Author Archives: Bento

I’m not ever touching Swedish money again

Dear Baruch,

My New Year’s resolution for 2013 is to not ever touch Swedish money again. I’ve found these past few months that I no longer need cash in Sweden, as practically every single transaction can be done electronically, no matter how small the amount. The advantages to me speeding along the arrival of a wholly cashless future are many:

  • Coins are heavy yet worth little. I already give far more to charity per day than the value of the coinage I would willingly keep to avoid being shortchanged in my transactions.
  • Bills weigh less, but are worth more, so if I lose them or have them stolen their value to me is forever destroyed. And when I travel abroad, they need to be exchanged before I can access their value. My debit card is better on both counts.
  • Transfers between Swedish bank accounts can be done online, and are instantaneous and free. Ask a Swede about cheques and they will draw a blank, figuratively.
  • All Swedish merchants I’ve used in the past year take bank cards, because all Swedish points of sale must report back to the tax authorities, so taking cash just to avoid paying taxes is a nonstarter (and frowned upon in any case — Swedes ask for the receipt). This is why Sweden is Sweden and Greece is Greece.
  • Security and identity fears have been effectively resolved with the recent nationwide introduction of the BankID and Mobile BankID system. I can now authorize and sign a whole range of interactions via a desktop app or a mobile app. BankID connects me securely to banks, pensions funds, insurance corporations, tax authorities and anyone else willing to join. These services are often available via mobile apps that connect seamlessly to the BankID app. (Here’s the state pension fund’s app; here’s the tax authority’s app.)
  • Innovative cardless payment solutions are evolving. Just in the past month, I’ve started using two:
    • Swish is an initiative by Swedish banks that lets you connect your bank account to your mobile phone number and then send to or receive money just by using phone numbers. There’s no more need to deal with bank account numbers. 
    • SEQR has just started being used by my local supermarket to allow payments via mobile phone. When the checkout chick presents me with my grocery bill, I tell him I want to pay with SEQR, and then scan that register’s unique QR code. While the register sends SEQR the payment amount, I send SEQR the QR code, which authorizes payment. It’s about twice as fast as paying with my debit card, because the service does not have to check with my bank to see if my account has money on it. Instead, it gives me a SEK 5,000 (USD 770) advance with which I can make purchases, and I get the bill at the end of the month. 

Both apps are getting glowing reviews, but we’re still short of the Holy Grail. SEQR and competitors will get even better when some form of near-field communication technology gets widely adopted in the next few years.

My New Year’s resolution is not for everyone. Right now, getting a BankID to work requires a few too many tech-savvy steps for old people to really get a hang of it. Either it will get easier, or cash will be around until they die off. One bank at least continues to see facilitating cash transactions as a service for this demographic.

As for other people in other countries, how soon they can follow Sweden’s example depends on a couple of national traits. Banks in Sweden are not averse to cooperation, in part because they are so well-regulated that they don’t have to operate in some kind of Hobbesian zero-sum scramble for customers. They tend to compete on services, but collaborate on platforms. Also, Swedes have a national genius for public trust in their government, and it is by and large justified. I’m not sure I’d be willing to give up the anonymous payment option that cash offers anywhere outside Scandinavia right now. In any case, anonymous cashless payment technologies are riding to the rescue.

[BONUS REASON I FORGOT TO MENTION: Banks like SkandiaBank have apps that let you datamine your own expenditures by type, establishment and even by individual component purchases. This certainly appeals to our inner geek but it can also more easily motivate behavior modification — for example, the micro-savings app lets you set savings goals by encouraging you to forgo small daily expenses.]

What next for Apple?

You might forgive Bento for gloating. It’s true that he doesn’t write much around here, but when he does, it tends to be about Apple, and he tends to be spot on. Cases in point: A prediction of run-away success in China way before it became a mainstream opinion, and a prediction of run-away success for the iPad when it was being trashed by the technoramuses, pointing out that it is an ideal device for baby boomers.

As a long-time owner of (a very small chunk of) Apple stock, the past decade has been an absolute pleasure, with Jobs et al reïmagining and then dominating a whole run of product categories with apparent ease — music players, mobile phones, tablets, and now ultralight laptops. But in this success lies the seed of a problem: While the empire that is Apple has plenty of expansion left in new geographic markets and within existing product categories, Apple is exhausting the universe of gadgets it can colonize. I now have an iPhone, iPad and MacBook Pro on me most times, and go running with an iPod Nano. My next laptop will be Air-ish. But what additional new thing can Apple sell me that I must have as soon as I see it?

