Regardless of whether you like it or not, this "nouveau riche" internet company will soon have a new story to tell after Letv TV.
Tencent Technology has learned that Letv is showing an unusual interest in launching its own smartphone brand. Sources close to Letv revealed that the company has already started recruiting personnel for smartphone R&D and team building. The person in charge of this project is Liang Jun, Senior Vice President of Letv Zhixin, who recently led the creation of Letv TV.
Liang Jun is no stranger to the smartphone industry. Before joining Letv, he served as Vice President of Lenovo Mobile, responsible for the product development of Lenovo smartphones. This background inevitably raises speculation about whether Letv had plans to further develop smartphone products while forming the Letv TV team.
Letv's official stance on the smartphone project remains tight-lipped. An insider from the company told Tencent Technology that Letv indeed has long-term plans to make smartphones, but the specific timeline and model have yet to be determined. A person closely related to Letv suggested that Letv might replicate Xiaomi’s model by launching a low-cost smartphone similar to Redmi, though it may take a considerable amount of time before the official product launch.
In the past two years, the rapid growth of China's smartphone market has attracted many new players to join in the gold rush. Renowned internet companies such as Alibaba, Qihoo 360, and Shanda have all launched their own branded smartphone products, but most ended up with poor results or underperformance. Only Xiaomi, led by Lei Jun, stood out and created a myth with a valuation of over ten billion US dollars.
Painful lessons show that replicating Xiaomi's success in smartphone branding cannot simply be achieved by applying the "internet + smartphone" formula. On the contrary, it highly tests a team's comprehensive abilities: technology, marketing, channels, and meticulous understanding of user needs and psychology. Some even believe that Xiaomi's success is hard to replicate, not only due to the aforementioned factors, but also timing—Xiaomi precisely hit the explosion point of China's smartphone market when they formed their team in 2010 and launched their first-generation smartphone in 2011. Later entrants will find it difficult to enjoy such rich market dividends.
Not long ago, if someone were to set Letv as a strong challenger to Xiaomi smartphones, they might encounter objections. This listed company, which has been questioned since its inception for being "anti-common sense," is known for its expertise in "story packaging" to drive stock price increases—from the super TV concept to the recent acquisition of Hu'er Film & TV, Letv's market value has nearly tripled in the past year, currently exceeding 30 billion RMB. Of course, it's hard to say whether this is due to Letv unintentionally benefiting from the Chinese stock market's fervent pursuit of "concepts," or its proactive "manipulation" to meet expectations, or perhaps both. In short, in the eyes of many skeptics, Letv is not a "serious" product-making company.
However, Letv TV's recent performance may somewhat change this preconception. The latest 50-inch Super TV launched by Letv in October immediately drew attention upon its debut. The biggest highlight of this product is not its various technical parameters, but its price of just 2499 RMB. The extremely tempting slogan "twice the performance, half the price" reminds one of Xiaomi's early popularity: the 1999 RMB price of Xiaomi phones and their superior performance compared to most contemporary phones quickly made them stand out. High cost-effectiveness is a powerful weapon to win over the majority of consumers, and Letv undoubtedly grasps it. The subsequent heated pre-sales confirmed the popularity of this product.
Clearly, it is still difficult to be fully optimistic about Letv TV. However, if one were to pick a realistic and potential competitor for Xiaomi phones, Letv has shown certain potential. Common sense dictates that under the circumstances where Letv's internet TV business has just started, it is unlikely to quickly launch another strategic-level product in the short term. But the significance of Letv's submerged smartphone project lies in the market's expectation for the emergence of a Xiaomi challenger, and whether there is another path or model to challenge Xiaomi.
Seeking New Growth Points
On October 28th, Letv delivered a fairly good third-quarter financial report. The report showed that Letv's revenue for the quarter was 613 million RMB, an increase of 122.42% year-on-year; net profit was 67.61 million RMB, an increase of 55.72% year-on-year.
In the backdrop of intensified consolidation in the video industry, where giants rapidly enhance market share through mergers and acquisitions, Letv, ranked second-tier in the video camp, increasingly needs new growth points. Starting last year, Letv realized that relying solely on the natural growth of its video business would be insufficient to stimulate the market. New drivers are Letv TVs and Letv smartphones.
