Bucking Smartphone Stagnation with Carl Pei (OnePlus)

OnePlus has maintained impressive growth even as global numbers smartphone sales have faltered. Co-founder Carl Pei will discuss how the company has managed to buck industry trends by catering to a devoted fanbase and offering an innovative alternative to Apple and Samsung.

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[Music] Welcome thank you thank you for having Me so I wanted to start off by giving a Little bit of kind of broader industry Contacts so 2019 is on track to be the Third straight year of global smartphone Decline as I’m sure you’re well aware However in in stark contrast to that Between the years of these are the Number the latest numbers that I’ve seen I’m sure yours are far more up-to-date But between 2017 and 2018 oneplus Experienced a 209 percent growth what Are you doing right that other people Aren’t uh I think we’re just really Focused on the product we have a product That our consumers love and actually we Don’t really look at market share Numbers our PR team told me to tell Everybody that we’ve grown 152 percent Year-on-year q2 to q2 but it’s not Something that we really look at because It’s not something that we can’t really Control for we really believe in putting All our effort into creating the best Possible product and if the product is Good enough I think it’s just a matter Of time for growth to happen so it Sounds like what you’re getting at is That you’re kind of competing against Yourself in that respect I mean the Point is to kind of to continue to grow You’re over your however I mean I assume You must be pretty in tune with what is

Happening in the industry you must see The fact that people generally are Buying fewer smartphones and they were a Year or two ago and trying to figure out How to how to contrast that well to be Honest we haven’t had many conversations Internally about this it’s mainly been Very very and we’re looking and in a way There’s not really much we can do about Market dynamics the world is changing And if you can’t really do anything About it then why would you spend time Thinking about it sure but how do you Convince consumers again that aren’t Aren’t buying smart phones at the rates That they once were that you know Perhaps that they need to continue to Upgrade the devices every every one or Two years so that they you know need to Actually go out and spend money on the New device I think at this Although we’re number five in the world Now in terms of the premium flagship Market we’re still quite a small player And that’s why we’re able to to sustain Our growth okay so you feel like there’s Been a pretty controlled burn in the way That the company is growing I’m rainy Are you conscious of that is there is There a downside in growing too quickly We always believe in sustainable growth And we always believe that or we always Try and be profitable we got to survive I think the hardware industry is a

Little bit different from software when You have a software product with network Effects you can’t you kind of can Justify overspending to get more users To kind of build that network effect but In hardware If you overspend you’re not guaranteed To be around so if you look at the Hardware landscape most hardware Companies have disappeared not because Of the fact that their competitors are Really strong but rather because they’ve Kind of over invested in their inventory And they broke their cash flow so how Many how many 1 plus sevens did you sell It’s in the millions in the millions and And how does that compare to the 6 or The 60 for example so every new product Iteration we have we sell a little bit More than before and if we think we have A demand of say a hundred units we would Rather make 90 units just to be totally Sure that we can sell everything we Create without needing to overly Discount and thus losing money so for us Slow and sustainable growth it’s much More important than maximizing every Opportunity that we have did the math And that changed at all when you move From a phony or to two phones here not Really but it’s a lesson we kind of Learned because I don’t know how many of You guys still remember us from the Early days we’re turning 6 in our first

Couple of years you could only buy us if You were invited so invite only system And it was kind of not intended to be But it became like a growth hack all in All we did close to a billion dollars in Revenue just through an online Peer-to-peer kind of a model so we Really got our head of our In terms of our pride and we thought we Were really really smart and which Caused us to almost fail in our second Year so ever since then we’ve been kind Of reverted back to this slow and steady Growth model what is it that what Happens why did that cause you to almost Fail in the following year well we we Stopped focusing on the product I still remember in 2015 because we got So much good press in 2014 and we didn’t Want to let the press down so I remember Once when we’re ordering units like how Much are we gonna produce we’re basing It on okay what would be a good story to Tell in terms of growth compared to the Previous year it wasn’t based at all on What the consumers felt about the Product or how the market looked like so That’s how kind of arrogant we became in 2015 so you felt that the 1 plus 2 Wasn’t necessarily up to the standards That it should have been based on that It’s 2015 is only year in which we Haven’t made money okay so I guess the Numbers ultimately speak for themselves

