Pete Lau Curated
Co-founder and CEO | OnePlus
CURATED BY :
How do you maintain a community sense among your users?
How do you make this business profitable?
Have you ever considered diversifying into other products?
Have you ever considered opening retail shops in India?
How do you manage the huge demand?
How important is customer feedback for you?
Are you attracted to the high-value, high-price segment—the flagship segment?
We don’t try to hit any certain price point. The cost to make a flagship phone is typically between $300-$350. We sell our devices almost at cost so that’s where we set our price point. If you have low channel costs—say, after five years 50 percent of your products are distributed through online channels—then prices will stay in that range. Prices are much higher today because the channel cost is still a big part of the price. Apple is a special case because of the uniqueness of its product. It is not easily substitutable so it can be priced very high. But no one knows what the market will look like in five years. If our Android phones do well and surpass Apple in many aspects, I believe the price premium commanded by Apple will change as well. Many people say Apple’s brand will protect it, but here is my opinion: brand is just the spokesman for products. In consumer electronics, a brand premium is just an illusion. Apple enjoys its premium today because it has no perfect substitutes. But competition in the market is fierce.
Is the idea that the best providers will come to you—the best camera maker, for example—if you build a platform that best supports and promotes their capabilities?
That’s an aspect of it but it’s also a matter of where you see your own strengths. If you have a platform, then by nature you are the integrator—and you have to decide, do I want to be that, or do I want to own all the software myself? Are you going to create your own instant messaging software or your own filtering software to block unwanted calls? And that is a strategic choice. We would like to collaborate with others. In my vision, every company in the ecosystem will put their best service on our platform, and this will lead to the optimal customer experience. We want to integrate the best products on our platform, but this leads to a bigger challenge: how can we maintain a consistent user experience with a variety of services? So getting there will take a lot of time and energy, but it will also differentiate us in the marketplace.
What’s the best way to improve your product? Do you have your own designers or do you rely on the skill of your component suppliers? Or is it both?
When your business is still young, more often you work with suppliers and solution providers so that you can get better information to improve your product. As you scale up, you can get more actively involved. For example when you are still at the startup stage you cannot design or develop a chip by yourself, more often you work with those solution providers and suppliers and obtain expertise from them. However as you scale up you need to actively take the lead and guide them to make the changes. Our hope is that after 10 years, customers will think of us as a platform rather than a phone maker. At this stage we are focused on how to make better products to attract more customers. To do this, we need the best talent and high investment in R&D. We have established R&D centers in many places. Technical talent is actually available and easily accessible in the market, so we are aggressively seeking it out. Today, the hardware is the most critical aspect of our success. But we will gradually introduce our own software to build up the company – to put it in the popular way, we will build an ecosystem. We are now preparing to transform our ROM [operating system] into a platform that integrates mobile internet services. Having an open platform means more people are willing to work with me.
How does scale increase the risk of production holdups from the supplier and contractor sides?
We have a philosophy about our supply chain that few people know. But it’s not complicated. If I come to you, I am looking for a strategic partner. You must not always think that suppliers, given the opportunity, will “cut your throat”—use their power over you to dictate prices and schedules. It is a problem to think of a supplier as evil by nature. They just have to be reasonable, and when the relationship is strategic, they will be. For example, if we have a deal for the production of a million units, I do not request a lower price per unit than if they were making 5 million units. The price per unit may be higher—I only ask that it be reasonably higher. But many companies will insist on a cheaper price as if they were buying a lot more. Actually we never do much negotiation on price with our strategic suppliers. We negotiate in terms of principles. If Samsung purchases 5 million chips from a supplier and I’m only buying 1 million, the price per chip won’t necessarily be equal. But I expect the price to be only a little higher than theirs and that both sides support each other’s profitability. This is our business philosophy. After we sign on with a strategic partnership, we will never look for a competing supplier. That way, we build a trusting relationship. This is the most important thing. When we negotiate with our suppliers and distributors, all we strive for is to reach agreement on values, keeping everything else simple. This is how we do things differently from others.
You outsource your manufacturing and assembly to others. Is that a strategic decision, and are you comfortable using others as partners in the long term?
