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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.

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Welcome, welcome everybody. My name is Jeff Towson and this is Tech Strategy. And the topic for today is Huawei’s Harmony OS takes on Android in operating systems. And this is, I’m kind of going up a level here. Most of, you know, obviously what I talk about is a lot of company level thinking, the strategy aspect mostly, because that’s kind of where you find opportunities and investments, which is really the point. But I think it’s worth every now and then sort of popping up one level to look at things that are changing maybe the landscape and how these companies sort of exist and compete and things like that. And I would put this in this bucket that Huawei is doing something fairly important right now. They are all in, all chips in on building an alternative operating system to the duopoly of, you know, Android and Apple iOS. And really we’re talking about Android because iOS is closed system and it’s only for Apple and iPhones. But the rest of the world uses Android. We haven’t seen this in seven or eight years since the smartphone wars cooled down and it was clear that Android and Apple had won in terms of the operating systems. And all the rest, the Nokias, the Rim, Blackberrys, Microsoft, they all basically gave up. And that’s been the global duopoly. for almost a decade. This is the first major challenge to that. And it’s by a company that is arguably the best position to win of pretty much any company you could think of. And that’s a big deal globally. It’s a big deal for Asia. It’s a big deal for China, where virtually all of the smartphones are made. So it’s a funny situation where… The biggest market for smartphones in the world is Asia, China. All the smartphones and all the smart devices are made in Asia, China, Japan, South Korea, places like that. But the operating systems are, it’s a duopoly out of the United States. That’s an odd situation, I think, that’s emerged and Huawei is trying to change that. Now, for those of you who are subscribers, I did send you out something about this in the last couple of days. on emails, it’s gonna sort of build on that a little bit, repeat some of that. I’ll get back to the company level stuff in the next day. I’ve sort of moved off of that this last week, but so you should expect for those who are subscribers, I’m gonna send you some stuff on Baozun, which is definitely a company you should have on your radar. The vast majority of the international investment world is not paying enough attention to this company, in my opinion. So I’m gonna talk about that one. And I will probably talk about Perfect Diary, which is Yatsen. Again, that’s another China digital, really digital marketing company that’s just absolutely rocking and rolling. The international world, investor world, is really not paying enough attention to that one either. I think they will soon. I think that’ll be like another maybe bite dance scenario where a couple of years later, everyone’s like, oh my God, this company’s great. And we’re like, yeah, we’ve been talking about this for years. So anyways, that’ll be probably what’s coming to you in the next day or so. And oh, I guess a shout out, Mads out of Denmark, who’s a really nice dude. I’ve enjoyed getting to know him a little bit at a distance. He’s been doing a podcast there and I was on the podcast the other day, yesterday, and we’re getting a lot of subscribers and traffic out of Denmark in the last day. It’s kind of crazy. I woke up this morning and the numbers like wow and I opened it up. It was like all Denmark. So welcome everyone who’s listening in from Denmark in that part of the world. Glad to have you and welcome aboard. OK. And for those of you who aren’t subscribers, you can go over to Jeff Towson dot com. There’s a free 30 day trials. Sign up. See what you think. And my standard disclaimer as always, nothing in this podcast or in my writing or on the website is investment advice. The numbers and information from me and or any guests may be incorrect. The views and opinions expressed may be incorrect or may no longer be relevant. Overall, investment is risky. This is not investment advice. Do your own research. With that, let’s get into the topic. Now, Huawei as a company, obviously, Very important. I’ve been writing about Huawei for, God, nine years, eight years. Back when it used to just be a telecommunications company. They started out as a manufacturer. That’s really what they did. They manufactured hardware, came out of Shenzhen. Ren Zhengfei founded this around 1988, a small company. And like most companies back then, was sort of doing cross-border stuff. China in the 1980s. was, you know, there wasn’t anything there. So everything was being brought in. And the first area that opened was Shenzhen, right across the border from Hong Kong. And so people were just kind of, it was kind of a boom town. And, you know, a lot of trading and a lot of the most successful. The first wave of entrepreneurs out of China really almost all came out of Shenzhen getting started in the 80s. Most of them are retired now. You’re talking about Wang Shi, the founder of China, Wenke. the biggest real estate, residential real estate company in the country, Ren Zhengfei, who founded Huawei. I mean, really that group sort of started there and they were, you know, as Boomtown, they were wheeling and dealing, doing trading deals. Wang Xiu then went into real estate. Ren Zhengfei started his little company based on a trading deal to bring in a PBX machine, which is like a router, you know, you put it in a hotel or something. So you can call the hotel with one number and it’ll switch you to people’s rooms, different numbers, things like that. You know, he did that and that was sort of the basis of that company to begin with. And then importantly, they lost that deal. They got cut off from their core technology, which was this trading deal. And from then he started building his own PBX machines, a very small company at that point. But that lesson, I think really did stick with him. because if we’re dependent on foreign technology, we can get cut off at any time. And really you can go back, and he’s been writing and speaking for 30 years. You can look at his papers from the early 90s. And he’s talking about Huawei, where the primary mission has never been to make money, and it’s never been to cash out and have a payday. The goal was always long-term survival. How do we survive long-term? and they studied companies that had risen and fallen, and they studied HP and all this stuff. And he wrote about this, that our