Qihoo CEO: Chinese Smartwatch Makers Do It Wrong

Qihoo CEO: Chinese Smartwatch Makers Do It Wrong

By Tracey Xiang on November 1, 2013 

Zhou Hongyi, the CEO of Qihoo and an angel investor, wrote a blog post  titled Why I Don’t Think Smartwatches Will Work Out. He doesn’t blame all the smartwatch makers around the world but those Chinese ones. Smartwatch in general is at an early stage that better ones or services must come out later. I believe some Chinese industry people are reflecting on it and working on better solutions. The problems Mr.Zhou pointed out, most of which I agree on, may be temporary. Hopefully so.Here are his thoughts,

  • 99 dollars for a consumer electronic product  is an affordable price to average users in the U.S. but not so low a price, more than 600 yuan, to Chinese users. 

Existing brand smartwatches by Chinese companies are sold from over 1000 yuan to over 2000 yuan. To give you an idea of what Mr. Zhou means by affordability: the two wireless routers Qihoo has launched are sold at 99 yuan ($16) and 19.9 yuan ($3).

Those Chinese smartwatch companies, of course, are working on how to reduce costs and then lower prices. The latest announced Z Watch is priced at 699 yuan (a little more than 100 dollars). Also you can find dozens of smartwatches on Taobao, the Chinese e-commerce marketplace, that are sold under 100 dollars, although the intelligence of them varies widely.

There’s no doubt that Chinese manufacturers in Shenzhen area, whom most brand smartwatches partner with, can reduce the costs on manufacturing the hardware part further. And the whole hardware manufacturing industry will then reach a stable level in terms of costs. So to those smartwatch companies, how much they can reduce the prices depends on costs on development of software.

  • In Internet era, you cannot depend on hardware for profits but should sell it at cost and then make profits from software or services.
  • Some Chinese companies are obsessed with adding more functions to a smartwatch, believing that more means additional values and more profits. But it’s even less convenient to check out those must-have apps, text message inbox, calendar, weather, Weibo or WeChat, on a watch with a small screen and short battery life than taking out your smartphone from pocket. It cannot be more competitive than smartphones.

The problem here, I think, is that currently the way some Chinese companies adopt to make a watch-shaped device smart is simply installing an Android system into it and customizing existing apps.

  • Chinese users use smartphones for entertainment, playing games or surfing online, that performs better on bigger screens. 
  • For men, the reason for wearing a watch is public display of social status. The key is fashion design. Chinese companies, big or small, tech-savvy or not, don’t have fashion design skills and are not capable of leading a fashion trend.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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