There are many resources available for production. As I say, Foxconn can produce for Apple. It can produce for us as well. Manufacturing is not where our core competence lies. Where do you find people to manufacture for a startup? Today, there are many OEMs that want to work with firms that concentrate on products. That is why Foxconn came to us even though we are so small. They do not make collaboration decisions based solely on volume. For a smaller company like OnePlus, the key to building collaborative manufacturing relationships is your focus on quality and distinctiveness. That will interest manufacturers. If you have large volumes but few distinctive requirements for your product, they won’t come to you. They will come to you when you emphasize quality, even if your volume is quite small.
How do you go deeper to determine customer needs?
Intuition is critical. We do very few customer surveys. I am very suspicious of customer surveys. Steve Jobs had the same view. It is difficult to figure out which factors in a survey are influential. We rely more on observations from daily life to provide insight. Our motto is “never settle.” It comes from a conversation I had with a phone user before we had even launched our product. I gave him a phone and asked him what he thought about it. He said it was okay. I asked what he thought about the design and manufacturing and he said, they’re okay. In the end he concluded, “Buying this phone for $325 is okay for me.” Now this may sound fine. But I understood that he was “settling” for just okay. And I knew I could offer him a better product for the same $325 rather than making him settle. You can’t get that kind of insight from a customer survey.
Given the difficulties of understanding customer demand, does OnePlus have a target customer?
Traditionally people use income, age, gender and location to define their target customer. But we focus more on the lifestyle and attitudes of our customer. For example, some customers want high-quality practical devices, while others love products with fancy features. Our target customer is a young person in search of quality rather than chasing after the cheapest price. We try to perfect even the smallest details from the material to the craftsmanship. That’s our competitive advantage. Our customers are willing to pay for that quality.
Is your internet-only sales system a strategic approach?
The answer is: both. Online retailing, for example, is a very powerful channel for startups. From a cost perspective, offline channels were not really a viable alternative for us at the beginning. Online selling reduces some of our costs, and we can pass part of those savings on to the customer. We created the invitation system to manage uncertainty. We don’t know how many people will buy our products at any given time. Our approach helps us make an accurate sales forecast. If one phone sells for $200, for example, 50,000 units equal $10 million, 100,000 units equals $20 million and so on. Creating these kinds of inventories means taking on a huge financial risk. So we manage that by getting earlier insight into real customer demand through invitations.
Many startups want to focus on quality at the beginning but feel pressure from investors to start making compromises. How have you been able to avoid that?
Many companies do encounter this problem.But our principle is that whoever is going to invest in our company must align with our core values. Last year we met with some really large VCs. I put forth several terms before any negotiation starts. And they reflect my principles and the company’s principles. If there is a clash over these principles, we quit the negotiation. For example, if an investor keeps asking me, “When you will have an IPO?”—the relationship comes to an end. This is one of my core principles. We will not work with companies that chase short-term profits. Our “secret”—and it’s no secret—is to make better products. I say this in every meeting. Everything else is secondary. I really mean it. The smartphone market is highly differentiated. You cannot say which brand produces the best phone. But I can say that OnePlus makes the best product in the Android system at the roughly $350 price point we target.
When you say that the hardware is your core competence, are you talking about the design, or the selection of components you put together that other people manufacture or assemble for you?
When we talk about hardware, I mean the physical product. A physical product involves a series of things: design, materials, manufacturing, all of which are critical. Over the years we have invested a lot in our materials and manufacturing, and we have accumulated a good deal of understanding about how users perceive the products and their actual demand. For example, before our product came out, one brand was severely criticized by the public for having a plastic back on its phone. Other companies responded by making phones with a metal back. But the lesson isn’t that customers hate plastic. Their true concern is to own a phone that is attractive and high-quality and feels good in their hand. They do not care what it is made of. This is the real customer insight below the surface. After our product entered the market, nobody complained that the OnePlus One has a plastic back. Most customers don’t know it is plastic and are surprised when I tell them it is. They are pleased with the quality and feel of our materials. With smartphone hardware, no company has a monopoly over the resources that matter to success. They’re all readily available. For example, Apple’s phones are manufactured by Foxconn. Foxconn’s resources are available to us as well. But the key question is, What do you want to make with those resources?
What makes OnePlus so special?
