As information technology sees its third revolution with cloud computing, Acer Group founder and iD SoftCapital Group chairman Stan Shih – a pioneer of Taiwan's first wave of IT development – remains on the cutting edge of the industry. What does Shih think about the recent explosive growth of Internet-based applications and services, and the new wave of entrepreneurship that is shifting the momentum from hardware to software?

A decade ago Shih proposed the idea of "mega infrastructure, micro service" after concluding that software development "is not feasible without volume."

In a recent exclusive interview with CommonWealth Magazine, Stan Shih drew from his rich experience in the IT industry, asserting that Taiwan's new high-tech startups need to make use of Taiwan's strengths, riding on the wings of the hardware industry, and target the global Chinese-speaking market, if they want to create an Internet-based "Taiwanese phenomenon" that differs from the United States and China.

Following are highlights from the interview:

The Internet industry is a phenomenon that started in the United States. It's an industry that only these young people understand, with a business ecosystem that completely differs from that of the conventional industries. The Internet industry is behind America's rise over the past decade and has had enormous influence on the rest of the world.

The most important thing about Internet development is that you need a large market. The Internet is booming in the United States because their home market is very big. That's impossible for Taiwan. In comparison Taiwan has fewer opportunities to set up Internet businesses – unless China and Taiwan diffuse cross-strait tension once and for all and continue to develop (economic integration under) ECFA (the Economic Cooperation Framework Agreement), so that the Chinese market will truly become part of Taiwan's domestic market.

Taiwan's Internet companies won't be able to become as big as our IT hardware manufacturers. It's easy to export hardware, because it's a global market. But you can't do contract manufacturing in the Internet industry, and the technological hurdle is not high, so how are you going to sell internationally? If you sell the Internet globally, you have value, but without volume it's not even worth mentioning.

The volume that the Internet requires far exceeds what you need for hardware. The scale of the market has to be at least 10 times bigger. If the hardware industry needs a market size of 100 to survive, then the Internet industry needs 1,000 or even 10,000 to be viable. But once you are successful in the Internet industry, replicating this success creates high value, because you only need to double your manpower at most in order to increase your customers tenfold. That means your economic benefit jumps fivefold.

The strategy must be avoiding pipe dreams and instead holding on to existing competitive advantages and expanding them. Taiwan has its base in ICT. The range of value-added services that hardware manufacturers require is very broad. It's endless. Taiwan's opportunity lies in integrating the many different platforms and key parts and components to create new tools.

We will have an opportunity if software and services are bundled together with Taiwan's hardware brands. GPS is a case in point. The hardware is in Taiwan. The services we need to deliver are maps, and these need to be localized. There's also an opportunity for Taiwan in integrating map-making tools with cloud computing.

Taiwan's hardware manufacturers also hope to add value to their products with innovative software. Moreover, hardware manufacturers lack a corporate culture that could spawn software opportunities. For the hardware manufacturers, these business opportunities are too small. That's why these opportunities can be passed on to emerging companies.

If we don't build on Taiwan's existing strengths and instead simply follow the example of the Internet industry in the United States, we'll lose our way.

Don't Limit Yourself to "Taiwanese Brands"

Now the vehicles are mature, and software can easily be cloud-based. Both hardware manufacturers and cloud service providers need new applications.

If you want to create an application that's valuable for a certain user group, it's best to go for an application that the target group needs every day, a form of software without which their lives and their work would be less easy. Start-up entrepreneurs should not use their own ideas, but create value based on consumer needs.

Such software should first be applied with Taiwanese brands, but in the end development should not be restricted to Taiwanese brands. European, American, Chinese brands are all possible, since application software is neutral.

Therefore, with growing internationalization, handset applications also need to become international. The key point is not the technical problems, but that there have to be enough people in your market. Without volume, there are no prospects. The key is volume, the market. If you don't go global, then you need to do at least all of Asia. Asia is a growing market. For applications, the direction must be Chinese-speakers around the world or the global market.

Does Taiwan stand a chance? It depends on Taiwan's core competencies, including internationalization and software capability. I think that the industries and talent in Taiwan that are interested in the Internet can constitute Taiwan's core competencies and create a "Taiwanese phenomenon." But what kind of phenomenon will that be? I don't know that myself. Right now I can only say that it won't be an American phenomenon or a Chinese one, but niches that Taiwan can carve out by itself. However, at the moment I don't know what they will look like.

Gaining Market Foothold Takes Staying Power

My suggestion to start-ups is you first and foremost need to gain a firm grasp of the market. Where is that market? Is it possible to get a return on your investment in this market? In other words, only if the value that you create exceeds the cost of your investment will you be able to establish a cycle that enables the company to survive. Secondly, you need to have sufficient staying power, and your attitude always has to stay positive. You need to continue until the size of your business is big enough. It also takes enthusiasm and confidence. Under no circumstances can you allow your previous efforts to turn into nothing. If you don't have enough resources and lack staying power, things will fall apart just one step short of success.

Startup opportunities are everywhere, but they can only turn into success in the hands of capable people. There are different opportunities, small and big. But if you haven't honed your capabilities, don't bothering thinking of big opportunities, or you're sure to fail. (Compiled by David Huang)

Translated from the Chinese by Susanne Ganz