Can AR selfie app company Meitu regain market share?
In November 2018, Meitu Inc., famous for its augmented reality selfie and makeup apps Meitu XiuXiu and MakeupPlus, announced a strategic partnership with major Chinese smartphone maker Xiaomi Corporation. We take a look at what motives lie behind the alliance of the two Chinese companies.
While Meitu’s virtual beauty apps have seen the number of monthly active users rise to around 350 million (as of 30 June 2018), the company has been expanding in other areas besides apps. In 2013, it launched a special selfie-ready smartphone that comes equipped with virtual makeup functions. It’s this hardware business of Meitu that is at the center of the company’s recent partnership with Xiaomi.
The race to restructure after successive losses
As it turns out, Meitu is reportedly in quite dire financial straits. According to the company’s 2018 interim results, sales revenue in the first half of 2018 dropped 5.9 percent to 2.05 billion yuan (around US$300 million) from the same period in the previous year, with a net loss of 127 million yuan (around US$18 million). The losses have continued throughout 2018 and the company faces the prospect of six consecutive quarterly losses. The prime cause of the deficit is its hardware business.
Meitu’s hardware sales in the first half of 2018 declined to 1.48 billion yuan (around US$200 million), a dramatic 23.4 percent drop from the same period in the previous year. As its hardware business generates 70 percent of overall sales, the impact on its finances is severe.
Meanwhile, the company’s beauty app, which was considered to be one of its strengths, has seen increased competition. Add to this the fact that a smartphone specializing in taking good selfies has lost its appeal in the current market, and we can fathom how it’s become difficult for Meitu to keep up with today’s smartphone competitors.
Xiaomi, on the other hand, saw favorable sales of 50.8 billion yuan (around US$7.5 billion) between July and September last year, which was a 49.1 percent increase from the same period in 2017. Net profit for that period in 2018 rose 17.3 percent (2.9 billion yuan or around US$400 million). According to American market intelligence firm IDC, the number of smartphones shipped globally in the third quarter of 2018 decreased by 6 percent (355.2 million units) compared to the previous year, yet Xiaomi had a 21.2 percent rise in shipments (34 million units). That same momentum, however, isn’t shared by the domestic Chinese market, where smartphone sales have fallen by 15 percent (13.1 million units) (research by Counterpoint).
The reason for this decline back home in China lies in the lack of Xiaomi support from young women with disposable income. In a user survey conducted in September 2018 by the four major smartphone makers in China, the smartphone of choice for female users was Oppo (54.9 percent), which has been investing in models with strong camera performance. Next was Vivo with 50.9 percent, followed by Huawei at 34.2 percent; Xiaomi scored barely 27.5 percent. Neither is Xiaomi a strong contender for higher-end phones, as it tends to push the fact that its phones are reasonably priced. Its partnership with Meitu could mean that Xiaomi is seeking to better target the female market and strengthen the prospects of higher-end products.
Shedding an online store and licensing out in-house tech
However, this new alliance between Meitu and Xiaomi cannot be called equal for both companies. In Meitu’s announcement, Xiaomi will be allowed certain usage rights, including Meitu smartphone brand names and imaging technology. In fact, Xiaomi will handle all R&D, production, selling, and advertising, while Meitu will concentrate only on technology, such as image processing and algorithms. On top of this, Xiaomi has been allowed to produce Meitu-brand products besides smartphones. All in all, the agreement is a licensing of the Meitu brand and, in reality, is very close to a business transfer agreement.
Meitu’s restructuring also doesn’t stop there. In November 2018, Meitu signed a strategic partnership with luxury online store Secoo and its subsidiary, beauty online store TryTry. The agreement states that TryTry will take charge of running Meitu’s beauty store app platform MeituBeauty, which recommends cosmetics to users through skin analysis powered by artificial intelligence (AI). TryTry will manage everything, from growing the presence of the MeituBeauty brand to product buying, selling, shipping and customer handling. The current linkage between the MeituBeauty app and Meitu’s other apps will still be maintained, yet one can’t help but see this is also very similar to a business transfer agreement.
The full-scale rollout of makeup simulation in stores
For Meitu, a decrease in income due to restructuring is unavoidable. However, it’s expected that the company will balance that with its makeup simulation mirror, Meitu Magic Mirror, equipped with the functions of its MakeupPlus app, which it plans to roll out in stores. Allowing customers to effortlessly try on virtual makeup via a smart mirror will help them save time on choosing products and will be less costly for stores. In addition, the devices gather simulation data from customers that can then be analyzed to help brands improve the efficiency of store operations and sales.
That isn’t to say little competition exists for makeup simulation in stores. Rivals include YouCam Makeup from Perfect Corp. in Taiwan, and Canada’s ModiFace, which was recently bought out by L’Oréal. Chinese online conglomerate JD.com also entered the world of makeup simulation last year.
In relation to this competition, Meitu’s strong points remain its expertise in image recognition and processing technology of which it’s built up over 10 years. Within the space of just one second, the software can distinguish between 118 different points on a person’s face and accurately identify their eyes, ears, eyebrows, nose, and mouth. In addition, by using an enormous database of image data, the software can analyze a person’s skin through deep-learning AI and recommend makeup suited to individual users.
For now, Meitu will need to avoid any more losses to maintain its stock exchange listing and will no doubt find it difficult to invest in other projects besides its flagship virtual makeup app. The only way forward from here for the company, for survival’s sake, will be to license out its prized image processing technology and the Meitu brand, capture as much of the market as possible by accelerating the expansion of its makeup simulation mirror, and offer users better recommendations than its rivals based on rich sources of data. We’ll be watching to see how Meitu progresses in the coming years.
Text: Denyse Yeo
Original text (Japanese): Team Roboteer
