July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

“I am not an unfair person,” Apple CEO Tim Cook told lawmakers yesterday. “Apple is not an unfair company.”

And yet, Apple was summoned to congressional hearings focusing on how Apple paid almost no tax — basically 2 percent – on over $100 billion in overseas income. Income that if brought home to the good-old USA would have resulted in $35 billion in tax revenues for Washington.

Sen. Carl Levin (D-Mich.) certainly disagrees. He asked Cook, Apple’s CFO Peter Oppenheimer, and especially Apple’s head of tax operations, Philip Bullock, tough questions for long minutes as Bullock’s face grew shinier and shinier with perspiration and the lines on Cook’s face grew deeper and grimmer.

“Let’s get a straight answer,” Levin said. “You’re not bringing the $100 billion in foreign cash home unless we reduce our tax rates … you are able to shift profits to places where you, an American company, don’t pay taxes. That is not right.”

But it’s fairly easy to see a scenario in which both Cook & company feel perfectly justified in doing what they’re doing, and lawmakers feel like Apple is acting in an underhanded, un-American, unpatriotic, and tricky manner.

Big clue here: These ain’t American dollars

Cook and fellow Apple executives are officials of a publicly traded company. As such, they are not just encouraged but obligated to maximize shareholder value. If they don’t, they could be subject to dismissal or lawsuits. Any corporation’s shareholders naturally expect the leadership of the company to minimize expenses in any reasonable way — include tax expenses.

That alone could influence Apple to utilize whatever tax shelters it can. And most big multinationals feel the same way — Google, after all, makes almost $10 billion in its Bahamas subsidiary alone. Avid searchers, those Bahamians.

But there’s another important point.

Lost in all this discussion of how Apple should “bring that money home,” as Levin says, or “repatriate its profits” is that the money is not American to begin with and cannot be “brought home” in any real sense. While it could perhaps be “patriated,” there’s no “re”patriation possible.

The money that Apple earns overseas is exactly that: overseas income. It’s not spent in the U.S., not earned in the U.S., and, one might therefore quite reasonably argue, should not be taxed in the U.S. Which is precisely how Cook sleeps very well at night, thank you very much.

“Everything that we sell in the U.S. is taxed in the U.S,” Cook said. “For a foreign country, everything we sell is generally taxed in the local market.”

(Cook did not mention, of course, that it is primarily due to Apple’s ingenuity and Ireland’s complicity that this foreign market turns out to be largely Ireland, and therefore largely one that taxes Apple at an effective 2 percent rate.)

But, as Sen. Rob Portman (R-Ohio) noted, the United States is one of the last countries in the world to move to a territorial tax system, whereby income is taxed in the jurisdictions it is earned. Most countries do not tax overseas corporate income. As he also pointed out, “no other country in the world has such high barriers to bringing international income home.”

Which means, Portman highlighted, global Apple competitor Samsung can bring its cash home without any penalty. So while Samsung is free to bring profit out of the U.S. and invest it in Korea, Apple cannot do the reverse — without losing 35 percent of it at the border.

“That would be great for growth in this country,” Cook said. “We can’t use our overseas cash to make any investments in the United States … which would create more jobs and create more investment.”

But, but, but … it was American know-how that created those dollars

The flip side is also easy to miss.

While on the one side Apple doesn’t feel it should be taxed on overseas income just because it is an American company — “proud to be an American company,” Cook said — on the other side there’s the question of what enabled those profits in the first place.

Source: Foster and Partners

Apple’s proposed “spaceship” campus in Cupertino, Calif.

“Ninety-five percent of the creativity that goes into those products is in California,” Levin told Cook, nailing him with his own testimony. “Most of your global profits are sitting in three Irish companies that you control that don’t pay taxes … and there’s a huge drain as a result.”

In other words, without the environment in which you were created — the access to skills, talent, education, subsidies, ecosystem, everything — Apple would not be what it is. And the products that it created that revolutionized the world would not have been built. Which is precisely why Sen. Claire McCaskill (D-Mo.) asked Cook an impossible question: ”What would it cost you to move out of California?”

The implication, of course, is that while it would currently cost Apple $35 billion to take its overseas earnings home, it would cost Apple its very existence to move out of the womb that birthed the company. Fifty thousand of Apple’s 75,000 global employees reside in the United States, of course, and it is ludicrous to assume that even a sizable fraction of them would follow Apple to some foreign country so that the company could avoid income tax.

Which is why Cook came to testify before the lawmakers in the first place.

“I feel good about participating,” Cook told Sen. John McCain (R-Ariz.) in spite of the hard questioning. “Apple is ready to help.”

So, who’s right?

Levin sounds pretty unequivocally on the side that Apple is doing something wrong. Portman is pretty sure that the problem is an “antiquated, uncompetitive tax system” that is a “relic of the 1960s.” UCLA law professor Edward Kleinbard told the New York Times Apple’s actions showed “unbelievable chutzpah,” and international opinion is similarly divided.

Richard Murphy of the United Kingdom nonprofit Tax Research UK singled out Ireland for blame.

“Ireland is completely complicit in this low tax rate and in the process is guilty of deliberately undermining the tax revenues of states around the world and of destroying fair competition in international markets,” he said.

Pulitzer Prize-winning tax expert David Cay Johnston says the problem is the tax code itself, calling for simplicity. Which, interestingly enough, is exactly what Apple says needs to be done.