We are confident in our hardware; key people in our company have many years of experience in that space. There are few companies whose hardware capabilities truly impress me, except for Apple maybe. But certainly hardware is our greatest strength. In other areas, we are open to collaborate with the right partners. For a startup, the first goal is simple survival. And when we started, we worked with US Android developer CyanogenMod. CM has a very good customer base, and we wanted to optimize our resources. So again, our strategy has been to stick firmly to our core competencies, such as hardware, and establish cooperative relationships in areas where we have the need.
What do you do differently from your competitors?
From the very beginning, we set a goal of creating a global brand. We saw tremendous opportunities in the smartphone and mobile internet industry overseas. And when we looked at the local market, we recognized that the intensity of competition is much higher in China than in any other country. So we focused on international markets at the very beginning. Our core business is international. Our top team is not just Chinese; it’s global. And it’s really true: an international team guides you to do things in a different way. This isn’t a permanent advantage, of course, but it has been critical at the start.
How do you set a standard with OnePlus TV?
Our Never Settle mentality and our burdenless design philosophy are at the core of OnePlus product development, regardless of the price point. With the new OnePlus TVs, we wanted to make sure that the user experience would be no different. As with every product, exceptional design isn't just about the things you see, but also about the little things that you don't even notice. We will be sharing information about software features that sets us apart in the coming weeks. Our goal is for OnePlus to set the standard for future smart TV products.
What is the idea behind the design of OnePlus TV?
Our approach to design has always been driven by our burdenless philosophy which ensures that a piece of technology is aesthetically bold yet pleasing to look at with a sense of ease. However, actualizing such a feeling requires clear vision and determination to get it just right every time. As a company we recognize that "no detail is too small", so we tirelessly work every day to refine the subtle details, even if those details may seem minor. When all of these details come together, the end result is an unforgettable product that becomes more beautiful every time you look at it. Creating the unique carbon fiber back for the new OnePlus TVs is a great example of the attention we give to little details that make up a whole, ensuring premium quality that has now come to be synonymous with the brand.
What makes OnePlus TV special?
With the new range of OnePlus TVs, we look to provide a premium aesthetic design that not only perfectly serves the function of the product, but is also great to look at. A TV tends to take center stage in a home environment, however, an honest design embodies the product itself, so that from the moment you set your eyes on it, the device will speak for itself. The guiding principle for the new range of OnePlus TVs was to provide a burdenless experience, which celebrates every aspect of a smart TV, ranging from the complexities of its engineering to the function of every component. We believe that a user must feel completely unobstructed in his experience, and the TV should be a projection of the user's personality onto his home.
From making smartphones you are now looking to manufacture TVs. Why?
We have been observing the TV industry for quite a while and looking at how the internet functions in different environments—office, home, car, and mobile. Over the last 20 years, there hasn’t been a tremendous change in TV functionality. We are exploring the possibility to create a product that has seamless functionality within the confines of a home. The TV is a device that is capable of being connected across the home as well as seamlessly with a smartphone.
You have had a deep partnership with Amazon India for a long time. Are you looking at partnering with Amazon globally?
Our partnership with Amazon India continues to be one of tremendous importance. It’s a close relationship—we work together in marketing and a host of other different activities. These are practices that can be taken global. This year, we have partnered with Amazon in six European countries: The UK, France, Germany, Italy, Spain and The Netherlands. In North America, we continue to have our online channel. Also, with the launch of OnePlus 6T, we partnered with T-Mobile, which gives us [better] access to consumers in the US in a more mainstream way.
What work would the India R&D facility undertake and how different would it be compared to your other centers?
We have R&D centres in Shenzhen, Taiwan and a small one in the US. The India R&D centre will be focussed on software [development] and will closely work with our R&D teams in Shenzhen and Taiwan. The point about being closely linked with the other teams is that the R&D development is not just to serve India, but to serve OnePlus globally. Having said that, the India R&D centre would have a focus on artificial intelligence (AI) and how to use it to improve our product experience. In three years India will have our largest R&D centre.
What are your thoughts on strengthening your presence in India, in terms of manufacturing, sourcing, and R&D?
In terms of device manufacturing, from OnePlus 3T onwards, 100 percent of our devices that are sold in India are made in India [through contract manufacturing]. It’s not something that will change. Then there is the establishment of our R&D centre in Hyderabad, which has happened over the last six months. We have a team of under 100 people and are in the process of scaling that up. Last week we were at IIT-Delhi to recruit talent.
