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China's LeEco touts content ecosystem as it enters U.S. market
http://www.ecns.cn/business/2016/10-24/231351.shtml
Oct 24th 2016, 10:16
Monday Oct 24, 2016
With China's smartphone market approaching saturation, Chinese smartphone makers have set their sights on expanding into the U.S. LeEco is the latest to join in. Unlike Huawei and Lenovo, which have been making inroads in the market for years, LeEco is a newcomer with little brand awareness in the U.S. That being said, the company revealed some big ambitions for cracking the U.S. market at event on Wednesday in San Francisco, the U.S., where it showcased two smartphone models, an 85-inch smart television, and a driverless car. Company executives think LeEco can succeed where other Chinese companies have failed due to its content-based business model, though some analysts question the model's viability.
Most Americans have never heard of LeEco, but that hasn't deterred the Chinese smartphone maker from setting its sights on the U.S.
The company heralded its entrance into the U.S. market with the launch of two sleek smartphones - the premium LePro 3 and the budget Le S3 - at an event called "Ignite the Eco World" in San Francisco on Wednesday.
The company's long-term goal of taking a significant slice of the U.S. smartphone market is crucial for its international expansion plans as sales growth has slowed in its home market.
"As China's smartphone market grows more mature, the county's handset makers have to find new growth from overseas markets," Wang Yanhui, secretary-general of the Mobile China Alliance, told the Global Times.
LeEco has punctuated it plans for the U.S. market earlier this year when it purchased a 48-acre plot from Yahoo Inc in Santa Clara, California, where it plans to build a 3-million-square-foot office complex that can accommodate about 12,000 employees.
"America is the most important global market for us," Jia Yueting, LeEco's founder and CEO, said during the event on Wednesday. Currently, the company employs about 300 people at its U.S. headquarters in San Jose, California.
One of those employees, Guo Jingwei, joined up as vice president of the mobile section of LeEco's North America division after working for years managing the online sales of Huawei's smart devices in the U.S.
"Much like me, many of LeEco's smartphone R&D engineers in North America came from well-established technology firms such as Apple, Huawei and Samsung," Guo told the reporters at the company's headquarters on Thursday.
If LeEco can win over U.S. users, it will be in a much better position to build up market share around the world, he said.
The right time
Walking around the streets of downtown San Francisco, it's hard to spot a smartphone flagship store other than the Apple Store. Apple Inc's iPhone continues to dominate 34 percent of the U.S. market, followed by its arch rival Samsung, which dominates 28 percent, the San Francisco Chronicle newspaper reported on Thursday, citing data from U.S. market consultancy International Data Corp.
Apple targets the upper reaches of the smartphone market. And Samsung is in the midst of a battery scandal, which, analysts said, has created an opportunity for smaller competitors.
"The U.S. market is ready for Chinese smartphone makers to come in, as it is widely believed that local consumers want more options," said Liu Dingding, a Beijing-based independent analyst.
Chinese companies, which offer lower-priced but well-speced products, may be able to slip into niches in the market, Liu said. For example, LeEco has positioned the LePro 3, priced at $399, as an alternative to Google's Pixel handset and Apple's newest iPhone, which both start at $650.
LeEco is one of several Chinese companies aiming to edge into the U.S. smartphone market. China's Lenovo and Huawei also held press conferences in San Francisco in 2016 to promote their budget smartphones.
Content focused
For years, traditional Chinese smartphone makers such as Huawei tried to make a big splash in the U.S. market, but so far have only managed a few ripples.
LeEco's Guo said that he believes his company can succeed where others have failed because of its business model, which is based on an ecosystem of vertically integrated online content with smart devices ranging from handsets to TVs to a driverless car.
LeEco is touting its business model as what distinguishes it from its peers, which have taken a hardware-first approach.
With such an ecosystem, LeEco's phones are expected to give consumers what they really want. "U.S. consumers dislike their current options for obtaining entertainment content. Currently, they cannot pay for the content or cable TV programs they really want to watch, but have to pay up to $120 per month for all," Guo said.
A survey conducted by 451 Research, a U.S. independent tech industry analysis company, in the fourth quarter of 2015 showed that 24 percent of respondents said they watched videos on their smartphones every day.
So far, LeEco has signed partnerships with about 20 online content providers in the U.S., including Lions Gate Entertainment Corp and the premium cable network Showtime, according to documents the company sent to the Global Times on Thursday.
Challenges ahead
LeEco's business model is promising, but risky, analysts said.
"They are going to be hemorrhaging money for the foreseeable future given the large amount of investment needed for online content and services," Liu told the Global Times on Friday.
According to the financial report of LeEco's listed arm on the Shenzhen Stock Exchange, the company's net profit growth has slowed this year. In the first half of 2016, the company's net profit grew by about 11 percent year-on-year, down from 67.8 percent year-on-year in the first half of 2015.
LeEco has other challenges to overcome. It plans to launch the LePro 3 in the U.S. on November 2, but the phone will only be sold on its website. That's a problem because most U.S. consumers buy their phones from the domestic telecom carriers.
All major phone makers including Huawei are in discussions to sell their phones through the telecoms, according to media reports. LeEco also sees the carriers as indispensable partners.
Low brand awareness and the risk of intellectual property disputes are also potential problems, Guo said, which LeEco and other Chinese phone makers need to be prepared for when doing business in the U.S.
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