goal is survival. And based on that, they’ve done things very differently than other technology companies. They are really fairly unique. I’ve written about this quite a bit. I’ll put the link in the show notes. I wrote some articles that really their biggest strength is human resources, it’s not technology. They’re very good at building teams at. a fairly large size that can be very aggressive in sales and can be very aggressive in research and development. Those are their kind of two pillars. They’re two strengths and they do that at a scale that is, you know, you’re talking about 194,000 employees, but they’ve built sort of a partnership slash meritocracy within that that’s fairly impressive. And so, I mean, I’ve always kind of said, like the secret weapon of Huawei is not their tech. The tech that they build goes obsolete in three to five years. Their secret weapon is human resources. They’re very good at organizing engineers to be very aggressive at scale and some other things. And it was, I’ll put the show note there, but I followed them for a long time. I wrote about them in my one hour China book and I visited their campus and sort of met with them. And I actually had an interview with their CEO, Guoping. Their CEOs change a lot because they rotate. About a year ago before COVID, I flew out there and we had a hot pot and… That was kind of a fun story actually, because they say, you want to interview our CEO? And I said, I absolutely do, but I don’t want to talk about the standard stuff you get asked. Because I’ve read pretty much all their interviews with their senior management. They’re in books, so you can read them. And it’s always the same questions. It’s a lot of political stuff now. I don’t find that very interesting. I said, I don’t want to ask any of these questions. I want to talk about his life. I want to talk about how he went from being a student working at Huawei. And that was actually kind of interesting. Guo Ping, he was a young man and he came and worked for Ren Zhengfei very early on. He was one of the first 10 employees because he wanted to sort of go to Shenzhen University. I guess there was some trouble with getting his certificates done. So they said, you know, I’m not sure if he can take you in, but there’s a local guy who’s doing this. Why don’t you meet with him? And that ended up being Ren Zhengfei. Anyways, I sort of talked about their background and. the human resources aspect and these other questions. And it was great. And they said, well, let’s, you know, we’ll do it in a, an office. I said, no, no, no, no, I don’t, I’m not press. I don’t want to do this in an office. I’m a, I’m sort of the influencer type. I want to go to his favorite bar and I want to have some beers and shoot some whiskey and ask him questions. And I’m paraphrasing this. That wasn’t exactly, but more or less that was it. Uh, that was what I was thinking. And, uh, they basically came back and said, uh, no, I can’t do that. But we can do dinner. Why don’t you do dinner? I said, all right, let’s go to a local hot pot restaurant because everybody loves hot pot. If you’re not from China, if you don’t spend time in China, one of the best things about China is hot pot. It is like the greatest restaurants ever, hot pot. So anyways, I ended up having a hot pot with Guo Ping and chatting with him for quite a while. And then in the middle of that, he said, you know, I asked him like, what do you like to do for exercise? And what else do you do just for life and for fun? And he said, oh, I exercise. He says, I hike a lot, which I thought was kind of interesting. He says, why don’t you come back in a couple of days and go hiking with us? And I had to fly out. I was like, well, I mean, I’m flying out and I can’t, you know, he says, oh, you can fly back. And I kind of, I basically dodged the question and he called me. on it and then I sort of dodged it again. Well, I’d have to see about the flights and all that. And he said, well, you can talk to this person here. Basically, I kind of had to say yes. So I ended up flying out and flying back a couple of days and met with him and turned out it was like a whole event. I thought it was gonna be us hiking in the mountains of Shenzhen for a day. Turned out it was a six hour hike, which was crazy. I thought it was gonna be a nice hike, six hours in the Shenzhen mountains. And it was a whole team. Like there was a whole corporate event and there were people everywhere and people carrying supplies. And, you know, it kind of said, hey, how you doing? We saw started hiking and him and his senior management team like took off and I never saw him again. And they like hiked so fast and aggressively. So I ended up just sort of hiking and chatting away and then got lost and had to find our way out of there. And it was, that’s not really here nor there. That’s where it was kind of a funny, it was a funny Saturday. Anyways, I’ll get back to the point. But if you’re curious about that stuff, I’ll put the links in the show notes to some articles I wrote about sort of interviewing him and how to view them as sort of an HR company first and why that has been so effective. But the point of this is, okay, you have this very, very unique company, massive. Started out as a manufacturer, telco equipment, base stations, then they moved into… smartphones, consumer products, then they’ve moved into enterprise. And basically what they’re trying to do is build the infrastructure of the next 30 years, which is an end-to-end solution. Smart devices in your hands, connectivity, that’s 5G, which they do, cloud, AI, that whole end-to-end spectrum of infrastructure, that’s what they’re building. which makes them very unique. And when you look at how they’ve been doing up until the recent political upheaval, they were crushing it. I mean, in telco, I mean, their primary competitors are Ericsson and Nokia, both out of Europe. The US by a weird quirk in history doesn’t have a sort of telco equipment player, and it’s a global game. I mean, you have to sort of be big global. So is Ericsson, Nokia and Huawei. And Huawei was absolutely, you know, circa 2017, 2018, that fight was pretty much over. You know, for a long time, Ericsson was number one, Huawei was behind. Huawei finally caught Ericsson in about 2011, 2012, in terms of revenue, in the telco business, not counting the consumer products business, which Ericsson doesn’t have, but Huawei does. And then they kept pulling ahead and you know. 2018, 2019, suddenly Huawei is double the size of Ericsson in just revenue in Telco. And their R&D spending, which is kind of the major metric that you’re looking at, suddenly they’re spending on at 15, 17, $18 billion per year at Huawei across all their divisions on R&D versus something like Ericsson or Nokia where it’s one to two. I mean, At that point, it was basically game over. Minus a major technological change or a political aspect, I don’t think there was any chance for those companies to catch Huawei. Now, one of those did happen, the political thing. At the same time, they were building a consumer business, consumer business group, CBG, which started out with smart devices, which were smartphones. They started that 2009, 2010, it started to grow quite small. It really starts to take off in 2015. 