Even if Apple never again introduces another revolutionary iDevice with concomitant new revenue stream, it will take some time before Apple’s growth trajectory retreats from the exponential to the merely geometric. With Steve Jobs gone from the helm, however, there’s the possibility that Tim Cook will get the blame for this shift; when in fact all the low-hanging fruit has now been picked.

Yes, it has. All the product categories Apple has revolutionized have long been on the radar screen. Microsoft tried and failed to kickstart tablet computers during much of the naughties. Apple’s Newton was ahead of its time. Walkman music players were poised to be replaced by something digital. Laptops have since the start been massive compromises between weight, power, and battery life.

What might Apple do next? Television has been mooted as a candidate; the self-described AppleTV “hobby” has been a modest success, and there are rumors that Apple might use its lessons to try to properly reïmagine home entertainment using what it has learned from AppleTV. We’re halfway there with Airplay, which streams sound and video between wifi-connected gadgets around the house, but it is not yet seamless. (I’m an early adopter of it). If it becomes seamless, and stays much cheaper than competing Sonos’ systems, and the AppleTV OS turns into something of a platform that multimedia content providers can build apps for and stream content to, then we may have a proper new product category for Apple to dominate. Price here would be crucial, but that is something which Apple’s fabled manufacturing prowess could trounce the competition on, not least when it comes to screens.

And beyond that? Where else could Apple inject itself into my daily use of technological tools to be creative or to consume others’ creativity? Might it take on premium camera manufacturers like Nikon and Canon? Revolutionize (electric) car design? Develop connected appliances such as fridges that scan and refill themselves using the web? Jonathan Ive may well be chomping at the bit to bring Apple design to any of these areas, but somehow I doubt it can happen. Nikon and Canon already produce finely honed ergonomic masterpieces that are too niched for Apple; electric cars would be too large an adventure beyond its core competency, and while a connected intelligent home surely lies somewhere in our future, it is about as useful to speculate about this as to wonder when we’ll all be installing fusion reactors in our cellars (and what role Apple would play in their design.)

A more subtle worry of mine is that Apple will continue to produce gadgets and software that encourage content ownership, despite the fact that for the upcoming generation, “purchasing” digital content is increasingly anachronistic. Apple risks losing relevance among this group if it does not adapt, and it shows no signs of doing so (yet) despite the fact that the technology for alternate forms of paid consumption is mature.

My anecdotal evidence: As a resident of Sweden (which lives perpetually a little in the future) I have been using Spotify for several years. That Swedish start-up lets me legally stream and even download any music I choose from an iTunes-store sized library for a flat monthly fee. The service is social, mobile, and has become ubiquitous in Sweden; since signing up, I have not bought a single song on iTunes. Nor do I know any Swede who has (I asked again at a dinner party last night.) I’m sure that Apple’s internal iTunes store statistics for Sweden reflect this change on the aggregate level. And now Spotify has just launched in the US.

Movie rentals in iTunes are not the future either; the Netflix model is.

So these are the fears I hold for Apple in quieter moments. Emphatically, Windows 8 is not among them — the hardware is just as important as the software, and Apple, uniquely, is strong in both. I do see a danger of Apple making ill-advised concessions to Chinese censors for its future devices and cloud services sold domestically (it already did so with the Chinese iPhone 4), but the resulting negative publicity would not have an effect on the bottom line.

Of course, $76 billion in cash buys a lot of insurance against technological riptides. Baruch, what product category do you think Apple should colonize next? (I would certainly love it if Apple reïmagined driving. They could buy Volkswagen-Audi AG (market cap conveniently $63 billion) and soon thereafter announced the beautifully designed all-electric iAud. Considering that Google is already working on autonomous electric cars, surely that raises the odds of this happening?)

Forget Twitter and Facebook; this is a satellite TV revolution

Baruch, today’s lesson: The internet and mobile telephony are not robust technologies when it comes to withstanding state intervention. States can and do pull the plug on them when they sense an existential threat. China turned off the Internet in restless  Xinjiang for 9 months in 2009-2010, and Iran and other countries turn off sms and mobile internet use when it suits them. Today, Egypt’s authorities tried to dampen a popular uprising by shutting down both its Internet and mobile telephony.