“Apple has always believed in the simple, not the complex,” CEO Tim Cook said yesterday. “It is in this spirit that we recommend a dramatic simplification of the tax code … a lower tax rate … and a reasonable tax on foreign earnings.”

Which means that Apple, at least, wants to meet somewhere in the middle.

photo credit: JD Hancock via photopin cc, Shutterstock/Cash

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

A number of Western developers I advise are interested in launching their apps in what they call “the Asian smartphone market.” The goal is quite understandable, given that geographic area’s high growth rate in recent years.

But I sometimes fear that term is too broad and can lead to confusion. There are many large countries within Asia, and for various cultural and infrastructure-related reasons, they can have widely varying mobile usage and ownership patterns. To illustrate this, here are five facts about this market that aren’t generally well known by many of my colleagues in the West:

Japan is where mobile apps monetize best

In gaming, Japanese mobile publisher GREE has an ARPU (average revenue per user) of $11.21 per month, while Zynga’s monthly ARPU is 33 cents, according to the Wall Street Journal. We see a similar pattern in non-game apps.

Take LINE, for example, a messaging app from NHN Japan that’s  extremely popular in Asia (it has 100 million total users). Ten percent of its active Japanese users monetize around $1 or more per month. (LINE users purchase “stamps” — cartoon characters they can insert into their text messages.)

There is a very good reason for this high monetization rate: Japanese mobile users have been accustomed to paying to use their apps since 1999, when top mobile carrier Docomo created a market for applications — basically an app store — and charged its users for these apps, many of which provide services most Western phone owners take for granted. When Docomo rolled out email access through mobile, for instance, it charged customers 300 Yen (more than $3) per month to use it. Despite those fees, the service became very popular. In fact, most Japanese first started accessing the Web on their phones, not a PC. So there are very different cultural assumptions in Japan around mobile payments — and consequently, much higher revenue.

Japanese e-commerce is ruled by mobile

Major online retailers such as Amazon and Rakuten see about 60 percent of their purchases come from mobile in Japan, generally much higher than rates in the West, especially the United States. Again, this is related to Japan’s unique conditions. As I noted, most Japanese first began to access the Web on mobile and so are accustomed to shopping via their phones.

Different usage behavior is also a factor. Unlike in United States, most Japanese commute to work via trains and thus have much more leisure time to shop on their phones. Since most Americans drive to work, they are less likely to shop with their phones during their commute. (At least I hope so, if they’re driving!)

Mobile diversity throughout Asia

As I said, to speak generally of “the Asian smartphone market” is somewhat misleading. Consider how the ownership rates and app usage behaviors vary widely from country to country.

For instance, in Japan, about 40 million of the country’s population of 127 million own a smartphone — roughly one fourth use iOS, and three fourths use Android. Korea counts about 20 million smartphone owners among its population of 50 million.

However, app usage is much greater in Korea. For the apps by our portfolio companies (we count about 75 million total users on our platform), a typical distribution rate in terms of downloads from the most active countries is 40 percent from the U.S., 10 percent from Japan, and 20 percent from Korea.

So while the Korea smartphone install base is much smaller than the U.S. or Japan groups, app usage is proportionally much higher in Korea. This is probably because smartphone adaptation in Korea started earlier than either country, and Korea’s data infrastructure and Internet connection speeds are much higher. And as a smaller country by geography, it’s easier to establish broad mobile coverage in Korea. For these reasons, 4G in Korea is cheap and very fast, making it much more appealing to download and use apps.

China: The biggest, most slippery fish

By now, most Westerners know China has surpassed the U.S. to become the world’s largest smartphone market, with an install base of 240 million to the U.S.’s estimated 120 million. Some analysts even forecast China will grow to have half a billion smartphones by the end of this year.

Less well known are all the barriers that currently exist for Western developers who want to enter that market. Beyond the obvious language and cultural barriers, not to mention problems with IP rights protections, there’s no Google Play in China. Amazon Web Services has not launched thereyet, and there are literally hundreds of app stores vying for customers.

To be sure, Apple’s App Store in China has gained significant traction in recent years, but the iOS install base in China is dwarfed by Android.

Then, of course, the Great Firewall makes many apps that depend on cloud servers and social networks outside of China virtually unusable. Facebook and Twitter are blocked by China’s government, and Chinese users turn instead to local social networks like Sina Weibo and Tencent Weibo.

Japan’s unique social media culture

When LinkedIn attempted to launch in Japan, the social network had difficulties gaining users, for cultural reasons, in Japan, resumes are considered highly confidential and not widely shared. To be sure, many Japanese do use LinkedIn, but they tend to be those who work outside Japan or regularly deal with U.S. and European firms.

For similar reasons, game developers have experienced difficulty using Facebook Connect as an account creation method — Japanese usually fear that professional contacts in their social network will think less of them if it’s revealed they are playing online games.

Instead, Japanese prefer using another social networks for their leisure activities, such as GREE (with a focus on mobile games) and Mixi (with a focus on entertainment and user avatars).

Conclusion

Despite all the challenges Western developers face when dealing with Asia’s many mobile markets, it’s exciting to watch them start succeeding there anyway. One of our developer partners, Atlanta-based Metago, turned its ASTRO file management app into a service with 55 million users, a very large percentage of whom are living in Asia. I’m certain many other Western developers can gain as much success across the Asian market. And when that happens, developers won’t need posts like this that cover little-known facts about Asian mobile — because knowing those facts will already be an integral part of their job.