2017, suddenly, they’re 20% of the China market, which is the world’s largest smartphone market. And before the political sort of event, they were right on the cusp of becoming the largest smartphone maker in the world. Now that’s not totally true, because that assumes the largest smartphone maker in the world would have about 25%, 30% of the market. and they were close to that. However, that assumes that you count OPPO and Vivo and OnePlus as separate companies, when in fact it’s one ownership group. So if you put those together, that actually is number one. But anyways, it was a rocket ship of a business. They’re crushing it in Telco. They were working very, very well in consumer. That was rocketing up. They were flooding money into R&D and there was the technological advance of 5G. They had gone from a fast follower in 4G to really a leader of 5G. They had basically won as far as I was, you know, anything can happen in life and winning is never permanent in business, but I didn’t see how they could be beat at that point realistically. Okay, that all happens, the political upheaval happens, ZTE gets put on the entity list, cut off from US. Basically it was President Trump, but it really wasn’t just Trump, it was the US government. This was a fairly widely and is still a fairly widely held consensus within the US government about changing the relationship with China. So even though Trump is now out and Biden, we don’t see much change. We don’t see the unpredictability and the escalation we saw under Trump, but we didn’t see a lot of, I didn’t think it was going to change. I thought the current state would probably be the status quo, where Trump would be more prone to escalate, which seems to be his default setting. Okay. So that whole thing happens. The supply chain becomes politically weaponized where you can get cut off at any time. That turns out to be fairly effective in certain areas, not a big deal in most others. And then you also get cut out of the market, which Huawei was not in the US market. They had long since sort of been pushed out of that market by the US government. All right, that all happens. And that gets us to the question for today is, okay. Huawei had long used Android. When they got cut off from the supply chain, I mean, they had a lot of holes punched in their supply chain, particularly on the consumer side in their smartphones. A lot of the mechanical parts were coming from the US and they had to replace all those and find alternative sources. And they did that fairly effectively. And they did it more effectively in their base stations and telco. They had pretty much three to four months after the US tech ban. their base stations and telco equipment were being manufactured again without US tech in them. They fixed that side of their business fairly quick. It was really within smartphones that they got hit hard. And the two bullets that really went through the engine block were semiconductors and operating system. Because both of those are heavily dependent on the US, Android, and then it turned out TSMC was a big part of that too, but that’s another story. But anyways. That’s kind of where this started, and they were forced to build an operating system. And this happened in 2019, and they were quiet about it for a year. They were kind of dodgy about it, really. They were sort of saying, well, we wanna work with Android. I mean, there’s two sides to Android. Android is open source, but there’s also Google Mobile Services where the things like the App Store. So you have to get a license for part of it, and part of it’s open sourced. So they could still use the open source part, but the app store, everything there, was gonna be cut off. And that wasn’t a big deal in China because nobody in China uses the Google Play Store. There’s lots of app stores in China, but it was a huge deal in say Europe, where they were selling a lot of smartphones. Suddenly, they couldn’t access any of that. Okay, so that’s 2019. They’re a little bit dodgy about it. They keep saying, well, we wanna work with Android. We wanna work with Android. We’re working with them to petition the US government. And… I never really bought that to tell you the truth, but that was kind of their party line. Once they got hit, it was clear they were going to have to build their own operating system no matter what. Even if they got let back into Android, you still couldn’t be exposed to that sort of risk. So I figured they were working like crazy behind the scenes to build their own operating system. And then they were just kind of being coy about it for a while. And then… late 2020 they basically dropped the Koi part and they started launching Harmony OS vocally. And they said, you know, this is our future. We’re going to roll this out on all 200 million of our devices. And that’s the future. So they kind of dropped that and they’ve started to become more open about what they’re doing in the last three to four months. And that’s when I sort of, I generally have been asking the Huawei folks and they say, would you like to talk to anyone? And I say, yeah, I want to talk to High Silicon, which is their There’s sort of very secretive division that does chip design. And I want to talk to Harmony OS, which is their operating system division. And the answer is no. Well, anyways, a month or so ago, I got an answer back that said, OK, why don’t you talk to Harmony OS? And I did a call with Clement Wong, who is more on the marketing side of their consumer business. But we talked a week or two ago about what’s going on. And they’ve been putting out information. So that’s kind of what this is about, which is. What’s the status of their attempt to build the first mobile operating system we’ve seen in a decade and to really challenge the Android iOS duopoly for the first time? So that’s kind of the point of today is this is the status. Now within this, I think there’s three questions that are interesting. Strategy related questions. Number one is, can Huawei do it? Can they build a new operating system and the developer ecosystem? that goes with it for smart devices, not just smart