This past week was historic. For the first time in probably a century, the President of the United States was not the most important person in the room. As a US citizen — albeit of Dutch blood — this is not exactly the easiest thing to watch unfold. While troubling on one level, it just might be good news for domainers with a global view.
My first encounter with the Pacific Century was in 1994
In 1994, I was based just outside of Frankfurt, Germany in the town of Schwalbach working for Procter & Gamble. My boss in Germany was a Polish-American named Jacek Kedziora. Jacek had just moved to Japan. We had a successful run working together in Europe. When he invited me to come work for him again in Asia, I jumped at the chance. I moved to Kobe, Japan in January 1995, a few weeks after the Great Hanshin Earthquake. Kobe was ground zero.
Although the next 5 years were pretty demanding, working with the Japanese was an amazing experience as was traveling throughout Asia. By 1997, I was working on some of P&G’s first global projects while still based in Kobe. By 1999, I had become a global expert on developing better baby diapers having developed them for every region of the world, including Latin America. Around the same time, it was becoming increasingly apparent that the Internet was going to transform a lot of industries.
In 1999, most people in Asia had no idea about the Internet. I developed the idea of creating an internet company that would address the challenge of conducting multi-country market research surveys using the web as the platform for collecting survey data. The idea for Global Market Insite was born. I quit my day job on June 12, 1999, moved the family to Seattle, and then spent the summer of 1999 teaching myself Linux, Apache, MySQL and Perl, wrote the first version of the software, and filed 5 patents.
The decision to be based in Seattle was not an accident. Seattle has an important geographic advantage that I think many people have yet to realize. Seattle is about 8 hour flying time to Tokyo, 9 hours to London and about a 5 hour red-eye to the US east coast. In other words, in the Pacific Century, Seattle is a reasonably central location from which to build global companies that would be well-positioned to bridge the gap with emerging Asia, and in particular, Japan and China.
In economic terms, China is crushing it
China’s foreign exchange reserves hit $2.2 trillion in the 3rd quarter. While this number is huge, in all likelihood it understates the reality. The official pace of growth of foreign exchange reserves is on the order of $600 billion per year. That is actually what is left over after actually spending a large portion of the inflows.
A lot of this foreign exchange is held in US dollar denominated assets. The Chinese have kept the Yuan pegged to the dollar at around 6.83 Yuan/Dollar since December 2008. The next big exchange rate reset is coming, likely after the Chinese New Year in January. In theory, the US administration wants and needs this revaluation of the Yuan. The downside for China is that it represents a step-wise discounting of the US debt, and will create further margin pressure on US importers of Chinese goods.
The revaluation writing is on the wall. China’s purchases of US Treasuries has already peaked. Moreover, the most recent purchases are short-term, in spite of the anemic interest rate of short-term US treasuries. The US will have no choice but to ask the US Federal Reserve to print currency in order to pay the debt. This practice is called Monetizing the debt. It is among the more blatant forms of Quantitative Easing.
So, what is China doing with all those extra dollars that it no longer wants to hold?
- China is buying vast amounts of arable land, notably in Africa. The headfake here is that this is supposedly about securing the national food supply. In reality, the domestic food supply risk becomes a factor in about 2030 based on current projections. That alone would not justify buying 2.8 million hectares of sub-Saharan arable land. They are dumping dollars.
- China has been accumulating insane amounts of strategic metals. Unlike the Hunt brothers’ famous attempt to corner the silver market, China could actually corner just about any market they chose. The latest acquisition binge has focused on copper. Recent dollar shopping sprees have included other strategic metals, including aluminum, nickel, titanium and zinc
What are the implications for Domainers
The twilight of the American century, and the start of the Pacific century is not the end of the world, and certainly not for the prepared domainer. Unlike physical real estate which has a finite number of potential users or acquirers, domains can be accessed by any of the nominally 1.7 billion users on the internet in a near-instant. The universe of potential buyers for a given domain name is similarly global. What are some things that domainers can do to thrive in the Pacific Century?
- Design global websites: Founded in December 2007, Patents.com serves a global audience of nearly 1 million monthly visitors. The site was designed to be global from day one because the addressable market for intellectual property is already global — to the tune of $500 billion per year. Patents.com started out with a focus on global patent search. In the next phase, we’ll layer on efficient ways for global IP licensing and sale.
- Learn to work with the Asians: The Chinese term of Guanxi is not so different than the Japanese practice of nemawashi. Unlike the US, it takes a long time to build a commercially meaningful business relationship with a Chinese or Japanese partner. This can be a good thing if you are willing to invest the time to understand the cultural norms and differences.
- Partner with Asia-based businesses: Epik recently agreed to develop 3 language-related domains — Japanese.com, German.com and Russian.com — in partnership with Brian Gilbert of Innovation HQ. The first one to get developed will be Japanese.com using technology and content sourced from World Friends Network, a Shanghai based social network group that I first met in 2007. The company is led by the talented founder and CEO, Dominic Penaloza.
- Experiment with Drop-Ship: As the international supply chain gets more efficient, I expect Chinese producers to start looking at ways to cut out the middle-man, a.k.a. WalMart and Amazon.com. As part of this transition, I am convinced that there is a meaningful business opportunity to combine a network of product portals with an international drop-ship supply chain. Epik has released more than 150 product portals in the last 6 weeks and is producing new ones at the rate of 30-40 per week. And at $249 one-time setup fee, it is a domain development bargain.
In summary, I believe we have just experienced a seismic shift in the global economy. What many economists predicted in the 1990’s is now a reality: the torch of global economic leadership passed to Asia — and specifically China — last week in Beijing at the Great Hall of the People. The global Internet will be too important for China not to have a global strategy. How much longer before the Chinese start to acquire significant amounts of the raw land of the Internet? My prediction: it is coming in 2010.