Masanari Arai was cofounder and CEO of Synclore Corporation in Tokyo, Japan, which merged with Servo Software to become Kii. He has more than 15 years experience in the mobile software space in Silicon Valley and Japan. He joined Intellisync in 1995 as one of the original members of the company, where he served in various positions such as VP product marketing, VP business development, GM for Asia, and President of Intellisync Japan. Prior to Intellisync, he was at IBM where he was the product manager of original ThinkPad 700 Series.

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Asia loves apps, apparently. Especially if they’re games.

According to App Annie’s January app store report, Japan passed the U.S. in October last year as the top nation in the Google Play revenue charts, with Korea not far behind. And with China jumping up to sixth place by revenue in the iOS app store charts, it’s clear that a sea change is occurring: Asia is starting its almost inevitable domination of global smartphone and tablet app stores.

See also: Google Play revenue growing 10X faster than Apple’s iOS store

“The U.S. has always been the largest app store, but especially for Google Play, it’s shifting,” App Annie senior analyst Shelene Chang told me yesterday. “This is not just app economics … this is all economics. Asia is showing its strength, and that is going to have an impact on app publishers’ international strategy.”

With 1.6 billion phones shipped in 2012 and 75 percent new cellular plans sold in Asia and Africa, Asia is clearly a key market for both Apple and Google.

When Apple released its Q1 2013 results last week, CEO Tim Cook said the region (including Taiwan and Hong Kong) was now Apple’s third largest by revenue, and the fastest growing. That’s evident in the app store as well, where China has moved from eighth to sixth in overall country revenue in just three months.

“Publishers have always known that Asia is big, but the question has been whether you can monetize,” App Annie’s VP of marketing, Ollie Lo said yesterday. The answer now, is definitely yes.”

But Asia’s fast growth is nowhere as evident as in Google Play numbers. Japan now exceeds the U.S. in terms of Google Play revenue, and based on growth rates, Korea is not far behind:

Source: App Annie

Google Play app revenue by country

Interestingly, while smartphone platform app sales are generally dominated by games, this is especially true of Google Play, and most especially true in Asia.

While 78 percent of Google Play revenue from the U.S. came from games in December, 2012, the equivalent number in Japan was 88 percent. And in South Korea, an astonishing 95 percent of all Google Play revenue derived from the games category.

That’s very evident when you see the list of top Google Play publishers by revenue. Korean and Japanese publishers dominate, with South Korea’s NHN Corp. leading four Japanese publishers, including GREE, in the top five:

“A lot of countries — non-Western and non-English-speaking countries — are still dominated from app publishers from the U.S. or Europe, App Annie’s Lo told me yesterday. “But China, Korea, and Japan are dominated by local publishers. They have a big enough domestic market and big enough tech scene to sustain that, which has always been the case, including in web, with Tencent and other companies.”

I wondered out loud, when seeing the results, if the heavy games orientation in Asian countries was a factor of demographics — age of smartphone users — or something in how Japanese, Korean, and Chinese consumers use their phones. Lo wasn’t able to speculate on usage behaviors in these countries and whether they differ from American or European usage behaviors, but he did say that it’s not just the young demographic that plays games in Japan, China, and Korea: Smartphone owners of all ages play games quite frequently.

Which is something that app publishers will want to keep in mind when targeting games — or other apps — to the growing Asian app markets.

photo credit: johncatral via photopin cc

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Have you got that loving feeling? Investors seem to. That is, when it comes to Korean relationships app Between, which just received $3 million in its first round of funding.

The app connects you with your significant other and gives you a place to chronicle your relationship. You can add pictures, events, and little status updates onto a timeline of your love. If you break up, the company keeps all of the data alive in its servers for one month (just in case you get back together) and then fully deletes, assuming you guys are really through.

Between hit one million downloads in July 2012 and has since been growing in its country of origin. The company, according to Korean tech blog BeSuccess, has over 2.35 million downloads today, 1.6 of which come from Korea — a country that is no stranger to relationship apps. Edward Lee, the company’s “value innovator,” says people think of Between as a sign of commitment, similar to a ring in the United States.

While it’s expanding its user base, Between is still figuring out a business model. It may one day include printed photo books, and advertising.

Lee explained to me in a previous interview that Between is going to push into the Asian markets before it heads to the U.S. This is plainly because the team believes relationships and mindsets in Asia are more interested in this kind of display of affection. Following through on this, Between is focusing on the Japanese market next, where Lee hopes the country’s penchant for digitizing relationships will lead to big growth.

Then, the team will take on the U.S. market, competing with apps such as Y Combinator’s Pair, and, on a much simpler level, Facebook.

The funding was led by Stonebridge Capital and KTB Network, with participation from Capstone Partners and Softbank Ventures. The company launched in March 2012 and is based in Seoul. It previously received $1 million in a seed round provided by Softbank.

Between team image via Between

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

The New Year is a popular time to make weight loss resolutions in the US in Asia alike. Noom Inc, the health and fitness app developer, has raised $2.6 million to enter the Asian market.

Noom’s flagship product is the Weight Loss Coach, which is a top weight loss app for Android. It acts as a “weight loss coach in your pocket” by setting daily wight loss tasks, tracking and grading progress, and adjusting goals accordingly. Other products include CardioTrainer and Calorific, and are all intended to make healthy living an integrated and enjoyable part of everyday life.

Noom was founded as WorkSmart Labs in 2006 in New York and since then has helped users lose over 20 million pounds. The Weight Loss Coach costs $9.99 a month and was popular enough with customers that it did not seek out institutional financing until it raised a seed round from Kleiner Perkins Caufield and Byers in 2011.