This is sobering, but points the way to how such draconian measures can be circumvented by those intent on accessing independent news: By not relying at all on terrestrial infrastructure such as cell towers and Internet cabling, falling back instead on direct satellite communications.

By necessity, this set-up reverts to a broadcast/receiver relationship, with international broadcasters like the BBC and Al Jazeera able to invest in satellite video phones as a back-up in case authorities turn off other means of broadcasting live. The Egyptian people, meanwhile, have ubiquitous access to satellite television — as anyone who’s been to Cairo can attest after just a brief glance across the rooftops:

Satellite dishes on Cairo rooftops.

There is no way to restrict the reception of such broadcasting — there is no way for Mubarak to prevent Egyptians from watching satellite broadcasts of Al Jazeera short of turning off the electricity. This fall-back on satellite reception is not something widely available in all countries. In China, for example, it is cable television that is ubiquitous, a terrestrial mode of communication, that can and is blacked out at will by the Chinese authorities — most recently whenever CNN broadcast news of Liu Xiaobo’s Nobel Peace Prize.

While I am sure that much of Egypt’s older cohorts are glued to their televisions tonight, I wonder if turning off the Internet and mobile telephony earlier today didn’t have an effect opposite to what Mubarak’s regime intended: Egypt’s urban youth, suddenly without their main means of diversion or entertainment, had only the streets to go to. For once, there was no Twitter or Facebook or YouTube to distract them. All that was left to do was to go out and vent their rage.

Google’s long goodbye

Baruch: Today, another round of derivative punditry: There is much reading of tea leaves re Google’s reading of tea leaves re what Chinese authorities really think of Google’s continued web presence in mainland China.

What we know:

Chinese authorities do not look kindly upon the automatic redirecting of a locally-hosted, licensed website with the .cn suffix (google.cn in this case) to a non-.cn website (google.com.hk). China-based sites that have or want a government-issued Internet Content Provider (ICP) license need to be used for their stated purpose. Redirecting is not a valid activity for such a site.

This is not an arbitrary Google-only rule. I was made aware of it last year when my own China-based web project was about to go live — the ICP license was still pending as launch day approached, so we mooted a plan B where the URL would redirect to content on a non-Chinese server. The idea was nixed after we were told by government officials this would be a bad idea. (Fortunately, our ICP license was granted just in time.)

Now that Google’s ICP license is up for renewal, the strategy Google came up with in January March to serve uncensored search results to mainland Chinese netizens is found lacking. This automatic redirecting business has got to go.

What Google is replacing this with is the next best thing (from its perspective): An image that looks just like its search page, but which transports you to the Hong Kong version as soon as you so much as breathe on it. The page looks like it has a search entry field, but it is fake. Click on it and you go to a real search entry field on google.com.hk.

This kind of fakery allows Google to argue that Chinese law has now been followed to the letter, even if the spirit has been taken out the back and shot. The argument better work: If Google’s application for the renewal of its license is declined, it might as well close down all web activity in China. Google needs this new ICP license by July 1. The application based on this new “manual” redirect method was made on June 28.

What we think:

I doubt Google’s trick will fly with the relevant authorities, who will see it for what it is — a politely stated fuck you. A manual redirect is still a redirect, with the site doing nothing else at all. What it does allow Google to do, however, is force China’s hand. Google won’t abandon its users by pulling out of China — it will insist on being pushed.

So yes, Google knows the game is up, which is why its Chinese users are being weaned off google.cn and onto google.com.hk. In China, Google users are among the sophisticated half of web users, and they know how to change a home page, default search location, or shortcut. All they need is a bit of a push to get them to change these defaults, and then they’ll be on their way. When google.cn goes dark, they’ll be fine.

The one thing that would really put a spanner in the works for Google would be if the Chinese government decides to block all non-Chinese google properties, out of spite. But that would just be vindictive, and it would anger far too many web-savvy Chinese users who tolerate their state’s web paranoia as long as ready circumvention options are available.

Belgium bids adieu to civil liberties

BBC — A Belgian parliamentary committee has voted to ban face-covering Islamic veils from being worn in public.

These stupid Belgians are well on their way to throwing the baby out with the bathwater, Baruch. There should be a law against women being forced to wear burqas by their husbands, not against wearing burqas outright. If that is hard to enforce, well, tough. The right of a woman not be forced to wear a burqa by her husband must not come at the expense of the right of a woman (or a man) to wear a surfeit of fabric in public, for whatever reason, including religious belief.

