numbers.

Research the draft
-Not really going to help anybody right now, but the single most important part of the Fantasy NBA season is the draft. Middle to late round sleepers make or break your season.

Watch basketball games
-Silly, but a lot of fantasy players don't actually watch the games. This is especially important in the first week of the season--most of the breakout players I have picked up from the waiver wire in the last couple of years have been immediately after a game or while I was watching the game.

Predict who will get Center eligibility
-I have used this tactic so often in my leagues that managers who have played with me for awhile will actually not make trades with me because they know if I want their player, he very well may be center-eligible soon. Keep track of who starts, and learn the eligibility rules for your league. Centers are extremely valuable (though not as much this year as in previous years).

Try to make "two-for-one" trades
-Two for one trades are great because you can't play everyone on your team everyday--depending on the league, you will have at least a couple bench spots, so I'd rather have a superstar I play everyday, then 2 mid level stars that I spot start. There are a couple ways to accomplish this--the traditional two-for-one, which most managers are reluctant to make now because they have learned that two-for-ones aren't the best moves, and the two-for-two, that involves the other teams worst player. Essentially these are two-for-ones, especially if there is a player on waivers that you are looking to pick up anyway.

I'm sure there will be some future posts on more strategy involving Fantasy, but I definitely welcome any opinions on this matter, or if you disagree with my post.
Justin