Ecosystems: a cautionary tale for China’s tech firms
While some Chinese tech firms have risen to impact the world, others are struggling for survival as a consequence of overambitiously diversifying their business to too many sectors in a short time in an attempt to build a so-called ‘ecosystem’.
The cost of LeEco’s Ecosystem
The collapse of LeEco, formerly known as China’s NetFlix, attests to the risk of an expansionist business model and puts imitator Baofeng Group under considerable pressure. Xiaomi, on the other hand, is fortunate to have backed off from expansion into film and television production, instead opting to focus on its core business to stay afloat.
LeEco is the first Chinese tech firm to pursue the idea ‘ecosystem’. Initially a video website, LeEco has expanded in recent years to TVs, smartphones, cloud computing, sports, e-commerce, automobiles, finance, among others. It branded itself as the inaugurator of the ‘internet ecosystem economy’ and claimed to have built seven sub-ecosystems, including Internet and Cloud System, Content System, Big Screen Ecosystem, Mobile Ecosystem, Sports Ecosystem, Automobile Ecosystem, and Internet Finance Ecosystem.
LeEco boasted that products and services in these business sectors would be combined and interwoven, thus creating “chemical reactions”. Unfortunately, these reactions proved unfruitful, and its ecosystem dream burst as the company entered a huge financial crisis late last year.
As a result, many of LeEco’s businesses are currently either sold or suspended. Even its founder Jia Yueting resigned from most of his posts at the company and is currently staying in the United States, trying to make his ultimate dream — making cars — come true.
Why Beofeng Ecosystem is also failing
LeEco’s failure shadows that of another tech company, Baofeng Group, which similarly aimed big but is nevertheless floundering.
Baofeng, or Stormy in English, is often compared to LeEco, as they share similar business models. Oddly enough, the founder of each company at his respective launch event sang the hit song Yezi, translated as Wild Kids in English, to demonstrate their ambition to achieve further goals in spite of setbacks.
Baofeng made its name by making multifunctional video players in the PC area. It later expanded to TVs, sports, VR, entertainment, and fintech, trying to build up an entertainment ecosystem dubbed as Global Data Time Big Entertainment. The company, however, suffered a major setback when China’s regulators denied its USD 477 million acquisition over three film and gaming firms in June 2016.
The company later shrank its business and announced in September 2017 that it would focus on AI, TVs, and especially VR.
Yet its future is less than guaranteed given that VR is now cooling down. According to SuperData, investment in VR/AR/MR companies totalled USD 2 billion in 2016, the peak in recent years. Yet this figure is expected to drop significantly to USD 1.6 billion in 2017.
Will Xiaomi ultimately prevail?
Smartphone and smart TV manufacturer Xiaomi is a strong competitor of LeEco and Baofeng. In order to design unique content for its TVs, just as its two rivals did, Xiaomi established its own pictures company at the beginning of 2016. But only one year later, the subsidiary was curtailed to a small team of around ten employees.
Xiaomi has realized it’s not practical to create its own content from scratch. Instead, it has moved to investing in or collaborating with other video sites to gain content. Meanwhile, Xiaomi continues to focus on its core business — smartphones — and invest in more than 90 smart home and lifestyle startups, with products ranging from air purifiers to smart speakers, from cleaning robots to smart desk lamps, and from backpacks to suitcases.
Xiaomi estimates the combined revenue of the startups within its ecosystem chain will exceed USD 15.5 billion in 2017, which is a sharp comparison to that of LeEco and Baofeng.
(Top photo from LeEco)
By Alex Liao