Behind the US and the UK, Korea is Noom’s biggest market. This $2.6 million “pre-Series A” and will help open the Noom Korea marketing office and launch a fully localized Noom in Korean. The first two rounds of angel funding the company received were from Korean investors and the giant food corporation Daesang licensed Calorific on the Korean market last year as a trial.

Noom currently has over 15 million installs and plans to continue international expansion, as well as make additions to the product line and mobile offerings. This round was led by m8 Capital, a London-based investment firm that focuses exclusively on mobile technology. Qualcomm Ventures and Harbor Pacific Capital also invested. Noom is headquartered in New York City.  Read the press release.  

Panasonic, which had already trimmed its workforce by 36,000 jobs last year, will be looking to sell or close any business units that cannot achieve at least a 5 percent project margin, the company’s chief financial officer told Reuters.

Japanese electronics companies are fighting surging Korean electronics companies such as LG and Samsung — and losing. Sony’s stock is down almost 80 percent in the past five years. Sharp is down 90 percent, and Panasonic itself is down about 75 percent and currently at a 10-year low. LG stock, on the other hand, is up about 30 percent since mid-year, and Samsung’s stock has almost tripled since early 2011.

Source: Google Finance

Sony, Panasonic, and Sharp stock prices: down, down, down.

The Korean manufacturers have taken the majority of Panasonic and other Japanese companies’ TV business and have been quicker to jump on profitable new segments such as smartphones, where Samsung has a global lead.

Panasonic’s last profitable year was 2010, but it is aiming to return to profitability in its March 2013 to March 2014 fiscal year, aided by the sale of $1.4 billion-worth of land and buildings in Japan.

But it has a tough job ahead, with 88 business units to review and fix, close, or sell.

photo credit: joimson via photopin cc

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Sometimes truth is stranger than fiction.

Today, Samsung won a reversal of the sales ban on the Galaxy Nexus phone imposed after Apple’s August court win. Also today, Apple won at least a stay of execution on the iPhone and iPad sales ban imposed after Samsung’s August legal victory.

The first case is in the U.S.; the second is in Korea.

It’s getting hard to tell these patent infringement cases apart. By some counts, which may not be completely comprehensive, 19 lawsuits were ongoing between Apple and Samsung in nine different countries on four continents — last year. This year, with appeals, refilings, and potential new frontiers in different countries, the count may go even higher.

But at least we have patent peace in Antarctica.

Google hasn’t been selling the Nexus for a few months now …

The Samsung Nexus ban stemmed from Apple’s billion-dollar win in August in which a jury found that Samsung willfully infringed on the Cupertino, Calif., company’s patents. But as Reuters reported, the U.S Court of Appeals for the Federal Circuit ruled that the California court had “abused its discretion in entering an injunction.”

I suppose that means Google will be selling the Nexus again at some point.

The iPhone/iPad sales ban stemmed from Samsung’s whopping $35,000 win in a Korean court that ruled Apple had infringed two of the Korean company’s patents, while Samsung had violated one of Apple’s. The bigger punch in that court decision, of course, was the threatened import ban, which Apple has now, at least, delayed.

Interestingly, the Korean court had also banned Samsung’s Nexus and Galaxy Tab tablets in a probably healthy “pox on both houses” attitude that could stand a visit to courthouses Stateside.

Both bans, and both reversals, will almost certainly face tests in further legal battles. Samsung will likely appeal its billion-dollar loss, and Apple must respond to the Korean ban, which has just been stayed, not lifted.

The soap opera continues. …

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

The world offers lots of ways and places in which to fall in love. France has wine and romance. Italy has The Lady and the Tramp-style spaghetti kissing. And Korea has smartphone apps.

Relationships in Korea develop just like relationships anywhere in the world. You meet someone, go on a few dates, and decide you like each other, and before you know it, you’re walking down the aisle. But while many of us find social networks equal parts creepy and addicting, three Korean startups are hooking people into putting the entire life-cycle of their relationship on the web.

I-UM, Between, and MerryMarry, placed end-to-end, cover the entire scope of a relationship, from finding one another (I-UM) all the way to when you’re ready to get married (MerryMarry). The three aren’t even connected on the business front (yet), but with their powers combined, they become the perfect trifecta of techy Korean love apps.

I-UM

I-UM is a dating app that sends users a new potential mate every 24 hours. Founder Hee-eun Park told VentureBeat that she brands this match as your “24-hour destiny.” Like a regular dating website, people set up a profile and fill out information such as name, age, job, profile picture, interests and hobbies, schools they attended, and other things that your future significant other may want to know.

Then, each day at 12:30 pm (Korea time), the app matches you with another user and offers you that match. From there you check out their photo and bio and decide if you want to “pass” or if they are “okay.” If you choose “okay,” it’ll cost you $3 (unless you’re on the $15 monthly plan), with no guarantee that your match will approve you. You can only exchange contact information if both people choose “okay.”

Once you’ve dated someone, you can rank them on a scale of one to 10, which I-UM’s algorithm looks at when matching that person again. It is possible to see your average rank, but you’re going to have to pay to do it.

Thus far 400,000 people use the app, which is available on both iOS and Android. The company makes around $250,000 a month but currently only caters to Korea. Park plans to move next to other Asian markets, starting with Japan.

Now let’s say you’ve found your “destiny” and you’re ready to start a relationship. It’s time to move on to the next app.