Belgians forbidding the wearing of burqas is as backwards as Saudis forbidding the not wearing of burqas. Both constrain the civil liberties of women. That this blazingly obvious point does not gain more traction in Belgium infuriates me.

If Belgian lawmakers want to convince me that this is not a law borne of religious intolerance then I look forward to the ban on motorcycle helmets, ski masks, carnival masks, full-face bandages, wedding veils and Halloween costumes. Otherwise, there will be a ready-made excuse that should hold its own all the way up to the European Court of Justice: “It’s not a burqa, officer, it’s my Halloween costume.”

What is Apple up to in China?

Baruch, in this post: A new piece of information, augmented by local insight, that amounts to yet another upside case for Apple. And yes, it involves the iPad.

The new information: This past Thursday, Apple revealed plans to open 25 retail stores in China. Currently, there is one swish Apple Store in an upmarket outdoor Beijing mall, with one more planned in Beijing and two in Shanghai this year. Opening Apple stores in Chinese cities that most foreigners have never heard of (The likes of Shenzhen, Hangzhou, Chongqing, Chengdu, Kunming — there are 25 such cities in China bigger than Chicago) betrays a whole new level of ambition in the Chinese market, beyond just servicing creative elites in their international watering holes.

But what could Apple possibly sell in those stores that the Chinese can afford en masse? Let’s put that question aside for a moment and look at these recent observations:

  • My Chinese teacher, upon visiting my apartment, ogles my 17-inch MacBook Pro and 24-inch Apple screen. She goes so far as to run her fingers over the logo. “Made in China!” she beams. There is pride in the fact that Apple devices are made here, even if the IP comes from elsewhere. They are obviously built very well, which is more than you can currently say about Chinese-assembled cars or buildings. Apple computers may well be the most famous high-quality product coming out of China right now, and the Chinese know it.
  • Take a subway in China during rush hour and you will see few Chinese reading books or newspapers — the subway is far too crowded to claim that much personal space. Instead, more than half are pressed against their multimedia devices — hacked Sony PSPs, shanzhai touch-screen gadgets, or large-screen mobile phones — often scrolling attentively through long texts or watching soaps.
  • Luxury good brands usually tackle China by setting up shop in the most prestigious mall available and then running an ad campaign. These high-end malls are always empty when I inspect them, because very few Chinese right now can afford what’s on offer — but that’s OK: The idea is to stake one’s claim early as an aspirational destination, to be that symbol of success craved by the Chinese, so that when they do all eventually achieve success in droves, they will be preprogrammed to want that Mont Blanc pen in their Gucci bag slung over a Prada one-piece — just as we in the West have long been conditioned to want.
  • Luxury goods are easy to fake. Premium goods are not. As the world’s best fakers, the Chinese are well-positioned to appreciate that difference. Truly premium products (Audi, Nikon, Apple) are difficult to fake because their value lies in their superior functionality. Luxury goods are easy to fake because their prime function — to tell time, or to carry your makeup — costs very little. The rest is about conventional status messaging, wrought through expensive materials and labor, scarcity and branding — and these can easily be subverted to produce knock-offs. I suspect luxury brands will find they have a far harder time gaining a foothold in China than premium brands, because the Chinese are uncommonly pragmatic.
  • The Apple store in Beijing, on every occasion I have visited, is just as bustling as the ones in New York or London. I haven’t seen many computers being walked out the front door, but there is definitely a lot of experimenting with the display units, and the most popular items are iPod and iPhone accoutrements. (I have already explained why low official iPhone sales in China are nothing to worry about.) In short, the Beijing Apple Store is nothing like a luxury goods store in China. The focus is on transactions in the here and now.

Perhaps it is time to come to the gist of this post. For all the reasons above, I don’t think Apple’s move into 25 Chinese cities is the conventional luxury brand play for China, but a plan to sell them something that they can use, crave and afford today: Yes, iPads. at 499 USD, they are far cheaper than iPhones, which maybe 3 million Chinese have already bought without a subsidy. (I bought a Hong Kong factory-unlocked 16GB iPhone 3GS for 730 USD in Shanghai a few weeks ago.)