phones, smart TVs, IoT, all of it. Number two, can Huawei become an advanced software company? One of the things that’s happening behind the scenes is, you know, Huawei really got hit on the hardware side, semiconductors. They have been shifting from a half. Hardware to a software company over time even though that wasn’t their background most of their senior management come out of hardware and engineering Not software. They’ve been moving that way and that may end up being their best Growth path going forward is to become an advanced software company to become more like Microsoft than a manufacturer So and this would be moving into the operating system would be a major move into systems level software And then question three can China generally move from the app layer, which they’re very good at applications, down to the system layer, which is operating systems, programming languages, databases, compilers, all of that stuff comes out of other countries. China hasn’t really been there. So there’s sort of three big landscape questions here that I think are playing out. And if that’s successful, I think this is far beyond Huawei is a question. Everyone who makes smartphones in China is thinking about this problem. If they can cut them off, they can cut me off. And Xiaomi got hit a couple of weeks ago, well, a month ago, when they were put on sort of a blacklist by the US Department of Defense. I think it just got rescinded and removed in the last week. So all of these companies, if you’re a CEO of a smart device company in China, you have to think about this as a possibility. So… If Huawei is successful, that creates an alternative for you. So it’s very important for a lot of companies what they’re trying to do. Now I’m going to give you my sort of conclusions on this at the beginning, and then I’ll go through how I got there. But basically I have five sort of takeaways, conclusions. Number one, they are building an operating system and an ecosystem that goes along with it from a position of almost unique advantage. They are better positioned to do this than just about any company I can think of. Number two, they’re benefiting from particularly good timing and past preparation. Yes, they had some really bad luck. They got hit hard politically. They’ve also had some pretty good luck. Talk about that. Number three, Harmony OS is an attempt to do a technological leapfrog. They’re not trying to copy Android. They’re trying to create a new type of operating system that goes for what we’d call one plus eight plus N devices. That’s a Huawei term, I’ll talk about that. China is increasingly gonna go after system-level software across the board, from politics to the major players to the minor players. Nobody likes being at risk on the tech supply chain side. What Trump did will never be forgotten. That was a sea change in how people perceive how they can build their businesses. So expect the whole country to start moving down to the system-level of software. Ultimately, this is not about coding. This is the last one, number five. Ultimately, it’s not about coding. Nobody doubts that Huawei can task 10,000 engineers to writing an operating system. That’s not it. It’s about building the ecosystem and getting other partners, companies, and developers to participate. That’s really the big challenge. The big challenge here is winning partner trust and participation. And that’s kind of the metrics I’m keeping an eye on. How many people are in part of this, how many people are joining, and so on. Now, before I get into that, let me do sort of a brief aside on innovation and audience builder platforms. Now, for those of you who’ve been following my class for a while, you know, I have sort of a concept library. If you go to my web page, there’s a company library where you can click on any company and see their writing company by company, or you can click on the concept library. And within there, you know, I’ve laid out 30 to 40 sort of digital ideas, concepts that I think you kind of have to understand. And within there, I’ve talked a lot about platform business models, digital platforms being different than sort of traditional physical platforms like railroads or shopping malls or whatever. And that this is a particularly important type of business model right now. And I laid out five different types of digital platforms. Some people say there’s only two types. Some people say there’s seven types. I think there’s like five basic types we’re seeing. But more are emerging. I mean, a platform business model, I’ll do another animal analogy, I guess. You know, it’s like a big cat. You know, big cats, lions, tigers, jaguars, panthers, all that stuff, they all have certain characteristics in common, they have claws. They walk on four legs, they’re carnivores, things like that. They have certain things in common that we describe them as cats. However, there are different types. A tiger is different than a lion, is different than a puma, whatever. So there’s multiple types. So this is the same. A platform business model is like a genre, or sort of a subtype of animal. But within that, we see multiple types, and thus far we’ve seen, I think, five. But there will be more on the way. And you can go in the show notes and see my list. But basically, I always argue, look, there’s marketplace platforms, payment platforms, innovation and audience builder platforms, collaboration, coordination platforms, and learning platforms. And I’ve given quite a few podcasts and talks on this. You can click on any of those types within the concept library and read about them. But I haven’t really ever talked about… innovation and audience builder platforms. And that’s kind of what I want to tee up today. I’ve talked a lot about audience builders. Audience, a platform business model, for those of you who are new, the defining characteristic is you are serving two different user groups. Most businesses serve one user group, which we call the customer, consumer, B2B customer. A platform business model serves at least two and often more user groups. which is why they are often called multi-sided platforms, MSPs. And your primary function as a business is to enable an interaction between two user groups that otherwise would not work. I can go to the shopping, or I can go down the street into a store and buy something. I don’t need an intermediary like a platform to help me engage with a store down the street. However, if I wanna buy coffee from a small farmer in Northern Thailand, I can’t reach them directly. And they’re probably not in the mall, they’re small, but I can go through Lazada and that’s a platform business model that enables interactions between me and a small merchant