What have been the big developments for OnePlus in India over the last six months?
India is still our largest market and China comes second. So, India is as exciting as ever. The last time we met [in May-June], we didn’t have the Q2 and Q3 data. In both the quarters, OnePlus has been the number one [smartphone brand] in the premium segment in India [capturing 40 percent and 30 percent of the said segment market, respectively, according to data from Counterpoint Research]. In terms of growth, we have already achieved our CY18 sales in nine months this year; we are 30 to 35 percent higher compared to last year and at least 50 percent more in absolute business. Both our models, OnePlus 6 and 6T, have done well. We had two months of no-sale period. The OnePlus 5T was sold out almost 45 days before the 6 was launched. And for about a month, specifically during Diwali, there were no sales as the OnePlus 6 was sold out prior to the launch of 6T. We would have had higher sales if we had enough stock during these two critical phases.
What’s stopped you from expanding the power bank lineup?
What we’ve seen in the market is that there are already great power bank options available at lower costs. So the question is that, will there be a sync value in OnePlus creating an additional power bank in the market. If not, it would be better for us to remain focused on what we do than getting distracted.
How do you manage prices as well as introducing cutting-edge technologies?
New technology does bring an increase in costs but at the same time, new tech will also eventually become more established and comes down to the price into something that’s more reasonable, and then is applied to all devices and the market. So from our perspective, it’s always been to first create the best possible product that creates the best possible user experience, and then giving that at a reasonable price.
What was your learning from venturing into the TV Market?
OnePlus TV specifically is very much part of a longer-term strategy, looking at five to ten years ahead within that connected home space so that users will have the presence of more smart displays throughout the connected home and it functions like an ability for the information to be displayed as the user moves about their life of mobile connectivity from the home. The way I see it now is we’ve just gotten started on this long-term strategy journey and we have established good basic connectivity between the smartphone and the TV device, but there’s a lot of work to be done here and there’s a lot to be excited about in terms of the improvement that can come to the user experience.
Do you constantly explore new areas of innovation, and do you think it is important?
I am most excited, passionate and most inspired by the pursuit of making better products, that’s what I’m all about, that’s where I come. As a company, users should be paramount and based on the products and services that you create, users have an impression and association with the company. For example, take the likes of a company as large as Apple, their success and reputation is based on that consistency in making a great product. So from my perspective, there is no limit on spending time energy and effort in making great products. Also, as the company gets larger, certainly not everything can come from me individually. So the key task is to build a team, especially a product team that has a relentless spirit and pursuit of making a better product to really push the boundaries. That’s something that can be a virtuous cycle and that if we have a team who is working for this level of passion and creation of products. The core of our company’s culture is creating great products and that’s super important.
Is there a constant fight between Pete Lau the CEO and Pete Lau the customer?
It looks like it should be a constant conflict… yeah, a constant conflict in that what the CEO perspective is to make the business successful, and the consumer must be focused on what’s best for the consumer. But actually, Pete, the CEO needs to have the constant ability to stand in the shoes of Pete the consumer, and that will ultimately make him better as a CEO. After five years, what we’ve learned is that what’s demanded by the users and what’s best for the users is a unique opportunity for us to deliver the best possible product. So we have this unique ability to work hand-in-hand with them. Then approaching product pricing in a way that creates a sustainable business rather than always trying to be limited by pricing like creating a certain pricing segment that you go after and then limiting yourself and putting profits very thin it’s not sustainable. It’s about first creating the best possible product and then pricing that creates a sustainable business model. One great example is the Midnight Black finish on the OnePlus 6 devices. The finish itself costs an additional good few dollars and that is a significant cost. It is tough to create that finish. It sounds cheap as an individual cost per device, but if you multiply that over scale, it could be $20 million or $30 million, right? A business owner might then quickly come to the decision that this is not worth the value of $30 million, that could ultimately be attributed to say the bottom line. But conversely, Pete’s perspective, with his confidence and insight in both the user and product, is to look at if it is differentiating in-hand feel. And this differentiating design factor is striking in a way that will impact the user over the long term and allow them to recommend or to be able to see the device in a different light. So it’s easy to have that kind of temptation in the short term, but in the long term, making the right decision can have a wider impact.
You have an enviable position in the premium segment in India now. What have you done right?