Between

Between is a couples-only app in which you and your significant other can digitally canoodle in the form of private status updates, photos, chats, calendar events, and more. In essence, it’s a social network just for the two of you. The company’s founders, Edward Lee and Jaeuk Park, say their goal is to make Between a relationship status symbol in Korea, similar to the way a promise ring is indicative of a lasting relationship in the U.S. In their eyes, Between is a place to save the memories of your relationship on a timeline that you can scroll through when nostalgia hits.

The app, which is available on Android and iOS, recently hit 1 million users and is continuing to add new features. This includes a public space where couples can discuss things like where the best date-night place is and which movie theaters have the best make-out corners. Between may soon offer printed photo books as an a business model — one of the main things the company is still figuring out.

What if you break up? You have two options. You could delete your relationship and go back to I-UM for some more “24-hour destiny.” Or you can take a break and then return to your Between relationship, as the app will keep your data alive on its servers for one month.

But if he likes it and he wants to put a ring on it, it’s time to move on to MerryMarry.

MerryMarry

“I think after using Between it would be a very good idea to move on to MerryMarry,” said co-founder Amy Min in an interview with VentureBeat. “It’s like going to a new phase of life.”

When the wedding bells are ringing and the church choir is singing, it’s time to start planning your wedding on MerryMarry. This fledgling app is technically not a Korean company (it’s incorporated in Delaware), though its founders are from Seoul. In these early days, the app’s main feature lets you add guests to the app and distribute invitations to the wedding. The app then organizes who will attend; whether they want chicken, beef, or fish; and if they are bringing a plus-one.

You can chat with your bridesmaids and friends on the app, update family to any changes with the wedding, and plan events leading up to the wedding such as the bachelorette party and bridal shower. Min told us the app will eventually let all your guests take day-of pictures, which will then sold as wedding albums, although for now that feature is not yet available.

Min wants people to use the app not only as a way to plan the wedding but as a way to keep friends and family informed through to the end of the honeymoon. Couples can share pictures from their exotic getaways through the app. Maybe it’s good that your Grandma Ethel doesn’t know how to work a smartphone so she can’t judge you for wearing that skimpy bathing suit.

MerryMarry came out of beta this month and thus far has 1,500 users. It is currently only available on iOS devices.

If you’ve made it this far, then you’re officially out of the dating stage, done more than promised life-long love, and may even be passed the newlywed phase. What’s left for you? Well, it’s probably good Facebook recently added a “baby’s coming” status update option.

Thanks to Strong Ventures’ John Nahm for the inspiration for this post! Korea Love Wall image via hojusaram/Flickr

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Samsung owns 99 percent of the world’s OLED market. This is one reason why, the company claims, Korean rival LG has been hiring its engineers and stealing its intellectual property.

So Samsung is suing LG in a Seoul court.

It might appear to be a case of the pot calling the kettle black, considering Samsung’s recent loss in the iPhone patent case. However, this is a very different scenario.

According to the complaint, LG has been systematically recruiting key Samsung engineers, who are breaking noncompete employment contracts by signing on. As a Korean news agency states, Samsung claims that ”LG Display has consistently acquired our OLED technologies and other business secrets by inducing our researchers to transfer.”

Eleven people were indicted for stealing or improperly sharing Samsung’s corporate secrets in July, including a key engineer in Samsung’s development of AMOLED technology (Active-Matrix Organic Light-Emitting Diode).

With sales of OLED and AMOLED displays predicted to hit $44 billion in 2016, the battle is really about the future and who will own the bulk of that market. If Samsung can maintain its technology lead, it can effectively shut competitors — including LG — out of that business.

Samsung is demanding a billion won for each case of infringement, which is equivalent to about $900,000 U.S.

photo credit: khrawlings via photo pin cc

The program will follow the example of prestigious US accelerators like Y-Combinator, TechStars, and 500 Startups, which are founded on a mentorship model. SparkLabs participants will have access to an elite and knowledgable network where they can solicit valuable guidance, connections, and resources.

Mentors include angel investor Mark Cuban, VP at Google Vint Cerf, Managing Partner of SV Angel David Lee, and a host of other illustrious figures on the technology scene. SparkLabs will also offer funding and office space, as well as English language education and legal advice.

While Korea has a thriving technology scene, a majority of the promising young talent heads to large companies like LG, Samsung, or Hyundai. After the dotcom bust, many Koreans were hesitant about starting companies and thus the startup scene is just beginning to emerge.

“The timing is just right,” said founder Bernard Moon, who is also a contributing author for VentureBeat. “Koreans are traditionally focused on educational achievement, security, and working for big name companies. Now there is a growing awareness of the world outside Korea. We want to provide connectivity for young entrepreneurs and support globally minded companies.”

Founders Moon, Hanjoo Lee, and James Kim are all entrepreneurs who have experienced first hand the challenges of building companies, making connections, raising venture capital, and scaling products. SparkLabs aims to promote a culture of innovation in Korea while also giving fledgling businesses the tools to succeed.

The accelerator will focus on companies in the Internet, gaming, mobile, commerce, and digital media sectors. It is part of the Global Accelerator Network which consists of 50 top startup accelerators from around the world. SparkLabs is the first member of the network in Korea. It has also partnered with DEMO and DEMO China to fast track the application process for its member companies.

Applications will open on August 30, 2012.

