The exclusive interview of Carl Pei, the Director of OnePlus Global, that well known tech blogger Tushar Kanwar took for our October Issue. Here are the excerpts.
1. Tushar Kanwar: The Never Settle philosophy of OnePlus…where did that DNA come from?
Carl Pei: So, the story goes back to August 2013, when a bunch of us were sitting in a cafe and we all put our phones out on the table and we saw that none of us were using Android Phones, but most of us were working in companies producing Android. We realized that no one in the Android space was making anything good enough that we ourselves would want to use and that’s where we saw the opportunity to come in. As a late-comer to an industry, you’d better be doing something really good or there is no use of doing it, and that’s where the idea of Never Settle started. If you’re just going to come and be like everyone else, then you don’t need to come.
2. Tushar Kanwar: So, what’s in it for One Plus? What’s the end game? At this price profits would be marginal at best.
Carl Pei: On a cost-margin basis we are breaking even, but if you count all the costs like staffing and marketing and rent for instance, we’re taking a loss. And I think we’re thinking a lot like a software company, much like those based out of Silicon Valley. Our belief is – find a good product-market fit, gain the users and once you have the users, the monetization will happen naturally. So, we’re not that worried. It’s crucial for us right now to get our name out there and get our product in the hands of users, and they will help us spread the word. Of course, in the future, there are some ways in which we can potentially make money. Scale, for instance – as we produce more units economies of scale will kick in, which makes the prices of components drop and allows us to make a little bit of money. Accessories and fan merchandize are another. Also, our software strategy, the services we put in place, something we can monetize.
3. Tushar Kanwar: You were OPPO prior to this and you left it all and started from scratch – concept, design, fabrication, everything from scratch. Could you share some insights about the journey?
Carl Pei: We started with a very long-term vision of the future, simply because if we don’t, we will not be able to execute on this strategy of how do we get the user first and then eventually figuring out how to make money. Another big aspect of this journey has been controlling risk because hardware is a super cash-intensive business. So, for instance, we have a three-month lead time with our display units supplier, which means that today I need to know how much we will produce three months into the future. That’s tough to estimate when you’re launching globally, even Facebook initially wanted to control risk by only launching with Ivy League universities first. That way, we’re very conservative with our estimation for sales – if you don’t have a margin and you are end up with a lot of stock, then you can go bankrupt very quickly. So risk has been a very big aspect of this journey, which is why we designed this invite system. We’re okay with growing a little bit slower than we had originally anticipated or we would have done had we been more aggressive, but we believe that this will help us to become a more long lasting and healthy company as time goes by.
4. Tushar Kanwar: Where does your flagship device, the OnePlus One, stand in terms of the product cycle life cycle right now? When can we expect the next refresh?
Carl Pei: I look at it two ways. One is the traditional life cycle of a product, and the second is when our next flagship will be out, and the former really depends on how good your product is. Our experience tells us that selling a phone online depended heavily on word of mouth, and we expected sales could have dipped in the second or third month after launch, and it would be all over. Yet, with the OnePlus One, we’re still growing three months after launch, possibly due to the invite system, so it’s hard to say where we are in terms of the product lifecycle of the entire product. If you look at our internal plans for the refresh, we plan to refresh once a year, so in Q2 2015 we’re going to announce our next iteration (the Two) of this product.
5. Tushar Kanwar: So coming back to this invite system. It generates a lot of discussion, not to mention a degree of frustration what’s the point of a great phone if you can’t buy it easily? How do you balance that risk?
Carl Pei: For use, the biggest risk is survival. We need to survive as a company, so we need to control our inventory risk. Having said that we’ve also looked at other models if you remember the Nexus launch in the US Play Store, it would sell out immediately and site would crash, and folks would wait months for a restock. So, between that model and the invite system where you are 100% sure you will get the phone if you have an invite, we think the invite model is better than the flash sales model. Of course, it has been a life saver for us internally, because once we started shipping phones in large volumes, we noticed our customers support couldn’t keep up, and we couldn’t respond to things within 24 hours anymore. At that point, we could reduce the supply for invites and build our customer support team further… so it helps us control our operational risk as well as our inventory risk and allows us to scale in a much smoother way.
6. Tushar Kanwar: The model is susceptible to scalpers, though both for invites and the phone itself.
Carl Pei: Yeah, I remember seeing in the very beginning one phone being sold on eBay for $6850!
7. Tushar Kanwar: Ok, so let’s talk about India. What’s the sort of demand you’re seeing for the One, from here?
Carl Pei: India is No.8 in terms of traffic even though we don’t ship here and we are in 16 other launch countries, 17 including China! We’ve seen thousands of device sales go to India through trans-shipping and that’s only for the global models. We also know that a lot of people are actually buying the China model that’s being smuggled out of China. Also, on our forums there are a ton of Indian users, so we even started an Indian sub forum, and initially we didn’t know much about the market but once we started looking, we found it to be really interesting. For us now, India is our most important global market due to the demographics and also due to how the smartphone is taking a bigger and bigger piece of people’s lives. A lot of people use the smartphone as their primary point of connectivity, for some it is even their first point of connectivity ever, plus there’s so much potential.
8. Tushar Kanwar: So, when do we see the One in India? And will it be via the invite model as well? What about e-commerce and logistics partners?
Carl Pei: So, we hope to be able to launch before the end of the year. We think the opportunity in India is big enough to warrant a local team setup here. India’s very complex, very big, it’s a lot of different cultures, different rules, different tax regimes, different states, so for us to move in quickly we need to do it with someone who really knows what they are doing. So we’re going to work with a local partner and at least in the early phases, we’re still be doing our gradual roll-out via the invite model together with our partner. But I think pretty soon after that we’re looking to change it to a pre-order plus invite model at the same time.
9. Tushar Kanwar: What’s the service gameplan in India?
Carl Pei: Going back to our business philosophy, we think business in its essence is very simple deliver good products and provide good service. In India, service is even more of a concern for buyers since a smartphone is viewed as a significant investment. So in India, we’re going to do offline service centres wherever we will have our network, however, I don’t know at this moment how extensive this network will be. We’ve talked to all the major players on the market and we’re looking at the infrastructure setup currently. We are, in the end, only 9 months old so we’re still in the process of figuring this out.
10. Tushar Kanwar: What of the future? Is there diversification on the cards somewhere?
Carl Pei: There isn’t anything on the roadmap in terms of diversification, but it will depend on how we do with the One and the Two, but for the moment, we\’re focusing on the smartphone. If you start with the smart watch, you’re not going to get as much attention or users, period. We’ve been thinking of different ways to do this, maybe a more low-end or a mid range phone, or smart accessories or smart homes, but all of this will depend on success of our smart phones first, so it’s too early to say.