that’s far away. And in this case, the interaction would be a monetary transaction, but the interaction could also be a discussion. It could be finding someone to date. It could be enabling a Zoom call. It could be, you could have lots of types of interactions between user groups. If it’s a monetary transaction, getting an Uber ride, buying some coffee, marketplace platform. Payment platforms, pretty simple. Collaboration coordination, that’s B2B stuff like Zoom and Slack, and you’re helping different parties collaborate on a project together. you know, a designer in that city is coordinating with a coder in this city and a salesperson in this city, and they’re collaborating together online to build something. Learning platforms, that’s a whole complicated thing. But the innovation and audience builder, audience builder is something like TikTok. and YouTube. The primary interaction is between a user group of people who watch videos and people who create videos, content creators, viewers. And the interaction is you can find them, watch the video, stream it. Now that’s YouTube. Audience builder platform. Now I’ve kind of said that this is a subtype of what we would call an innovation platform. And that’s what I think operating systems are. That’s what I think Harmony OS is. An innovation platform is where you bring multiple user groups together, where one of the groups is innovating on the platform. That’s the primary thing they’re doing. They’re innovating. They’re creating something. Maybe they’re creating videos for people to watch, and that’s why I consider audience builder part of that. But maybe they’re writing software. Maybe they’re writing video games. Maybe they’re creating intellectual property. But They come to the platform, they innovate on it, they create on it, and then the platform connects them. One, it provides them tools so that they can create, and it houses their creation. But also, it connects that and distributes that to a group that uses it. That’s kind of a broad idea. Now, operating systems, that’s what Bill Gates built in the 1980s. Microsoft Windows was an innovation platform. The two user groups, well, people that use personal computers and people that write software for personal computers. And the people who write software for personal computers write those for Windows. It goes on there, you can download it, you can use it, and then anyone with a PC can do it. People built their businesses on top of Windows, whether it was Adobe or Microsoft Word or Microsoft PowerPoint or whatever, but that was what the purpose of Windows is. And there was a lot of reasons why that makes sense. It decreases your costs, you know, it standardizes a lot of things. There’s a lot of benefits there. So innovation platform is kind of an important type. And within that, I think audience builders is kind of a subtype where, yes, we’re building on the platform, but it’s mostly about creating media entertainment where we’re trying to get an audience. So I think that’s, I should probably break that out into a separate six type. but it’s really a type of innovation platform. Okay, now what an operating system is, on one level, it’s a platform business model where the primary interaction that powers the entire thing is that interaction between software developers and users of the device. That’s the platform business model at the center of everything. However, it’s also an ecosystem. And an ecosystem, which I define differently, an ecosystem is when you’re involved in an endeavor that is far beyond the ability of any one or two companies, where you need lots of companies working together to create something complicated like a semiconductor industry. or like a personal computer or like a smartphone. When you launch the smartphone or when they launched the smartphone, there were a lot of players involved. Yes, there was the operating system which Apple built, but there was the handset maker, there was the semiconductors, there’s the memory chips, there’s the programming languages, there’s the, you know, the… licenses, I mean there’s a whole group of parties. There’s the manufacturer, there’s the distributors, there’s the mobile carriers that have to connect these devices. That took a large number of companies to put that all together. And that’s kinda how ecosystem, I consider like a platform business model, a one company project. and then an ecosystem is lots and lots of companies have to work together to do this. And you could say a platform business model is sort of a very simple type of ecosystem. Now in this case, it’s both. What Harmony, what Huawei has to do is what. Bill Gates did and what Steve Jobs did, is they have a platform business model at the center, but they have to get a large number of companies to collaborate with them and build this larger ecosystem. And there was an interesting book written about this recently by Peter Williamson, who’s kind of an old friend up at Cambridge. He’s actually the guy who got me, one of the guys that got me to start teaching for the first time. I started out teaching at Columbia, I’m sorry, Cambridge Judge Business School, and that was Peter. Yeah, good guy. He wrote a book called Ecosystem Edge recently, which is, it’s about why ecosystems are different. And his basic point, which I’m going to paraphrase badly, is ecosystems are very inefficient. A business like Toyota, a single traditional business is about being incredibly efficient in your activities and sort of doing a value chain where you’re making cars incredibly efficiently. That’s what a company is designed to do, a series of activities where you concentrate assets and activities within a firm to do something very efficiently. Well, ecosystems don’t do that. They’re very inefficient because you’re working across multiple companies. It’s much less efficient. However, it can do what a standalone company can’t do. Number one, it can bring far greater resources to bear. It can bring the R&D departments from five, 10, 15 companies together. It can bring all their resources. It can create something much more complicated. A company can’t do that. It also tends to adapt faster. So… You know, if you’re dealing with a major technological change, like the emergence of the PC or the emergence of the smart cars or something, an ecosystem is a very good sort of adaptive organism. when you’re dealing with that sort of uncertainty. And you honestly don’t know what’s gonna happen and what’s gonna work. An ecosystem can adapt very quickly in the way a company can’t. So you see ecosystems emerge when we see a major technological change and they tend to be a good way to leap to the next thing. And then once the new thing is clear, okay, we