Why make smartphones? Returning to Letv's business level, only by making smartphones can its own ecosystem be perfected. Previously, Letv CEO Jia Yueting explained his vision of the Letv ecosystem to the media: building an ecosystem from upstream content production, platform aggregation, CDN transmission, terminal device coverage, and external application input—a complete ecosystem referred to as "content + platform + terminal + application".
Tan Jingying, Vice President of Marketing at Letv, stated during a recent mobile internet marketing summit that the Letv ecosystem is not just PC plus mobile end. If five screens cover 1.4 billion users, multi-screen or cross-screen information consumption habits can more effectively reach more user groups. She emphasized the possibility of future "five-screen" coverage, hoping Letv's content reaches movies, TVs, PCs, tablets, and smartphones. Liang Jun believes that "building an ecosystem allows content and services to generate marginal effects, which can reverse-pull hardware growth."
Examining Letv's layout, it already includes Letv.com, cloud video platforms, Letv Pictures, Super TVs and Letv Boxes, smart TV operating systems LetvUI, smart TV application markets LeTVStore, and various other deployments—all except smartphones.
Compared to many enterprises adopting a cooperation model between hardware manufacturers and content companies, Letv prefers to create its own products. In Jia Yueting's view, hardware-software cooperation is "same bed, different dreams because the starting points of interests differ." He admires Apple's ecosystem model: self-research and development, integrating hardware, software, content, and core applications, thereby creating a closed industrial chain.
Another reason Letv makes smartphones might be that compared to the undeveloped smart TV market, the smartphone market is already mature, and the smartphone replacement wave will continue for several years in the future. Moreover, acquiring users and traffic through smartphones and monetizing them is obviously easier than through smart TVs.
Xiaomi Model + Lenovo Experience
According to Tencent Technology's understanding, Letv internally highly appreciates Xiaomi's internet marketing model, evident from Letv TV's strikingly familiar marketing tactics. Especially Xiaomi's widely promoted "fan economy" model has always been a key focus of Letv's research.
A core aspect of Xiaomi's model is cultivating fans through the internet and attracting users by repeatedly emphasizing cost-effectiveness, accumulating reputation to build a brand; in sales, using hype, pre-orders, flash sales, etc., for hunger marketing to attract users; in business models, not aiming for hardware profitability but achieving it through software. Over the past year, Letv TV has been enthusiastically replicating this model, undoubtedly laying the groundwork for future Letv smartphones.
However, Letv does not fully copy Xiaomi. Different genes determine that Letv's path into the smartphone market differs from Xiaomi's, which could also decide the difference in Letv's subsequent business model thinking.
Xiaomi initially built a system platform through MIUI, then released Xiaomi phones, and only after the second-generation phone matured did they start trying Xiaomi Boxes, followed by launching Xiaomi TVs this year to enter home entertainment. Letv started as a content provider and steadily progressed in terminal equipment, first with Letv Boxes, then launching Letv TVs this year, and next moving onto smartphones—a clear "multi-screen strategy" based on content, with experience accumulated from TVs and boxes transferable to Letv smartphones.
The future sales model of Letv smartphones will likely differ from Xiaomi's. Unlike Xiaomi's team mostly coming from internet companies, many members of Letv's team come from traditional PC companies, giving them deeper insights into how early PC companies penetrated third- and fourth-tier cities. During recent interactions with Letv executives, Tencent Technology clearly sensed their contemplation on how to integrate Lenovo's successful model, with Liang Jun, who hails from Lenovo, undoubtedly having the most authority on this matter.
Regarding supply chains and contract manufacturing, Letv and Foxconn have already established good cooperation. Previously, Letv and Foxconn reached a cooperation agreement where Foxconn provides full solutions for Letv's Super TVs and internet set-top box products. Both parties formed a joint venture, and Foxconn committed to not manufacturing related terminals for other internet companies.
For Letv, compared to competing with Xiaomi in the TV sector, the smartphone project is undoubtedly not an easy battle. How long it will take to reveal the suspense remains unknown.