One of the employees, according to Korea Times, was a key engineer in Samsung’s development of AMOLED technology (Active-Matrix Organic Light-Emitting Diode). He has since become an LG employee, violating (Samsung claims) the non-compete clause in his employment contract.

AMOLED technology, or an even more advanced variant known as Super-AMOLED, is used in Samsung’s smartphones such as the Galaxy S series, helping the company to sell more than 50 million smartphones in the second quarter of 2012.

Samsung has demanded an apology from LG and asked a Korean judge to impose a 10 million won/day penalty (about $10,000 USD.) In addition, Samsung wants assurances from LG that the company will not poach its workers in the future.

According to Bloomberg, LG says that any intelligence gained from former Samsung engineers was “widely known in the industry” and not a trade secret.

LG is countersuing, alleging defamation.

South Korea is in the midst of revitalizing its startup community. It is moving away from a stigma of failure and encouraging more youngsters to forgo the traditional notion of school in exchange for entrepreneurship. Indeed, many in Korea believe the only path is to finish your degree and then work for one of the country’s powerhouses: Samsung, LG, or Hyundai.

But those who attended the beLAUNCH conference in Seoul this week see it differently. Five prizes, including a free ride to the DEMO conference, were awarded to promising startups Thursday, with that spirit of progressing farther than a predictable job at Samsung or LG. Here are the winners:

KnowRe

KnowRe is an education technology startup that personalizes lessons based on your children’s activity on the program. The technology provides lessons in various subjects, starting with math, in the form of regular question-and-answer sessions, along with games. It is intended to be used as a supplement to the teacher, and can be used during class or as homework.

The technology learns about the child by asking a series of extra questions when a child answers a problem incorrectly. This is where KnowRe’s personalization comes in to identify where exactly in the teacher’s lesson the child was confused. The goal is to help the timid child who is afraid to raise their hand and say, “I’m lost.”

The downside to KnowRe is the downside to all education startups: entering the edutech field is like chipping at a brick wall with a nail file. It’s hard to penetrate the industry, which requires various approvals before any technology can enter the classroom, and forget it if the technology is expensive. Some companies have successfully made it through, however, such as Saul Khan’s Khan Academy.

KnowRe won the Plug and Play Tech Center prize, as well as a free ride to the DEMO Conference in Santa Clara, Calif.

Weenu

Weenu is an art marketplace on your phone that lets artists tell the story of a work of art in order to help sell the piece. Artists use the app to list their works, but also images and captions about that work starting from its inspiration. For example, an artist takes a picture of a chef who inspires her. She adds that photo to Weenu with the caption, “Inspiring.” She later does a sketch of the chef, then turns the sketch into a painting, all the while adding photos and comments about its progress to Weenu. A potential buyer finds the posted artwork for sale, and is (in theory) impressed by its progress and decides to purchase.

The startup has some challenges, in that the art market is difficult to penetrate, and if Weenu is targeting more arts-and-crafts type creations, it has a huge competitor in Etsy.

Weenu won the YouNoodle accelerator prize.

TakeTalks

One of the huge challenges for Korean startups who wish to go global is the language barrier. English is a pivotal language to learn, especially when targeting the U.S. or U.K., and TakeTalks wants to help Korean startups, and anyone looking to learn English, find the right tutors. The site matches you with tutors based on your interests. You can sign in using Facebook, which helps identify those interests, and search for tutors who have listed the same. The company already has a list of 2,048 tutors with whom Koreans can video chat or message to begin their lessons.

There is no shortage of language tutoring services out there, including human-less tutoring like the popular Rosetta Stone. But TakeTalks is focusing on the Korean market, which may give it an edge in understanding cultural norms, and how English-learning is done is local schools.

TakeTalks won the Amazon Web Services prize.

Yeati

Yeati, similar to LinkedIn, is a social network that works on developing a person’s brand based on their work experience. The company lets you upload a profile with your work history, employment interests, and skills. The company hopes to set itself apart from LinkedIn with its visually focused design team, which stems from parent design company Easy Works.

Yeati won the Qualcomm Ventures QPrize.

Disclaimer: The beLAUNCH conference covered the costs for my airfare and hotel stay during the event. This does not, however, affect my coverage which remains objective.

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

In Silicon Valley, people fail. And they fail often. But one of the elements of Silicon Valley that makes it such a petri dish for startups is its tolerance for failure. In Korea, however, failure is still a taboo.

“In Korea failure in startups is a kind of stigma, and I think that will cause a lot of difficulties,” said Hankyung journalist Won Ki Lim at the beLAUNCH conference in Seoul, Korea today. “Most of the ventures will fail, but on the flip side, with that failure… this stigma attached to failure will go away gradually.”

Failure is a key part of learning, according to many in Silicon Valley. A number of entrepreneurs look to their failures as part of the reason they succeeded. Indeed, companies like Instagram, which was recently sold to Facebook for $1 billion, began out of a failed mobile app called Burbn. It seems, however, that Korea still looks cautiously at failure, and many venture capitalists look toward proven successes to award funding — the financial lifeblood Silicon Valley startups depend on.

Indeed, angel investing is on the smaller side with about 30 percent of Korea’s venture capital deals going toward early stage companies. There is an emphasis on proving your company’s worth before money is awarded, which Go Venture Forum’s Youngha Go sees as a block in the growth of the Korean startup community.

“The balance is not made between the angel capitalists and the middle-sized funders,” Go said, referencing the low percentage of seed investing, versus the 70 percent that makes up middle and late stage investments. “It shows we are still lagging behind in angel investment. We need to increase the size of angel investors.”

