Smart gadgets, knockoffs or not, will inevitably sell well in China.
JD.com, China’s leading online retailer and one of the largest smart hardware distributors, reported a total of 8.66 million units of smart hardware sold in 2014. Total orders saw a 280% year-over-year increase to 6.75 million.
Mi Band, a Fitbit Flex-like activity tracker developed by a Xiaomi-funded startup, announced shipment of 6 million units in June 2015, less than one year since its launch.
Codoon, an early mover in the fitness tracking space, claimed to have had a total of 20 million users as of late 2014.
Quick Button and Smart Button, knockoffs of Android button Pressy, had sold a combined 2 million units and gained 1.6 million users within half a year according to shipments. (Chinese article)
Cuptime, a Vessyl-style smart cup, shipped 160, 000 units in sixteen months since it started its crowdfunding campaign. (Chinese article)
And it’s not confined to local products either. As the market globalizes, Chinese consumers have developed a taste for western brand names.
Even though ‘Shanzhai’ (meaning knock off) versions of smartwatches had been available in China long before the official launch of the Apple Watch, Chinese consumers purchased one million units of the Apple product within three months of its launch, accounting for one fifth of the total shipments, according to the estimates by research firm RedTech Advisors and TalkingData. And RedTech concludes that the recent slowing sales in China aren’t due to demand but supply.
China also became the number one market for Shine, the fitness tracker developed by the U.S.-based maker Misfit, after it had partnered up with the leading local online retailer JD.com and offline electronics retailers, even though it’s priced way higher than average Chinese activity trackers.
The Smart Hardware Sector is Attracting Big Investments.
Huami, the maker of the Mi Band and Xiaomi’s exclusive partner in wearables, announced a US$35 million Series B funding from investors including Sequoia Capital in late 2014, valuing the startup at US$300 million. Codoon announced US$30 million Series B round of funding in November 2014.
Chinese Crowdfunding platforms, which are modeled the American ones, have become well-accepted. Low-cost Android phone maker Dakele managed to raise more than RMB16 million (about US$2.6m) within half an hour in a campaign on JD.com’s crowdfunding platform in late 2014.
Also, Chinese investors have begun investing in western hardware products which they expect to sell in China. JD.com, Xiaomi, Shunwei Capital Partners (the venture capital firm co-funded by Xiaomi CEO Lei Jun) and GGV Capital, participated in a US$40 million Series C funding in Misfit.
Segway, the US-based personal transportation device maker founded way back in 2001, has been acquired by its young Chinese imitator Ninebot with funding support from Chinese investors including Xiaomi and Sequoia Capital.
A Chance to Beat the Copycats
Shanzhai, the term born to refer to knockoff electronics produced in China, is unsurprisingly still a problem that a majority of smart hardware products on the market are to some extent imitators of western creations. And the enforcing intellectual property rights is still particularly difficult in China.
In the smart hardware economy, the practice of Shanzhai can start as early as a Kickstarter or Indiegogo campaign begins. Pressy would find the images of their products on Chinese e-commerce site Alibaba.com shortly after they successfully raised funding on Kickstarter. Not long after that similar projects appeared on Chinese crowdfunding sites.
But it’s not that Chinese consumers always choose Shanzhai products over the original. They actually prefer western brands which many think implies social status or good taste. And price is becoming less of an object for China’s growing middle class.
Shanzhai smart hardware products are mainly still available because either the original is not available in China, or some, like Pressy, lost the first-mover advantage. When Fitbit landed in China in mid-2014, a wave of Shanzhai fitness trackers had flooded the market, and Chinese consumers had no idea who led the trend. It’s no wonder the Xiaomi Mi Band, priced at fraction of that for Fitbit Flex, got traction quickly.
Now with smart hardware, the original creators can possibly run faster than Shanzhai products. First, Chinese copycats of smart gadgets actually follow a route for product development and marketing created and popularized by western makers; for instance, they gain early adopters and raise seed funding through crowdfunding sites. If Pressy conducted a crowdfunding campaign on a Chinese platform at the same time as it landed on Kickstarter, it could have at least first-mover advantage.
Also, there’re big changes in what were hard for China market entry in the old-gen electronics economy, including distribution and marketing channels. Previously smartphone makers had to work with Chinese state-owned telcos and electronics chains which foreign companies could hardly access. Now in China increasingly more electronics products including smartphones are sold online, and there are various sites for smart hardware to debut products and engage fans.
Many Chinese investors, major distributors like JD.com and some other parties in the industry are eager to bring quality western smart hardware products to China market at an early stage.
Of course the major problems with western startups, as always, are language and the difficulty in finding the right local partners who can solve problems ranging from manufacturing to copyright protection for them. Though China’s smart hardware market is actually pretty mature that there are various services to help startups to solve problems in industrial design, run launch and marketing campaigns, hire manufacturers, among other things.
- China’s Smart Hardware Landscape 1: JD’s Super Incubator
- China’s Smart Hardware Landscape 2: The Xiaomi Model
- China’s Smart Hardware Landscape 3: A New Game Created by WeChat
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