Early on the community was the thing for You guys I mean that’s that’s how you Were able to grow as quickly as you were And it seems almost it seems crazy to Talk about when we’re talking about These large scale hardware devices but It really was it was word of mouth and It was the fact that you were a small New company and you were able to talk to People directly You know it’s granted it’s only been six Years but do you feel that you’ve lost a Little bit of touch with the community Today our products are built together With our community so in the very Beginning I was in my system people are Sharing the product with each other but As we grew we started a three-prong Software strategy so we have a closed Beta program we have an open beta Program and a mass production build and We have a very small group of core users Who are always giving us feedback on the Closed beta program so that when Consumers were enrolled in a larger open Beta program see it it’s already vetted And then when mass-market consumers see It has already been through two layers Of this kind of testing so this program Has stopped us from releasing Things that could have gone not that Great like like what for example we had This we wanted to infuse more humanity Into the product because the smartphone

Is very cold what is it what does that Mean we wanted to do something fun with The boot screen animation and luckily Our community stopped that I got as what Was it what was it that was like just Like so wrong with the boot screen that Intention was good but basically it was Somebody drawing our logo up by hand and You could see somebody’s hand and just Felt really off you know yeah like like Candy Valley yeah so we killed it so you You think that in spite of growing at The rate that you’ve grown that you’ve Been able to maintain that sort of that The relationship with the community that You’d like we definitely still have the Relationship however I’m I feel like the Relationship hasn’t evolved it’s still What it was two years ago so going Forward and if you look at the overall Smartphone market we’re not gonna have The resources to do marketing on TV Compared to the larger players so we Need to keep innovating the way in which We engage with the consumer and that I Feel has been a little bit stagnant over The past two years where we’ve been more Focused on you know business and Operations we started working with Carriers we launched with t-mobile here In the US which is why we’ve kind of Grown really quickly here why not launch With a smartphone with a with a carrier Initially I mean obviously when we’re

Talking about the US market like that’s Kind of the only way to have like a Really large success here is to work Directly with the carriers we wanted to Try out our e-commerce idea and that got Us to a certain level of growth and to Be very honest in year one we were Nobodies so if we were to approach the Carriers we wouldn’t get a response and It was actually we were joking about This we were like hey one day when we’re Big enough we’re gonna launch with T-mobile they’re the uncarrier we’re the Challenger brand and it happened that’s It your sake so you felt you felt like T-mobile was somehow kind of a kindred Spirit with what you were trying to do Yeah a lot of their messaging and how They were approaching the market was Similar to Ideas we saw problems with the status Quo and we wanted to do better so was That was partnering though with the T-mobile was as also part of the kind of Control burn again there right now I Mean granted if the merger goes through They’ll be much larger but they’re a Pretty distant third when it comes to AT&T and Verizon so they’re they’re kind Of the right size for where you need to Be right now yeah it’s been a very good Partnership we really aligned on the Values we when we launched the 60 now Almost a year ago we had a big event at

The Times Square a t-mobile store and The media were writing about the line it Was longer than anything they’ve seen in The past couple of years as the US Market been particularly difficult to Crack I hear from a lot of people on the Outside that it’s there’s something About this market that is just much much More difficult than others I think it’s A matter of patience because US is a Developed market so if you look at India For instance now five and a half years In we are number one in terms of market Share in the premium market so we’re Bigger than whatever their brand you can Think of in that space and that’s Because I think Indian consumers are Very young and a lot of people are Switching from a feature phone to a Smart phone for the first time and you Have ecommerce coming out of nowhere and VC is investing a lot of money to win Indian e-commerce so you get all these Factors creating big change in the Market whereas here the carriers are Very strong 90% of phones are sold via Carriers and people have already this Ingrained habit of you know I don’t Really buy a phone when there’s a new Phone I buy a new phone when my contract Ends so I think as long as you have a Good product you have you offer your Customers good service sooner or later People are gonna get it in some markets