know what a smartphone is, then firms start to jump in and do pieces of it in a very efficient way. But the first phase tends to be this amorphous ecosystem an uncertain future. I think we can see that a lot of places. Okay. With that, I’ll go back to Huawei, but what Huawei is basically trying to do. is build a platform business model and a larger ecosystem of partners such that you have a new operating system. Because you don’t just want the operating system. You need all the people that are going to code for it. You need people to write their apps for it. The App Store has millions of apps on Android. That’s what you need. You need the people that make the peripherals, the headphones, the smart devices, the smart TVs, the IoT. You need all of that to connect. So it’s a much larger ecosystem, but at the core of it is a platform business model. Okay, back to Huawei. Now my takeaways are, look, they are building, my first takeaway and my first sort of conclusion was Huawei’s building an operating system and ecosystem from a position of advantage. They are clearly copying the original Android approach. When Android, when the iPhone came out, it was kind of a massive deal. Everyone… who was smart recognized a paradigm shift. Microsoft kind of diddled around, they tried, it didn’t really work. Blackberry kind of denied the whole thing, which was strange, they died. And then… Android responded with an in-house project, but they had already, I mean, Google, this is Google, they had already sort of bought a company that was Android like a year before. So they took an in-house thing and turned it into an operating system and they pulled it off, right? So when the big C change happened, Apple was out front as the pioneer. The other players fumbled and Android pulled it off and they built their own operating system and supporting ecosystem. How did they do that? They launched what they called the Open Handset Alliance, which was bringing together carriers, Qualcomm, I think T-Mobile, handset makers. I mean, they put together just a lot of companies to work on this alliance where we’re all going to work together to build an alternative to the iPhone. The Open Handset Alliance, the core, the operating system, Android, they made it open source. So anyone could use it. Apple iOS is not open source. Apple has it, we don’t know what it is, it’s closed. They made it free. Anyone could use it, but however, if you wanted to use the App Store, you needed the Google Mobile Services. So part of it was licensed, and they actively supported developers. I mean, they had prizes and they gave them money. They spent millions of dollars supporting developers, getting them to start writing for their system. And they did a bunch of other stuff, but that’s kind of the simplest version of it. Well, we see Huawei has done… a lot of the same stuff in the last year. Early on, they announced that Harmony OS was going to be open source and free, okay? They were actively encouraging adoption and usage by their handset and smart device makers. So they say they have 20 plus hardware partners today in some form. They’ve been actively supporting developers. Their latest numbers they’ve said is they have 2.3 million registered developers today. That tends to be a mix of global and local developers. I mean, certain people write apps that everyone uses everywhere, but others tend to be very local, country by country. Now, 2 million is good, but Android has 20 million. I think iOS has 24 million developers. So they’re quite a ways behind. That’s all good, but breaking into an entrenched… Operating system is very difficult because this is sort of a mature market now it’s not a rapid growth market where there’s a lot of room for everyone to play. If you’re gonna get in this you’re gonna have to take market share from one of the major players and one of the problems you always have when you build a platform business model is you have chicken-and-the-egg problem. To get the developers you have to have the users to get the I’m sorry the customers to get the customers you have to have the developers. Chicken-and-the-egg problem that’s generally a problem for any startup trying to build a platform it’s when you’re trying to do that against entrenched incumbents who will fight you. That’s why when these companies build these platforms and they become big and mature, they’re almost impossible to break in on. Okay, however, Huawei has some advantages here that very few have is if they have to get two user groups, well, they already have one user group. They’ve announced recently that Harmony OS is gonna be installed on 200 million Huawei phones and 30 million Huawei tablets, watches, TVs, and speakers this year. They already have a massive user base for their products. So in theory, they can sort of port that system in and the new devices, if the experience is good and if the people that are their current customers keep buying, they could… capture one user group immediately. That’s a great advantage. In theory, if that works, that will position them very well for developers. Probably the developers I’m assuming are mostly watching and waiting. You know, they don’t wanna spend time and energy building a version of their app if no one’s on the system. So they’re probably watching. If they see that those 200 million are staying on Huawei phones, yeah, they’ll start adapting their system for this new operating system. If you get the consumers, the customers, and the developers, the hardware makers will all follow. So you can see the path, and you can see they’re almost uniquely well positioned on that first step. So that’s kind of one of the things I’m watching is, you know, how successful are they gonna be pushing Harmony OS out to their 200 plus million customers. And there’s a gentleman named Wang Chenglu. I think he’s the software dude at Huawei who’s pretty much in charge of this whole thing. He’s the one who built in R&D the first version of Harmony OS years ago. And I read an interview from him that was in It was an English version of a Chinese one. And what he had mentioned there was the key milestone they’re trying to get to is 16% of the operating system. That if you can get to 16% of the operating system market, that’s enough. That’s then you’re viable and you’re good to go. So that was the number that was floating around, 16%. Okay. So anyways, they’re uniquely advantaged to pull this off. Takeaway number two, they’ve had some bad luck. Particularly, I mean, stunningly bad luck. I mean, the idea that one of the two most powerful governments in the world is going to specifically target your company if you’re CEO, that’s unheard of. I mean, that’s tremendously bad luck. I