But why would the iPad be a success in China? Well,

  • Premium UI, multi-touch, battery tech = Hard to knock off.
  • Made in China = National pride.
  • 499 USD = Affordable to a middle class that is still a minority but huge in absolute numbers.
  • Long, crowded commutes = A compelling real-use case and an opportunity to show off.
  • iPhone OS = Best-in-class Chinese language support right out of the box. Far superior to any home-grown device — seriously.
  • iTunes = All those pirated mp3s and movies will work just fine on the iPad. (Don’t expect the Chinese to pay real money for their music or movies — ever. Sorry.)
  • App store = It’s just a matter of time before a third-party Chinese-language ebook app sells cheap literature.

The iPad is the first Apple computer many Chinese can afford. They will flock to it. You might even want to ask “why just 25 stores?” Apple COO Tim Cook has an answer:

“We are very, very focused on the quality of the point of sale and consumer experience,” Cook said. “We would prefer to move slow because we are building the brand for the long-term.”

Expect great things from Apple in China. Expect them sooner than you might think.

The real reason why the iPad will be a success

Those who are dubious about the iPad’s impending success (and I suspect that you are one of them, Baruch) are of course in danger or repeating history (qv iPod, iPhone). I have no intention of replicating all the arguments pro- and con the iPad, so I will limit myself to just one wholly original observation as to why I think the doubters once again are not getting it:

1. The iPhone was a success from the start, but it really became a ubiquitous device when it proved competent at a whole range of tasks beyond Apple’s original marketing copy. (It was just “a revolutionary mobile phone, a widescreen iPod with touch controls, and a breakthrough Internet communications device,” remember?) Now games rule on the iPhone, and as many parents will attest, the iPhone’s one true calling is as breakthrough child pacification device.

A similar role awaits the iPad. No, not for children; rather, look to the burgeoning end of the demographic curve: baby boomers.

I know many baby boomers who are intimidated by computers. Plenty are not, but a great many spend far too much time wrestling with viruses and drivers, wondering what a DLL is, and generally not knowing the difference between their RAM and a hard disk — all just so they can read emails and check their bank account online. Some boomers have sired offspring who gladly help them with remote tech support sessions, but many others have not, and suffer for it. The reason for all this misery is simple: Computers are still too complex for those not prepared to give them their undivided attention. That’s even the case for Macs.

Not so with the iPhone. I’ve seen that thing understood within minutes by 2 year-olds and 84 year-olds. It does one thing at a time. Your finger is the cursor. There is no need to tap things twice before stuff happens. You are allowed to turn it off with the power button.

But the iPhone isn’t perfect for baby boomers. The screen and text are too small for aging eyes, the keyboard too cramped for confident typing, making it unusable for even basic office productivity tasks.

Enter the larger, faster iPad. It’s a complex computer simplified, which makes it a perfect fit for those whose remaining life is too short to spend it defragging drives. Add the keyboard dock, and the iPad is versatile enough to be a baby boomer’s only computer. The only thing it won’t let them do is videoconference with their grandchildren — which is an omission I hope they fix in next year’s version — but on the other hand, at $500 this much is forgiven.

My prediction: Within 2 years you will be reading articles describing how it was obvious — with hindsight — that the iPad would be a hit with aging baby boomers. But who needs hindsight when you have Ultimi Barbarorum?

Google: Scientist

Baruch,

Symbolism is never lost on the Chinese, who are the masters of signaling, and thus there was some great poignancy to Google’s A new approach to China being posted to the blogspot.com domain, which is blocked in its entirety by China’s censorious government. This proved quite a sassy way to illustrate a point, before even starting on the merits of the case. Those outside China didn’t even notice. Everyone inside China, including the officials, had to turn on their VPN to read it.

Now that the deed is done so publicly, I don’t imagine either side will back down, and nobody expects Google.cn’s redacted search service to last much longer, with perhaps a further punitive ban on google.com for the sheer audacity of this insubordination. But already today the blogosphere erupted in competing narratives explaining Google’s autodefenestration from Chinese search, and not all were wholly credulous of Google’s stated motives.

Among the cynics, the arguments ran thus:

- Google is misrepresenting its decision: It was a face-saving, kudos-generating way to exit a failing business (though without explaining why profitably capturing 31% of the search market in China should prompt shutting down).

- Google is making a mistake: No business in their right mind would purposely anger the masters of such a lucrative market, so this has to be a stupid tactical mistake. (The stated presumption here is that Google cannot be ethical, or it would not have entered China in the first place, so this fiasco must be a very bad business decision merely masquerading as a moral decision.)

