Carl Pei has an ambition: to have 100 million users of his OnePlus smartphones. But he says it’s not just self interest which is driving him, he wants to create a platform that will help its users to do good.
“If there’s an earthquake, we can nudge them to donate money, or help in some other way, to get free credits on their OnePlus account. Or some other incentive,” he says.
This might smack of a head in the clouds idea but OnePlus co-founder Pei – who turns 26 in September, and is calling from Skype on a visit to Bangalore – firmly has his feet on the ground. “We’re still worrying about whether or not we’re going to survive … when we have 100 million users, then I think the game will change, and we can start negotiating and charting our own way. But at this point it’s premature – as a startup you really need to focus on what you have to do this year.”
There’s certainly a long way to go to that hundred million. OnePlus, formed in 2013, only released its first phone – the OnePlus One – in May 2014, using an invite system that both amped up the excitement among those who were on the list (who were then allowed to pass on invites to others) and simplified the challenge of supplying to a new audience.
From whispers on Weibo, the Chinese version of Twitter, the message that a company was aiming to produce a high-spec smartphone – equivalent to flagships from Samsung, Apple or HTC – at a much lower cost quickly spread through a carefully targeted PR campaign.
In all, about 1m units were sold by the end of 2014, a long way ahead of the 100,000 the team had expected. Now they’re ramping up for their next model, the OnePlus 2, which will be shown off on 27 July via virtual reality, using Google’s Cardboard app and DIY visor.
The first phone’s introduction was part of what is being seen as the third wave of change washing over the smartphone industry, in which startup companies can launch globally yet keep prices low by selling and shipping directly to different countries, or through e-commerce sites such as India’s Flipkart, which take a small slice of the price. “We cannot work with offline stores such as [US chain] Best Buy,” says Pei. “If they wanted a 20% margin on the device – we don’t have 20% margins in total, so it’s impossible.”
But global sales are feasible: non-China sales were about 65% of business in 2014, rather than the expected 10%.
The key to those “third wave” companies such as Xiaomi, OnePlus, Oppo and Meizu is that they can piggyback on the rapid improvements coming out of China’s Shenzhen – fingerprint readers, photo sensors, screens – and build a phone around them. They don’t have to sell at big margins, nor produce phones in gigantic numbers, to realise their ambitions. They build on open-source Android, using OSs such as CyanogenMod (OnePlus is now moving to one called Oxygen), and install Google’s mobile services outside China.
This year OnePlus aims to sell between 2.5m and 3m units, generating $800m to $1bn in revenue, followed by 5m-7m in 2016 and 10m or more in 2017. “I think when, in three years, we have 15 million active users, that starts to get really, really interesting.”
Pei wants OnePlus’s system to entice users in, and keep them in – something that’s so far been difficult for Android manufacturers, where brand loyalty is generally low. “We rather believe if you have a valuable platform with 10m or 100m people on Oxygen, then we can find ways to work with the best-in-class companies, the best in the internet of things, but also the best apps and services companies like Dropbox, like Uber. The barrier of switching between one smartphone to another currently is pretty low, so we will definitely have to build in switching costs into our platform, and also a network effect, to be able to maintain the platform advantage once we have this.”
So how will he make staying on OnePlus attractive? “Let’s say in the future we have a platform of 10 million users, and we have OnePlus credits, and you take an Uber, you open the Uber app, you log in with your OnePlus account and you’re logged in. And because we own the end-to-end user experience on e-commerce, we can capture their address, their credit card information, even their biometric information.”
Why? “So we can log them in to their device before they actually receive their device.” Pei is speaking more quickly now, accelerating into the future. “So next time, with the OnePlus 4 or 5 a few years down the line, when they receive the phone it’s already logged in and already has everything set up according to their preferences, already has their biometric information. The entire friction of making a purchase or a customisation just decreases so much more. This will lead to higher engagement.” And, perhaps in time, to the earthquake-donation reaction he suggested earlier.
But for now, the challenge is simply staying profitable: “it gets more difficult as you scale up. On one hand, component prices drop, because you can negotiate better terms. But on the other hand it gets much more difficult to plan how many phones you’re going to make, so if you miss your target and end up with inventory [unsold stock], you’ll have to write it off as a loss. That’s what a lot of hardware companies are facing. That’s what a lot of software companies underestimate, the risks involved in scaling up hardware. As soon as they start dabbling in hardware, they almost always fail in the very beginning when it comes to inventory.”
Everything remains to be proved by the OnePlus 2 – but Pei at least knows that the business model works. Now he just needs the third wave to sweep more widely through the smartphone business. “We believe in every period of time in every era there’s one main point of connection between the user and the internet,” says Pei. “Today that has become the smartphone.”