mean, what are you going to do about that if you’re a CEO running a successful company doing what you’re supposed to be doing as a business person? And then the US government or the EU or someone says, we specifically want to stop that company. I mean, that’s really bad luck, you know? But as mentioned, they’ve had some very good luck as well. They have the big consumer base, the big customer base. That’s awesome. If you’re gonna break into a new system, it helps if the technology is changing. Because if you’re just offering the same thing Android has, why would people switch? But if the tech is changing, you can then differentiate and try and leapfrog to the next thing. So timing matters and it turns out they have pretty good timing. That there is a lot going on technologically with 5G, with AI, with edge computing, with smart devices. This is not 2014. Smartphones are evolving quickly right now. So that’s good timing, that’s a bit of luck. And the third bit is they just happen to have their own operating system that they started building years ago and they were already sort of. significantly down the path when this happened. They weren’t starting for scratch. That was pretty good luck as well. You know, Wang Changlu, according to this article I was reading, you know, He was sort of coming up with this idea of an operating system seven, eight years ago internally in the R and D department, which is sort of a lower level of, of research and development, more at the unit level and 2016, 2017, he, you know, basically pitched to Ren Jung Fei. This needs to be a system wide priority for the entire company because we’re exposed. We can’t build a major consumer business and not control the core foundational technology, which is the operating system. So 2016, 2017, this became a company-wide priority to build an operating system. That was good luck. Now they weren’t hitting the gas pedal like they are now, but they were moving. And then sure enough, you know, 2018, this idea of HarmonyOS goes to the highest level, the sort of CBG Investment Review Board, and becomes an official CBG Consumer Business Group project. That’s 2018, and then bam, 2019, they get hit with the entity list. Okay. That’s some either incredibly good preparation or some good luck, probably both. Takeaway number three, Harmony OS, they’re trying to leapfrog their way to a new type of technology operating system. This one plus eight plus N, I’ve mentioned, this is Huawei language. Huawei has some pretty good language about how to think about telco and sort of the evolving smart infrastructure that… Pretty much it’s gonna be the foundation for everything in life. 5G systems, pervasive connectivity, ubiquitous intelligence in the infrastructure of countries, industries, society. Within that, you sort of have the device in your hand, the smart device, and then you have the connectivity, 5G, and then you have the cloud, AI, things like that. Those things all sort of link together and Huawei is doing all three. Within the smart device in your hand, The phrase they use is 1 plus 8 plus N, which basically stands for one is the smartphone in your hand, that’s gonna be your primary device. That’s gonna be the center, that’s the thing that’s in your pocket at all times. Eight, eight is the ancillary devices that tie to that, like a smart TV, a smart refrigerator, a smart car, a AI speaker. in your house. All of those sort of peripheral ancillary devices that don’t have the power of your smartphone but they add benefits. And then N, which stands for sort of infinite, this is IoT devices in everything. I mean this is sensors in your shoes, this is cameras on the street, this is cameras, smart locks for your home, this is temperature sensors in your house on the street, air pollution sensors. in the air, in the water system. This is the fact that we’re gonna put little devices that are smart and connected in everything. And everything in society is gonna connect to everything else. Your shoes are gonna connect to the street, your phone is gonna connect to the store, it’s gonna connect to the car, it’s gonna connect to your smart lock, all of it’s connected. One plus eight plus N. That looks like the future. They’re saying we should build an operating system, not just for your smartphone. but an operating system that works across one plus eight plus N such as if you’re an app developer and you write a good app, I don’t know, a mapping app or a communication app or a, I don’t know, whatever. That app written by the developer will run on all of those devices if it’s written for Harmony OS. They won’t have to customize that differently for little sensors and for. AI speakers. If you’re an app developer, as long as you’ve written for Harmony OS, it will work seamlessly across all those different types of devices and they’ll all connect with each other. That’s the kind of technological jump they’re trying to do and get ahead. Now that’s clever because they’re endlessly clever over at Huawei, which is totally true. Okay, so I thought that was an interesting argument and I asked Clement, okay, what does that mean in practice? How is that going to be better? And he basically said, think about scenarios. Don’t think about devices, think about scenarios. What’s a scenario? A scenario would be a smart home. All the devices, your smartphone. your main peripherals, ancillary devices like smart TV, cameras in your home, smart air conditioning and then lots of tiny little sensors. That’s all one scenario we could call the smart home. So in theory you can control all of that from your phone. Okay. We see companies doing this and they have a lot of, if you ever visit Huawei, they have showrooms where they show you their smart home system, which is pretty cool by the way. Another one would be productivity and smart offices. So if you have a business, everything’s connected in your business. The salespeople all have devices in your hand. The accounting system’s all connected. The doors, the cars, the trucks, the robots, all connected. Okay, you can see how that might make sense. They brought up health and exercise that you can be riding on your bike and talking to your phone and it’ll put on music and. You can listen to this. Okay, I didn’t quite get that, but whatever. Entertainment was a scenario, and then travel was a scenario. So you outline five to six scenarios. Okay, interesting. But, and the last two conclusions are basically short ones. Conclusion number four, I kind of already said this. China is going after system level software. That’s really what they’re going after. China is amazing at apps. If it’s on a smartphone, It’s better in China. It’s just true. I carry two smartphones, a China