Among the partisans:

- Google was pressured into it by Hillary Clinton, thinks Rao Jin, the founder of the China’s patriotic Anti-CNN forum. (I suspect a failure of the imagination on the part of Rao — clearly, he is projecting onto the US how things are done in China.)

And tomorrow, expect the official mouthpieces’ take, which I predict will involve far more references to the peddling of pornography than to the free market of ideas.

I, Bento, take Google’s explanation at face value, however. And I intend to restate the narrative in terms that will be familiar to long-time readers of Ultimi Barbarorum: All along, Google’s approach to China has been that of the scientist: There was a testable hypothesis, an experiment, and a conclusion based on that experiment. And today, we saw the publication of the results — the hypothesis proved false.

Specifically, the hypothesis, as formulated by Google during 2005: The internet in China will become freer in the coming years, and Google’s presence in China will help strengthen this process. Many believed and hoped this might be the case — the Olympics were approaching, China was opening up, officials exuded reasonableness.

The experiment, initiated in January 2006: Enter the Chinese search market, try to improve the system from within by collaborating with the regime, and see if China’s internet gains freedoms over time.

The evidence: Over the past few years, a progressively stricter program of shutting down those Chinese sites that do not comply with demands for censorship and surveillance. The progressive blocking of all popular foreign sites that allow uncensored anonymous communication, including several Google properties: Twitter, Facebook, YouTube, Blogger, WordPress, IMDB, Google Docs, URL-shortening services… And, what Google cites as the final straw, recent industrial-strength malware attacks aimed at Gmail-using Chinese dissidents.

The conclusion: Google’s collaboration was not making things better; things were getting worse. They admit they were wrong! There may have been a financial return on its China investment, but the civic return proved disappointing.

Faced with this realization, Google could have done nothing. But that way lies death by a thousand cuts as web property after web property gets axed. How soon before Gmail gets blocked? Google Maps? Earth? Picasa? Google Reader? Instead, Google cleanly terminated the experiment: There will be no more collaboration with the regime. Now China must throw them out if it wants to save face domestically — albeit at the price of losing face internationally.

As Spinozists, this is a proud day for us. Google has posted that placard declaring China’s government Ultimi Barbarorum in a public place. Gone for them is the queasiness of having to placate a regime that believes calling for free elections deserves 11 years in jail for subverting party state power. I’m betting it’s a relief.

A postscript: I was surprised that several Shanghai-based European VCs and businessmen I follow on Twitter were among the cynics, berating Google for not conforming to Chinese/Asian business practices based on saving face, consensus and relationship-building, instead reverting to an “American” ultimatum. But these views come from individuals who have already made their peace with China’s political system, and whose business models and reputation do not depend on the unfettered flow of information. Perhaps some of them are unwittingly using the occasion to signal their own reliability as partners in China: “Look at us — we’d never consider doing what Google just did.” Google may have burned its financial bridges, but they are burning their moral bridges, making them the Stupid Cartesians of this sorry episode, Baruch.

An article wherein it is explained why everything written so far about Apple’s iPhone launch in China is beside the point.

Baruch, you know how hard I, Bento, try to refrain from commenting about Apple on this blog, but it appalls me how it’s been several weeks since the iPhone launched in China and still none of you pundits has caught onto Apple’s strategy here, not even accidentally through sheer volume of keyboard combinatorics. I think I shall help along the process a bit.

Apple is not selling iPhones in China because it wants to sell iPhones in China, but because it wants to sell iPhones to the Chinese. That’s a big difference. I’ll explain.

The Chinese have long had access to iPhones. They are for sale at stalls in every cybermall and market in every Chinese city, and come in two varieties: The most expensive ones (at around 6000 RMB in Shanghai for a 16GB 3GS, or 880 USD, depending on your haggling skills) come directly from Hong Kong, where the factory-unlocked model is available from the Apple store for around 4800 RMB. That’s a nice arbitrage play by the stall owner, and everyone is happy. The cheaper model, at around 5000 RMB for a 16GB 3GS, was originally bought locked in the US or Europe, and has been unlocked by the stall owner’s hacker-genius cousin using 3rd-party software. This kind of iPhone is cheaper, because you are on your own when it comes to upgrades and iTunes compatibility.

The distribution model is extensive and robust, and in fact most Chinese buy their mobile phones from stalls like this. There are no iPhone shortages, as prices fluctuate to meet demand. The received wisdom is that around 2 million iPhones are in the Chinese wild; I’ve personally seen a good many of them here in Shanghai, where they are much in evidence among the eliterati. Still, this is a minuscule portion of the 700 million odd phones in use in China, of which a small but growing portion is smartphones.

