A recipe for disruptive innovation? Learning from Shanzai producers

Three friends are sitting and smoking together on an overnight train. Most people standing around them have standing seats only. The boy on the left is playing with his shanzai cellphone. 

If the term shanzai could mean "affordably hacked together outside of the dominant" then that means we can group shanzai as part of any disruptive technologies, movements, and cultures. Punk, rock'n roll, & hip-hop are all shanzai. Linux, ubuntu, android, & apache are all shanzai.  

I think most disruptive cultures are born out of a context where you have a lots of restrictions, an environment where there is inconsistent regulation (free for all), & tons of dreamers who want to make something work. This to me is the recipe for innovation. (for more on this formula you can look at this recent talk that I gave about the future of the internet in China)

RESTRICTIONS + FREE FOR ALL + DREAMERS = UNIQUE SET OF CONDITIONS FOR INNOVATION

Shanzai phones emerged from a restrictive regulatory environment. Cellphone producers wanted to avoid the tightly government controlled market of cellphone hardware manufacturing that requires handset producers to pay taxes. The taxes made it hard for any newcomer to compete against the large established companies like Nokia, HTC, Samsung, Motorola and etc.

So cellphone producers worked with a Taiwan company that stands outside of Chinese governance, MediaTek, to quickly produce affordable and customizable cellphones that could flood markets within and outside of China. Essentially, cellphone producers dreamed of a way to operate outside of market regulations for cellphones and in the end shanzai phones now are estimated to makeup 20% of all cellphone sales within China. Millions of migrants can now have their dreams come true of connecting in real-time with friends and family, playing lots of games, going online, reading books, and taking photos - these non-elite users can finally afford cellphones just like anyone else in China. Shanzai culture is about equalizing the playing field for the most economically disadvantaged consumers. Now that is what I call a disruptive innvoation. 

Now companies like Nokia and Microsoft are panicking because they are unable to compete in the crowded smartphone market. Longtime buyers of Nokia feature phones (symbian) have defected to Shanzai smart phones in masses. But Nokia still has an odd split in their company - they've set their company up in China (and India, Africa) to be split into two parts: emerging markets and smartphones. And now Nokia smartphones are switching to Microsoft platform (good-bye Meego!). But this means that Nokia has segmented their market into two groups and made two assumptions - that emerging markets still want to buy feature phones  and elite-users want to buy expensive smart phones. Sorry, but this isn't going to work because both non-elite users AND elite users want access to really cool smart-phones. 

People in emerging markets are going to want to have access to the same features that expensive smartphones offer. They see the iphone ads and they want the lifestyle that comes with it. So even if they can't buy it from Nokia/Microsoft, iphone, or some Android phone  - they're going to get it a smartphone with the SAME features from a shanzai smartphone. Sure shanzai smartphones are cheaply made and it may fall apart in 1 year, but guess what - that's more of an excuse to buy a new one.  At such an affordable place, migrants can afford to get a new phone every year or so.

My suggestion for any hardware manufacturer in emerging markets - learn more about your consumers. 

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UPDATE May 8, 2011: I just found out that designer and adventurer Jiashan Wu is going to be researching shanzai cellphone culture! Congrats girlfriend! This is such an fun area of research and I'm happy that you're going to be tackling it! I can't wait to see the kind of work that you're going to be doing and let's find a way to play together while we're both in China!