one and a US one. One’s in my right breast pocket, the other’s in my left. The China one’s usually on my left. And my standard joke is, you know, everything left nipple is better. It’s just, everything’s better. Entertainment, e-commerce, communication, payment, all of it. It’s just better and better and better. But that’s at the app level. Once you move down to the system level, programming languages, IP, operating systems, compilers, databases, things like that. It’s mostly not China. And as sort of I’ve said, everyone’s moving deeper into the stack. Every company, government-wide, and the government’s very effective when it decides to do these things. So that’s something to look at. I think that’s just a bigger trend we’re going to see over the next couple of years. And last point, final point. Everyone knows Huawei can code. An operating system’s difficult, but it ain’t rocket science. The issue is not going to be creating a good operating system that does, in fact, work across all types of devices, one plus eight plus N, and is nice and seamless. We already know Huawei can do this. They build very nice devices. Their phones are great. I love the high-end Huawei phones. I mean… If you have an iPhone, that’s pretty good. Go look at the highest end Huawei smartphones. They’re fantastic. I mean, they’re beautiful devices, although now obviously the chips are a problem. Okay, we know they can do that. No, their problem is the ecosystem and the partner part. They’re gonna have to win the trust and participation of a lot of partner companies. And that’s the big problem. And that’s what Nokia couldn’t do, and that’s what Microsoft couldn’t do, but that’s what Android and Google did very effectively. So that’s kind of the biggest metric I’m looking at. How many developers, how many partners are on board? And we’ll see, and a lot of that is just trust. Do you trust that you can build your business on this company, because that’s a long-term play. Am I gonna build my business on this platform? Okay, then because it’s a long term play and because it takes trust, it is also, it takes longer to build. Huawei can code very quickly and push it out there. But building that trust is actually, does take time. And I think that’s what they’re doing right now. So I’m sort of curious how successful they’re at it. Okay, that’s kind of the stuff for today. I think the, I sort of said the main ideas multiple times, the key concepts, you know, and I just try and encourage you to build up your sort of library of knowledge. The key concepts for today, if you’re keeping a list, think about the five platform types and you can go to the concept library on my web page and see all of them. You can look at the five platform types. You can look at innovation platforms. as an idea, there’s a tab for that. And there’s also a tab for ecosystems versus platforms and how they’re different, how to think about them. And I’ve been adding to this idea of ecosystems. Ecosystems is more of a kind of a developing idea. I don’t think the thinking is not just mine, but anywhere is really understood yet. The frameworks don’t really work too well yet. So that’s kind of an emerging space of thinking. And then in the show notes, I’ve put the past Huawei articles I’ve written in my list of five platform types. And there’s a link to podcast 57, which was Android, Alibaba, and the emerging art of ecosystem management. That’s a lot more thinking about how do you manage and run an ecosystem. So that’s all there. But yeah. That is the content for today. And the next day I’ll get back to more of the investment level thinking and some specific companies. But I thought this was a pretty big deal. And they do appear to be moving full steam ahead on this one. As for me, I’m packing up right now. I’m heading down to Phuket in a couple hours. I wanted to get this done before I got on the plane because that little travel mic doesn’t work that well. So I wanted to use sort of my big microphone here at home. But yeah, I’m gonna hang out in Rewai, which is, for those of you who are familiar, is absolutely beautiful. It’s sort of southern tip of Phuket. Just a quiet little neighborhood, absolutely beautiful. That’s kind of been my go-to place now. I’m just gonna sort of dial into my life that you know when I’m in Thailand I’m gonna spend probably one week out of four just down in Phuket down in Rwai working from there just for quality of life I keep looking at apartments down there, which is Really not a good idea the more I think about it It’s really it’s just such a funky little real estate market that it’s not a good place to you know in my opinion to have some assets tied up, but I keep doing that. That’s probably not an awesome idea, but I’ll probably keep looking while I’m down there. The other part, there’s these beautiful villas. Like, you know, if you’re a foreigner in Thailand, you know, you really, you can only buy sort of condos. So you’re very limited in what you can buy. But they have these beautiful villas sort of up against the mountains and it’s all green. And I go and look at them, I’m like, oh, this is amazing. And then I opened the… the Pooquette newspaper and they keep catching cobras in those very same villas because one, there’s a lot of cobras in Pooquette. Cobras scare me. I’m not terribly scared of snakes in general. Cobras, king cobras, they really scare me. These are massive animals. They rear up their heads. You know, they go about not to my shoulder, but close to it. These are huge snakes. Anyways, you know, if you’re living up on the high floor like I am in Bangkok, it’s not a problem. But if you’re on the ground floor, which is where most of the villas are in Phuket. They keep catching them in people’s bedrooms. And it’s right up against the hills where the green is. So I keep looking at these villas. I’m like, oh, this is amazing. Then I open the paper. It’s like, oh, they caught another cobra. And I look up the address. I’m like, God, that’s just where I was looking. Did they catch that thing in literally the building I was looking at? Anyways, these are the things that I think about. I don’t know why I’m so scared of them, but I am. So we’ll see. I’ll be down there for the week. We’ll see if I can resist the urge to do something stupid and pick up an apartment that’s really not a great idea long term. But yeah, I think there’s a there’s like a one in five chance I’ll end up doing something a little stupid financially while I’m there. Anyways, that’s it for me. I hope this was helpful. I hope everyone’s doing well. Staying safe is always a special welcome to everyone from Denmark. It’s great to have you. Welcome. And I will talk to you next week. Bye bye.