Faster than others I’m not sure if you Necessarily would agree at the presence But from where I said pricing is a Really important part of one-plus of Success you know part of the reason why People are buying fewer smart phones Generally is because routinely they’re Priced at over $1,000 you’re able to Keep these at you know six $700 for These these pretty premium devices is is That price point is that a huge key to Your success is that something that You’re really taking into account when You develop a device Yeah our original idea like one of the Problems we saw in the market was that Films were just too expensive and they Weren’t too expensive because the Components were too expensive it was Because the business model wasn’t really Set up in consumers favor there were too Many in-betweens that’s why when we Started we wanted to create this really Awesome product and then sell through E-commerce so consumers who get a more Reasonable price and now that we’ve Started working with carriers some People are asking us hey are you still Being true to that original idea and the Answer is yes because carriers most Carriers in the world they don’t really Make money on selling hardware they’re Our business model lies in selling their Subscription and their plans so we can

Still bring our product at a reasonable Price to consumers now on the other hand If you work with brick-and-mortar stores That’s a different story and that’s why We haven’t really expanded over there Are you able to compete with other Chinese companies when it comes to Pricing you know the Huawei or Xiaomi I Mean the airbill do produce very good Handset said really low prices I think The smartphone industry is so mature now That everybody has the same access to The same stuff but it’s all a matter of What your focus is our focus has always Been in creating a premium experience so We’ve never created a product say below $400 or below 350 dollars so it’s a Market that we chose not to engage in Because our expertise lies in creating a Really good user experience and getting All the details right just one quick is An example this is the oneplus 70 where We just announced this last week and It’s going on sale on the 18th October At t-mobile you can’t really see it but There’s the this ring outside of the Camera it’s got this curvature that you Can see from the from the side and we Created a man-made diamond drill in Order to just create the this surface Curvature that we needed and it’s Typically something that kind of reminds You of how jewellery is made so we put a Lot of emphasis and the smallest of

Details both when it To the hardware and the software so Price is not our main concern but if we Wanted to we could make a cheap product It’s just not our strategy it always Seemed from my standpoint that part of Your ability to keep the price again Check was oftentimes not necessarily Being the first to introduce a new Feature to the product you know we would See them come out on other devices you Would wait a year and because of that You were able to keep the price pretty Low but it does seem like that Philosophy has perhaps shifted in the Last couple of years you know you wrote Of the first to market with a in display Fingerprint reader you’ve been pushing On 5g pretty heavily is that a change in The way the company is approaching Features it was never about cost-saving Like we didn’t want to be the first to Implement some technologies because the User experience just wasn’t there like Why be first just for the sake of being First and for us it’s much more Important to be better 5g for us is a little bit of a different Story because if you are a consumer There’s no real killer app for 5g yet And the same thing happened when 4G came Out it took two or three years before App developers found new ways of Leveraging more bandwidth and more speed

So we’re gonna see the same thing happen In 5g the reason why 5g is so important To us is because of our users we’re Probably the smartphone brand with the Most tech enthusiast accusers if you Walk around the software development Departments here in Silicon Valley You’ll see a very high internal market Share so we know that these people are Gonna invent the applications for for 5g And we just wanted to be first to be Able to empower them so earlier this Year we rolled out the first commercial 5g device in the UK for instance we just Wanted to be first to empower our Community to build on top of this so you Would agree then in 2019 that owning a 5g handset does it make it a sense for The vast majority of consumers unless You have a very long upgrade cycle and You want to be a future-proof so but You’re able to produce this this you Know granted it’s not your you know Mainstream flagship but you’re able to Produce this device that’s really just At the developer community we wanted to Be first because it’s because this Segment of the market is so important to Us how important is it just to be first From the standpoint of like being able To plant your flag and saying hey we Were the first to market with this Feature that was never a discussion Point so why why TVs and why now

