China’s tech firms look to B2B IoT for more profits

4 min read
A smart home logo in Xiaomi’s Beijing headquarters from Oct 30, 2019. (Image credit: TechNode/Coco Gao)

Chinese tech companies that are better known for e-commerce services or consumer electronics are pivoting towards business-to-business (B2B) models as they look to grab a slice of the promising industrial internet of things (IoT) sector.

B2B IoT is expected to grow into a $1 trillion market in the next five years. It remains emergent and lucrative as factories, carmakers, and telecom players pursue large-scale digital transformation strategies.

JD.com announced a partnership last week with the State Grid to integrate the e-commerce player’s IoT platform with devices and meters at the state-owned utility, in a push to expand its IoT business into the energy sector.

In the same week, Xiaomi announced three IoT kits targeting different industrial businesses, as the Beijing-based electronics maker branched out from consumer-facing IoT efforts and smart home initiatives.

Worldwide spending on IoT is expected to come to $726 billion by the end of this year and hit a staggering $1.1 trillion in 2023, according to market research firm IDC, with an influx of expenditure in industrial segments.

Spending on IoT deployments from three commercial industries—discrete manufacturing, process manufacturing, and transportation—will account for nearly one-third of the worldwide spend total in 2023, said the report.

“While organizations are investing in hardware, software, and services to support their IoT initiatives, their next challenge is finding solutions that help them to manage, process, and analyze the data being generated from all these connected things,” said Carrie MacGillivray, group vice president of IoT research at IDC.

China’s long-awaited nationwide roll-out of commercial 5G last month could encourage companies to accelerate digitalization plans. The next-generation wireless technology promises faster speeds as well as low-latency connections, and is expected to drive growth in IoT technology.

Meanwhile, tech companies are scrambling to replicate their consumer market successes in the industrial IoT sector, and quickly forge out new revenue streams as their B2C segments meet with growth bottlenecks.

Xiaomi reported Wednesday 5.5% year-on-year growth in third-quarter revenue, in the company’s slowest-ever growth since its July 2018 listing in Hong Kong. The slowdown is partially due to declining smartphone sales, which dropped by 8% year on year in the quarter.

Xiaomo and JD’s steps join a trend in China’s internet sector where consumer-facing firms are branching out to B2B segments in the past few years. Social media giant Tencent, which owns WeChat, and e-commerce powerhouse Alibaba both have pushed into areas such as enterprise software and cloud computing.

JD’s energy push

The partnership, officially announced on Nov. 19, will provide the State Grid with access to JD’s IoT platform across its devices and meters on its electrical network nationwide, the e-commerce giant said in a statement to TechNode.

The devices include electricity meters, power distributors, humidity sensors, and temperature sensors, said JD, adding that a centralized IoT platform could “eliminate data islands, while collecting and analyzing information about energy usage across different devices” for its new partner.

The utility’s nationwide power grid operation generates a large amount of data and it requires a platform to handle and analyze it all in an appropriate fashion, John Zhou, head of JD’s IoT division, told TechNode.

“The most important thing is that these devices can provide feedback on their [the State Grid’s] electricity generation, consumption, and storage and be processed in a data center to improve efficiency,” said Zhou.

JD started its IoT venture in 2014 focused around home appliances and it grew into a key contributor to company e-commerce income, said Zhou. The Beijing-based firm expanded into industrial sectors after it gaining enough experience from the consumer market, he added.

“The whole digital economy is extending from the consumer side to the industrial side, so we are also looking for opportunities in the industrial IoT sector,” he said.

Xiaomi’s industrial revolution

On the same day as JD’s announcement, another Beijing firm Xiaomi unveiled a suite of B2B IoT solutions for companies working in the real estate, hospitality, and enterprise services fields.

The hospitality solution will allow hotels to install Xiaomi’s smart speakers, smart television sets, and multifunctional gateways in their guest rooms, Fan Dian, general manager of Xiaomi’s IoT unit, said at an event in Beijing.

The industrial IoT solutions leverage the firm’s successes in the consumer IoT segment, offering products and services found in its smart home ecosystem to businesses.

The enterprise services kit, for example, provides offices with devices such as connected air purifiers and smart light switches, which are already sold to Xiaomi customers as part of its smart home ecosystem.

Founded in 2011 and better known as a handset maker, Xiaomi has been aggressively expanding into IoT. The company announced in January that it would pour over RMB 10 billion (around $1.4 billion) into the development of artificial intelligence and IoT within five years.

Before last week’s announcement, Xiaomi’s IoT strategy was squarely focused on the consumer market with most of its connected devices designed for household use.

The company’s earnings from its IoT and lifestyle segment, which includes sales of smart home devices such as smart television sets, air conditioners, and smart locks, surged 44% annually to hit  RMB 14.9 billion in the second quarter, according to company filings (in Chinese).

“We have to make good use of our existing advantages as we explore the industrial IoT market,” Fan told TechNode on the sidelines of the event.

“But we do have the ability to provide independent solutions for other industries and we will do that at an appropriate time,” he said.