Go suggested that the Korean government should get involved and award funding to startups, as opposed to awarding welfare to jobless youngsters.

“Given that we have a serious jobless problem among our youth, rather than just giving the welfare to the young generation, supporting startups would be very good for younger generations,” he said. “Startup funds given by the government would make more jobs. The thing is, when the government fails to identify the right startup, the money can be wasted.”

Disclaimer: The beLAUNCH conference covered the costs for my airfare and hotel stay during the event. This does not, however, affect my coverage which remains objective.

VentureBeat writer Meghan Kelly and I are participating in the event, judging startups, and reporting on the new technology we see in the country. The conference, to be held in Seoul on June 13-14 will showcase the most disruptive technology startups in Korea and surrounding region in Asia.

I’m also planning to meeting privately with up to ten local disruptive companies, as part of my effort to find and invite the best companies globally to DEMO, the Silicon Valley conference we co-produce in October.

As part of those meetings, I’ll be offering feedback to entrepreneurs about their technology, business model and go-to-market strategy internationally. If you’re an entrepreneur based in Korea and your company is interested, please fill out this form and we’ll be in touch with further details shortly.

James Jung, founder of Korean tech blog BeSuccess, came up with the idea last year, and approached VentureBeat to see if we wanted to partner. We were delighted to, because it fits with our larger mission of covering disruptive technology regardless of where it emerges.

We look forward to seeing you in Korea!

“NHN grants Aeria Games the first right to review and obtain, with preferential treatment, all MMO games that NHN has obtained licenses to, whether through its wholly-owned or partially-owned studios or third-party studios. The transaction also includes two licenses from NHN’s lineup,” said Aeria chief executive Lan Hoang (pictured below). The press release lists the two games as shooters Alliance of Valiant Arms (A.V.A.) and Soldier Front.

Hoang said that Aeria has been profitable to date and that the investment is the first fundraising the company has done from an outside investor. “The key for us is the acquisition of Ijji and the content agreement. The additional resources will be used to acquire Triple-A titles and aggressively expand our platform to the mobile gaming market, with a focus on our core audience of mid- and hardcore gamers, aka our power players. We will be launching through our platform a number of multi-player games for the smartphones and the tablets in the very near future,” he said.

The Ijji acquisition will add about 10 million plus users to the Aeria’s current 35 million core players. The company has a number of online games, including the MMO Eden Eternal, the MMORPG Shaiya, the supernatural MMOFPS Wolf Team, the strategy game Golden Age and an upcoming action shooter named Repulse.

“The shooters community, which Ijji is really known for, is probably one of the most hardcore and loyal gaming communities,” Hoang said. “Our audiences are very complementary, so it’s a good fit and one that will help to further foster an even more active community amongst Aeria Games users.”

Aeria Games, founded in 2006, has offices in the US, Germany and Brazil, publishing in nine languages across 30 countries.

NHN Corporation, established in 1999, is a multinational Korean internet company, operating a Korean search portal with more than 17 million unique daily visitors as well as a game portal, Hangame, which reports $422 million in revenue last year, from over 30 million registered users.

The deal was Japan’s biggest IPO this year and it doesn’t augur well for Zynga, which plans to start trading shares on Thursday.

Nexon sold more than 70 million shares. It closed at 1,270 yen, or $16.31 a share, compared with its opening price of 1,300 yen, or $16.70 a share. Nexon has one more day of trading before Zynga goes out, but it may be tough. The broader Nikkei market fell 0.4 percent, and rivals Gree fell 2.7 percent and DeNA fell 4.3 percent.

Zynga hopes to raise around $1 billion at a smaller valuation than it initially hoped because of weak financial markets. The IPO is going to be a nail biter, as at least one analyst said Zynga’s price range of $8.50 to $10 a share seems too high.

Nexon’s market capitalization is less than $7 billion, while Zynga is shooting for $8.9 billion. But Nexon is more profitable than Zynga, with year-to-date profits at $260 million, compared to $30 million for Zynga.

Nexon, which pioneered the free-to-play and virtual goods business model, grew up in Korea and recently moved its headquarters to Tokyo. It is part of a $49 billion games market, and Nexon said it expects growth across all markets.

“Part of the problem is that they priced it at fair value, so it wasn’t going to come on at a huge premium,” said David Gibson, an analyst at Macquarie Capital Securities in Tokyo, in an interview with Reuters. Some Nexon shareholders were allowed to sell their holdings immediately. Nexon has more than 77 million monthly active users.

Venture capital investment in Asia has nearly tripled in the past five years to $15.6 billion. China has leaped ahead to become the world’s second-largest venture market at $7.6 billion investments, while India has climbed to third place at $5.8 billion.

Together, these dragon and tiger markets account for 13 percent of the $37.8 billion put into startups globally. That’s up from 5 percent in 2005.

Since 2005, more than 6,000 startups in Asia – about half of them in India and China alone – have been venture funded.

These two markets are also tops when it comes to mobile service adoption. China ranks highest in the world, with 840 million mobile service subscribers, while India places second with 673 million subscribers. Vietnam has 78 million mobile service subscribers in a country of 89 million people!

China is also gaining ground when it comes to technology patents. The country scores fourth worldwide for new patent applications, up from tenth place in 2005. Two giant Chinese companies – ZTE Corp. and Huawei Technologies – are among the top four corporate patent filers in the world.

