How the great LeEco India story went bust

LeEco India
After arriving in India in January last year, Chinese internet and technology conglomerate LeEco fast became the “true disrupter” in the evolving Indian smartphone market with its huge marketing spend — and the announcement of a assembling / manufacturing unit.

News that the company has fired 85 percent of its India staff across the sales, marketing and distribution departments — and confirmed by a company source to IANS on Friday — has effectively punctured a mammoth dream just within a year.

The source also confirmed to IANS that both Atul Jain, chief operating officer, Smart Electronics Business, and Debashish Ghosh, chief operating officer for Internet Applications, Services and Content, were “asked to leave” and had not quit as reported.

Speculation is rife that LeEco may finally exit the country after spending millions on promoting its ecosystem of “superphones” and “super TVs”.

“LeEco is in serious financial trouble and has, as a consequence, practically ceased India operations. The staff layoffs are a direct consequence of this. Even in the previous quarter, their shipments were close to zero,” said Jaideep Mehta, mnaging director of IDC South Asia.

After its entry into India, the company launched five superphones, a LeEco membership of content and internet services, its e-commerce platform LeMall and, most recently, “SuperTVs”.

“LeEco, as the name suggests, was built on the premise of an ecosystem. The device would open a user to an ecosystem and it was not just a smartphone. However, for a country like India, and even for many countries globally, this ecosystem isn’t ready yet. Paid content consumption hasn’t become big enough for a company to survive while earning nothing on the device itself,” said Faisal Kawoosa, principal analyst, Telecoms, CyberMedia Research (CMR).

On the contrary, if you see other handset brands, to an extent they too make money from content, but as value-added earnings — which is just a fraction of the actual earnings out of the device. For them, it is akin to average revenue per user (ARPU) of a telecom operator where the operator wants to earn more per user by offering additional services.

“LeEco came in to disrupt this business model and make the secondary streams of earnings as their primary. For that to happen, the ecosystem hasn’t arrived yet. So their positioning as well as proposition went wrong. It dismayed a user to see nothing extraordinary in terms of Device+ strategy,” Kawoosa added.

In August, LeEco announced a $7 million manufacturing unit in Greater Noida in the presence of IT and Electronics Minister Ravi Shankar Prasad.

“As the market size for electronics is expected to grow to $400 billion by 2020, it is imperative to promote indigenous manufacturing. LeEco is a name of global reputation and it is heartening to see it align with ‘Make in India’ after entering India just eight months earlier,” Prasad had told the gathering.

LeEco planned to ramp up the production to approximately 200,000 “superphones” per month by the end of 2016, before a severe financial crunch caught up with the company.

“I think there was a disconnect with their go-to-market strategy. Being an online player they spending was almost like a player with an offline distribution strategy. Although their products were good, it was the overall marketing strategy that led to quick cash-burn,” said Tarun Pathak, senior analyst, Mobile Devices and Ecosystems at New Delhi-based Counterpoint Research.

According to Kawoosa, for few years, LeEco should have positioned itself as a brand offering better specs of hardware at affordable prices. “Eventually, as the ecosystem would have matured, they could have played the LeEco card,” Kawoosa said.

For assembling/manufacturing in India, LeEco had partnered with the US-based company M2i which will continue to manufacture for others if, by any chance, LeEco doesn’t continue to manufacture in India.

“I would say, these experiments will go on and we may see brands coming in and out for manufacturing in India. For ‘Make in India’, I wouldn’t consider this as a blow yet,” Pathak noted.

Given the LeEco experience, other smartphone players need to look at their scale of operations and play to their strengths.

“Since India is a such a diverse market, one strategy doesn’t lead to guaranteed success throughout the country. With the smartphone segment being so competitive, and amidst razor-thin margins, brands need to watch their campaigns and invest wisely,” added Kawoosa.

Nishant Arora / IANS