TV TV yeah you just yeah we we just Launched a new TV our first foray into a New category after almost six years we Launched this last week in India for now It’s an India specific product because If you look at the market a lot of People still have these old-school CRT TVs and they’re leapfrogging So they’re not gonna buy a flat-screen TV they’re gonna leapfrog immediately Into a smart TV and because we made Smart phones for so long and we have a I Would say we have some good observations When it comes to user experience so we Wanted to leverage that experience we Have from smart phones and create a Better TV and now that we have both Product categories we can figure out Ways in which these two categories can Interact that better so just a quick Example for those who views like Smart TVs it’s really hard to use the keyboard It’s like really if you have a small can Remote control you gotta go up down left Right to enter the the letters Individually so for us you can use our Phone to just use a phone keyboard to Enter whatever you want really quickly But I mean that’s an even longer upgrade Cycle for most users right I mean you’re Talking about two maybe three years for Granted it’s elongated but two maybe Three years for a smart phone people Aren’t upgrading their TVs very often

Yeah now we’re at a face inflection Point in the Indian market where people Are jumping to the Smart TV so if you’re Able to be a part of that first wave but Are you able to sustain that once once Again once all of those people have Bought those Smart TVs are we waiting Another like five years for all of them To upgrade again it’s a big market okay So there’s a lot of people in a few yeah Yeah one one point was at 1.3 billion I’m not sure of the exact number so You’re doing the TV manufacturing in India is that right TV is manufactured In Taiwan we have that WebM over there Okay but you’ve begun manufacturing Handsets in India I think now almost 2 Years ago the Indian government Introduced new tariffs for imported Phones so a lot of people are Manufacturing locally now okay so so Tariffs are I mean obviously like Tariffs are for clear reasons are a Hot-button topic right now how much are These international tariffs having an Impact on where you are manufacturing Your devices no just make the most Rational is in this case and decide from There does it make sense though for most Of these to kind of to to manufacture in The local market I mean obviously there Are there’s a lot to be said for being Able to create jobs in the same market That you’re selling these products I

Think for us it made sense to Manufacture in India because we are we Were ready quite big in India I don’t Think there’s another market we would do That for just yet so earlier this week Samsung announced that they were pulling Out of the Chinese market for Manufacturing they’re gonna continue to Sell there obviously they’re not a huge Presence in that market they’re doing The majority of their manufacturing in India and Vietnam right now so any I Think made a similar jump as well are You expecting to maintain the Manufacturing of the devices in China Going forward yeah we don’t have any Plans of changing where we manufacture It’s currently in China and India okay So I actually also wanted to ask you a Question about the the changing approach The the company has had to dealing with With crises there were a few early on a Lot of very kind of different ones you You’ve accrued over the years the most Recent one being there was a large Security breach with the site early last Year I think was about 40,000 people can You talk a little bit about how your Approach has changed to dealing with These wide scale prices mmm I wouldn’t Say that our approach has changed I just Think we might have grown up over the Last couple of years when there’s a Problem address it and keep the

Communication lines open tell people What you’re doing about it and once you Solved it see if you Need to compensate through our consumers Is there an example in the past as we’re Winding down now on time of a instance Where you didn’t handle it the way Perhaps you should have I don’t know do You remember smash the past I do yeah I Want to you know I explained that in 40 Seconds and okay I corrected so we only Had a thousand phones and we only wanted To see it out a hundred phones we need To find people who were really excited About our brands so we had this program Where you signed up to to smash your Current smartphone on video on YouTube To be able to be one of the first Hundreds of our film one hundred forty Thousand people signed up much more than We expected and media wrote a lot of Articles both positive and negative About that so you wouldn’t that Differently it wasn’t it was another Stage in our maturity okay all right Carl thank you so much thank you thank You [Applause]

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