What can Apple do to grow the number of iPhones on mainland China? Short of lowering prices in Hong Kong (not going to happen) it can do two things: Increase awareness of the iPhone via advertising, and bring the benefits of a Chinese-language App Store to Chinese iPhone owners.

To do either of these, you sort of need to sell the product locally first, though. Apple can’t really go round putting up banners in Chinese tier-3 cities urging consumers to head for the local iPhone aftermarket. Unfortunately, an ill-conceived Chinese law forbids selling mobile phones containing wifi functionality (unless it is the wifi variety developed in China that nobody uses) so if Apple wants to sell iPhones in China, it has to first cripple them.

Why anyone would buy a wifiless iPhone beats me, especially if it is more expensive than the arbitraged unlocked Hong Kong model. Apple seems to think the same thing, because it is not revenue-sharing with China Unicom, the local vendor, but selling the iPhones outright to them. It is up to China Unicom to flog them in China.

And that’s what China Unicom is trying to do. China Unicom stores all have iPhone banners up; I’ve passed several China Unicom road shows stopping by Shanghai extolling the iPhone. The iPhone is being talked about widely. But so is the fact that the China Unicom iPhone is crippled — the Chinese are sophisticated consumers; forget this at your own peril.

The upshot: anecdotal reports tell of aftermarket prices increasing for Hong Kong iPhones these past few weeks, as demand increased. Clearly, the advertising is working, even if China Unicom’s sales of wifiless iPhones are anaemic.

There is a certain poetic justice to the whole spectacle: China Unicom, a state-owned company, forced to sell inferior iPhones in a porous market due to stupid laws promulgated by the Chinese state, spending on advertising that mainly benefits the aftermarket for Hong Kong iPhones.

China Unicom will also be a useful partner for Apple to secure a Chinese iTunes App store. It isn’t there yet, in part because this kind of venture inside China requires the involvement of censors (and you thought Apple was an overbearing app gatekeeper…) but as per China Unicom’s own admission, the process is underway. Once such an app store exists, of course, anyone with a Chinese credit card and an iPhone will be able to partake, whether or not they bought the iPhone from China Unicom.

But I believe Apple is not just doing this to get advertising and an app store into China, important as this is for growing sales to the Chinese. I believe the intention is to pressure for a change to the law, simply by making the the absurdity of the situation so plainly visible. This is speculation on my part, but there is a precedent: Egypt.

In November 2008, the iPhone came to Egypt, but without GPS. That’s because there was a cold-war era Egyptian law on the books that banned civilians from possessing GPS devices. The law was unenforceable, with plenty of foreign-bought GPS-enabled devices in the hands of tourists and archaeologists and wealthy Egyptians. The only people suffering were the local vendors, which couldn’t sell anything with GPS in it. Apple garnered some criticism with this move, for kowtowing to authoritarian rule. But the GPS-less iPhone also put the spotlight on the law, making many people aware for the first time that Egypt was one of only three countries in the world where GPS use by civilians was banned. Egypt’s regime hates that sort of loss of face, and by April 2009, the ban was lifted. Egyptian iPhones these days come with GPS, but the win is for everyone in Egypt.

Is China up next? It’s now in China Unicom’s interests to have the anti-wifi law changed, so that they can sell a larger portion of the iPhones ending up in Chinese hands. That kind of incentive makes me optimistic. Apple has already cracked the Chinese market for wifi-enabled phones — via Hong Kong. Now China Unicom needs to do the same — by getting its owner to change the law.

“Dutch Nobel Prizes” only for the Dutch

Baruch! I almost choked on my oatmeal porridge just now when I discovered that there is such a thing as the Spinoza Prize in the Netherlands — for literature, microbiology, physics and medicine — and that the organizers, the Netherlands Organisation for Scientific Research (NWO), are keen to call them the “Dutch Nobel Prizes”. Must be a big deal, you’d think?

Not really. First, you can forget about winning the prize if you’re not Dutch. (That’s not very Nobel of them, now is it?) Second, check out what they’re winning it for. The winner for the microbiology prize?

His research has led to the development of lactic acid bacteria that can improve the taste and shelf life of cheese.

Yes indeed, in Holland you get a $1.5 million euro prize for inventing longer-lasting cheese. In our name, Baruch!