China Comes to USA

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Earlier this year, $1.6 billion Chinese electronics and content services giant LeEco bought American TV consumer electronics leader Vizio, (#2 market share in TVs and Smart TVs and #1 in Sound Bars).

LeEco founder and CEO Jia Yueting and Vizio cofounder and CEO William Wang

Both these companies remain relatively unknown in Europe and LeEco's $2 billion cash purchase of Vizio makes you wonder why they spend the money on a North American brand when plenty of global brands were available. (If you weren't already wondering how a company with $1.6 billion annual revenue is paying $2 billion for an acquisition?)

[Photo left: LeEco founder and CEO Jia Yueting with Vizio cofounder and CEO William Wang]

But the "Le" in LeEco doesn't come from French, but from the Chinese word for happiness-- and Le Eco seems happy enough to buy into the American market.

At an event in San Francisco this week, described by at least one reporter as "heavy on jargon and a bit confusing," LeEco explained their ecosystem to unify a variety of vertically integrated product lines that link applications, content, and devices to the end user.

The company launched a wide range of new products under its LeEco brand: TVs, smartphones, VR headset, carbon-fiber, a Android-based, connected SuperBike with lane-warning features on an Android screen--and a preview of the LeSEE Pro self-driving, all-electric car.

But the kicker is these will not be sold through traditional retailers, e-tailers or carriers. Instead, the available LeEco products will only be sold via their own LeMall.com website.

Yep, they are going direct.  One industry executive quipped, "Good LeLuck with that."

On the surface, this looks like a cultural misstep, something that works in China and therefore they assume they can also do it in another big market.

But LeEco is not so easily dismissed.

Its own executives describe it as a company that is China's equivalent to an "Apple, Samsung, Google, Tesla, Uber, Netflix, and Paramount Pictures" if all merged.

The company began in 2004 as LeTV.com, an online video streaming service.  From there, it spread into original content creation and then into making smart TVs. Smartphones and other CE products weren't a stretch after that. And an autonomous electric car and a carbon-fiber hybrid bike are included because-- they depend upon internet connectivity. Above all else LeECo is an internet company with a different model.

In consumer electronics we are accustomed to a horse race, a  race with a few thoroughbreds, some real nags, and a few plow horses.

LeEco enters this race as a zebra. And its stripes are from its origins as an internet company. An analogy, better than their own, might be if Amazon has started up as a consumer electronics company rather than as an online bookseller.

LeEco will prove to be Amazon's worst nightmare:  an internet company baked in the crucible of China experience that "gets" cloud, IoT, wireless connectivy, content, e-commerce--and that understands how to make its own products (in China, of course).

In this sense, for the first time, the real China comes to the USA. And if LeEco succeeds, the American market will be changed forever (just like Amazon has altered the landscape).

And now the real question: if Le Eco proceeds down this path, it competes with the American 3rd party distribution channels. Does LeEco expect these channels will continue to support Vizio on its channel sales-- or will the channel penalize Vizio for LeEco's direct philosophy (and ruin the value of this very expensive acquisition)?

That is Le Question.

 

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Editor's Note:

Vizio cofounder and CEO William Wang owned 54% of the company so this deal makes him a billionaire. However, Wang will not join LeEco, and instead will become CEO of Inscape (Vizio’s data business) that will spin out as separate private company as a result of this deal. In addition to its TV sets and sound bars, Vizio also collects data about viewing habits from its products.

Go Our Prediction that VIZIO Would Find the PC Business Too Tough [Stranger Than Fiction: A New PC Brand]