For sure, the U.S. still leads the global venture capital market, weighing in with 70 percent of investments in startups and 64 percent of deals worldwide. But VC spending in America has flattened and hasn’t recovered momentum since the last peak more than 10 years ago. The U.S. remains the world’s superpower innovator, too, with 28 percent of all patent applications in 2010. But the U.S. share of patent filings has slipped from 34 percent in 2005, while China’s portion stands at 7.6 percent, up by 56 percent in 2010.

In other telling signs of the eastward shift, the U.S. slipped to fifth from third place in a recent World Economic Forum ranking of 138 countries by technology development and competitiveness. Singapore ranked second, while Taiwan and Korea moved up among the top 10, China leapfrogged to 36th place, and Vietnam scored with the fastest climb.

Asia’s innovation hotspots are fast emerging as first choice destinations for bright young entrepreneurs. By 2014, an estimated 200,000 skilled tech workers leave the U.S. to return to their Chinese and Indian homelands to find new opportunities and to create tomorrow’s leading startups. Consider some of the great companies created by Chinese and Indian immigrants to the Valley: Sun Microsystems, Hotmail, Yahoo and YouTube.

This year, Silicon Valley serial entrepreneur Elliott Ng took a job at Google in China and moved his young family there. Raj Gilda left a VP post at Citigroup in New York and moved to Pune in India to ramp up a vocational training and micro-lending operation called Lend-A-Hand. Mentor and tech entrepreneur Bryan Pelz left Los Angeles for Ho Chi Minh City to work with mobile gaming and search startup VNG, which borrows from Shanda, Tencent, Google and Baidu. Yale undergrad Alice Wang left the ivy-covered walls for a job at a Groupon venture in China.

Getting in on the action, Singapore is making good with government hand-outs and skillful coaching for entrepreneurs. KC Wong is jumpstarting Sparky Animation in Singapore and wants to make it in Hollywood. Mobile security startup Tencube, incubated at the National University of Singapore, was acquired by McAfee. Taiwan is luring startups to move beyond their base in churning out more than semiconductors and electronic goods, and has turned on the lights for a number of LED startups.

The super-charged emerging markets of Asia promise to deliver the next Facebook phase – a turning point that will spark a creativity surge like the social media boom. Startups create jobs and wealth, and enthusiasm for future innovations.

Once, Sand Hill Road investors rarely scouted deals outside the San Francisco Bay Area. Now, they can’t get enough of Asia. Silicon Valley leader Dick Kramlich of giant New Enterprise Associates left his Nob Hill home and art collection and moved with his wife to Shanghai for more than a year to be in the thick of this happening city. Venture heavy Gary Rieschel of Qiming Venture Partners left behind a Bay Area career and his wine collection to relocate to Shanghai, working from the 39th floor of JinMao Tower overlooking the Bund. Former Sequoia Capital India head Sumir Chadha – now back at WestBridge Capital Partners – moved from his comfortable suburban residence in Burlingame to a sea-facing condo in Mumbai. IDG chairman Pat McGovern has made 100 trips to China and is now exploring new terrain in Vietnam and India, and financing dozens of scrappy young entrepreneurial ventures.

“The opportunity is now. In a few years, it will be too late,” says Kai-Fu Lee, the former president of Google China. Now chairman and CEO of Beijing-based Innovation Works, Lee advises young Chinese entrepreneurs in Silicon Valley to “Go East” and he’s financing dozens of startups and mentoring the founders.

These trends underscore a shift in entrepreneurial and inventive muscle to Asia. As the currents for tech innovation move across the Pacific Ocean to China and onward to the Indian Ocean, America’s long-term competiveness is increasingly at stake. Consider how important venture capital is to economic growth:  In 2009, venture-backed companies in the U.S. contributed 21 percent of the U.S. gross domestic product and 12 million jobs, according to IHS Global Insight.

Powerful tides are shifting, and quickly, as not only Chinese and Indian immigrants return home for improved job opportunities and family ties, but also young professionals and bright college graduates pack their bags and settle into a comfortable lifestyle and community of like-minded dynamos in Asia’s top tier cities. It’s not a roundtrip ticket either, but a several years’ journey or a lifetime commitment.

This exodus is laying a foundation for Asia to out-innovate America.

“Silicon Valley will not forfeit its leadership, but China and India will compete heavily,” says Ajit Nazre, a partner at top tier venture firm Kleiner Perkins Caufield & Byers. “We will see hundreds of companies coming out from these markets with huge growth and lots of potential.”

This new innovation dawn in Asia is really only the beginning. Over the next two decades, the startup game will play out in a new geography distant from its Silicon Valley roots.

Rebecca A. Fannin is the author of Startup Asia (Wiley, 2011) and Silicon Dragon (McGraw-Hill, 2008). Fannin will be appearing at Kepler’s Book Store, 1010 El Camino Real, in Menlo Park, Calif. on Friday, Dec. 9, at 6pm, for a talk, book signing and cocktail reception. 

[Top image via Lu Wenjuan/Shutterstock]

It’s the latest in a number of incubators that have popped up with a similar structure — reflecting a convergence around a best-practices approach, perhaps. There’s Y-Combinator, Seedcamp, and Techstars, for example. Litmus is similar to these, only has more distinct steps in the move toward launch, explains Web 2.0 Asia:

When Litmus team receives a business plan, they review the b-plan thoroughly to assess potential and feasibility (hence the name Litmus); The business plans that have passed this initial stage get incubated through closed beta (yellow), open beta (purple), service open (blue), and “graduation” (red).