FB Pixel no scriptPeriscope Volume 7 | This industry may spawn the next Xiaomi (Part 2 of 2) | KrASIA

Periscope Volume 7 | This industry may spawn the next Xiaomi (Part 2 of 2)

Written by KrASIA Periscope Published on   3 mins read

Can internet companies overcome challenges in the hardware industry?

This is a preview of Periscope—a weekly report by KrASIA, delving into China’s industries and markets. We discuss a different space each week and include highlights of relevant top stories. If you would like to read the report in full and gain access to our library, please click here.

An era of internet players

In our last volume, we covered some industry incumbents that are making waves in education hardware. Now, let’s turn to trendy new internet players that are vying for a piece of this pie to complement their online education services.

ByteDance, for one, is a key player. The company shot to fame over the past two years with Douyin and Toutiao, and is currently developing a variety of hardware for the education industry, including tablets, pocket-sized printers, early childhood educational tools, and smart desk lamps. The company’s strategy in this field is similar to Meituan in consumer services—hold back until the market is mature, and then wade in with a track record of pulling in capital and building up a user base.

Another class includes Yuantiku and Zuoyebang, which have strong service capabilities in the online education industry. Their incursions into the education hardware market are aimed at rounding out robust suites of services offered to users and in turn lead to opportunities for cross-selling.

Lastly, there are companies like Youdao that are entrenched deeply in the education hardware industry. According to several financial reports, sales of Youdao’s collection of dictionaries hit250,000 units in Q3 2020. Overall, Youdao has performed well this year, raking in RMB 2.06billion (USD 314.8 million) in revenue over the first three quarters of 2020, at a year-on-year increase of 130.4%. Hardware sales contributed 22% to this growth.

A challenging transition

How difficult is it for service-based online education companies to introduce hardware products into their business lines? The move, in fact, is a huge leap.

The first challenge that these firms face when introducing new hardware-oriented business lines is their approach. Typically, these companies employ the Jason’s dutching strategy, used in horse racing, when they experiment with new products, acting quickly to establish fresh projects, and swiftly changing course to avoid failure.

A major characteristic of hardware companies is need for thorough planning. Such companies must first envisage the end product then work backwards, step-by-step. This is primarily out of necessity—owing to high capital expenditure, it is often difficult to change course once a hardware product is ready to be manufactured or has reached an advanced stage of development.

Building a competitive moat needs more than just innovation

Still, innovation alone is not enough to capture significant portions of the market. There are other goals that aspirational hardware companies must accomplish. According to Zhang Peng, head of Youdao’s industrial design team, it is more difficult for companies in the hardware field to rely only on breakthroughs from their engineers, because many complex factors are at play.

On the other hand, if the company builds its own distribution channels, it will have greater control over sales and pricing, although the initial outlay may be sizeable. Youdao’s dictionary pen benefited from this strategy. Now, Youdao’s proprietary distribution network includes brick-and-mortar stores in third- and fourth-tier cities.

Can another Xiaomi be born?

Companies in this field aim to integrate hardware, software, and content creation capabilities.How far can they go with these ambitions?



Auto loading next article...