What we did most correct is take an approach to a world class standard and product and also deliver that world class standard and products to India and not look at the Indian market and say okay, we should make a lower-end, cheaper product for this market specifically. So our persistence in delivering world-class standard globally, India included, worked. Then building a local team with localisation, local knowledge and independent ability to be empowered to make decisions has also worked.
What are your thoughts on a foldable phone?
I’m not thinking about it for now because it hasn’t demonstrated significant additional value to the user. Affordability is also something we are not sure yet. We won’t for the sake of marketing take an approach to create a product.
Is that a good problem to have, that you have many options with the front camera?
A final solution will be a camera underneath the screen that’s able to exist on the screen without disrupting the screen experience and still serve all the functionality of the front-facing camera. Before that technology has been fully matured we will see a lot of different expressions and different approaches in the marketplace. For example, the notch is not a problem of an approach in looking at the whole bunch itself, but the question is when can it be small enough to be both functional and excellent, but also have the expectation for the kind of user experience people that want. The notch itself can take many forms and shapes if it integrates certain technologies… for example, the small water drop notch can be a very nice approach.
How do you tackle problems like battery and durability of devices?
5G, from both hardware and software perspective, is significantly more complex than 4G. We have actually been working on 5G for almost three years and have made a lot of progress. So far it’s been smooth. There are still particular challenges with devices in the areas like battery and heats performance, but they are all being approached and worked out good. I think by the end of the year many of the challenges we will be able to be overcome to a whole another level. Looking at a 5G product we have expectations that the product experience will be as excellent or greater than the product experience of the 4G device. So you won’t have shortcomings that are inherent to the 4G device that are seen as acceptable because it’s new technology… the experience should still be overall excellent.
Is making a premium device that is also affordable becoming a difficult task?
Our business model has been very much Internet-centric. Internet has been in our DNA from the beginning. We have been very much a B2C company from the start and globally oriented since the first day of OnePlus. So that is a unique business model in terms of both reach and the inherent costs of the business model versus other companies. With that as a prerequisite, an expectation is we make the best possible product and the best product experience possible. But because we have this unique business model, able to go direct to consumers, less of an approach on kind of what traditional companies would do, where they would have spent or where they would have channels it allows us to have cost savings that can be passed on to the end user. As user demand for functionality increases it causes the cost of a device to increase. But that’s equal across the industry. So our business model advantage remains proportional. From the start, OnePlus has been very much a company that’s been built around word of mouth and 60 or 70 per cent of people will find out about the company this way. It’s a very efficient model for business if executed well, based on a great product.
Will 5G interrupt the concept of a global phone as you will have completely different network capabilities across different markets?
The goal is to have a 5G compatible product across countries and networks. In the next couple of years it will require customisation of product for the different bands and carriers, but our goal is to work towards that wider compatibility.
What do you think is the biggest user benefit from moving to 5G?
5G is very much a long-term approach and trajectory. If we look at it over the next 10 years and the impact, it has to be separated into three phases. The first phase being that three years when you will see a speed increase and increase in cloud functionality and capability. What that speed will ultimately enable or be able to create is network ability to work with the cloud, ensuring that having storage on the cloud is the same as having the experience of storage on the device in the hard disk. That will not be only in smartphones but across products and will enable across connected products and lead to a whole host of possibilities. Phase two, say 2021 to 2025, is very much about significance of cloud capability plus AI and 5G in combination and what they can create as a result. In terms of the device, that will mean an experience that’s way smarter and much more capable than what we have currently. So much better ability to understand and anticipate what you need, what your behavior is. And the third phase, 2025 to 2030, is the kind of full unleashing of the Internet of Things. So each person will have their account. And then devices can all connect into that account through the cloud. So you have not only a smartphone device, but the entire ecosystem that can kind of learn from your behavior, from your actions, and therefore create a very customised individual connected internet experience.
Is 5G an opportunity or a compulsion or a combination of both?
It’s an opportunity, first and foremost because our community of users is very much those who are technology aware and would want to take up the newest technology first. So it’s an opportunity. On the 5G front, we started taking our own planning and deployment early starting in 2016 with pre-R&D and are certainly among the first and leading companies in the 5G space. In 2019 and 2020, this is very much a transition time from 4G to 5G and it’s an opportunity for us, a very good opportunity.