YunOS – Cloudy days.

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YunOS has volume but engagement is less certain.

• To make a real splash, YunOS needs to carry Alibaba’s Digital Life services, set them as default and place them right under the user’s nose.
• YunOS (which means cloud OS) is a branch of Android that is owned and Alibaba and is developed by its AliCloud subsidiary.
• Of all the Chinese forks of Android, YunOS looks to be the clear leader as it is claiming 30m daily active devices and has just announced a smart car being launched using the software.
• Yun OS has shipped 70m units cumulatively OS as of May 2016, of which the vast majority where shipped in H1 2016 and is targeting 100m for the full year giving 700% YoY growth.
• Based on this growth rate in 2016, this means that 12.5m were shipped in 2015, meaning that the H1 2016 must have seen something like 50m units shipped.
• This is where the numbers get a little hazy as, based on these figures, the daily active user count looks to be much too low.
• I am certain that the vast majority of the 70m devices shipped will have been handsets which, when in use, are checked over a hundred times per day.
• This would imply that over half of all YunOS devices are sitting in a drawer somewhere or have been replaced with another ecosystem such as Xiaomi’s MIUI.
• This strongly implies that user experience offered by YunOS and the appeal of Alibaba’s services that come with it, are far from being good enough
• RFM research (see here) indicates that increasing control of the devices and preinstalling one’s Digital Life services on the devices is where the Chinese ecosystems need to go in order to compete in the long term.
• Of all the BATmen (Baidu, Alibaba and Tencent), Alibaba looks to be way ahead when it comes to this strategy as very little has been seen from Tencent and Baidu gave up on developing its own system last year.
• This is ironic because RFM research indicates that Alibaba has the weakest position when it comes to Digital Life and does not score particularly well when it comes to the 7 Laws of Robotics.
• Despite this, Alibaba has understood the importance of carrying the ecosystem with all types of devices which is where its partnership with SAIC comes into play.
• The $22,300 SAIC RX5 will be running YunOS in the head unit supported by AliCloud which will host all of SAIC’s services and the data that the car generates.
• Alibaba’s payment services will also be available in the car making paying for petrol and so on much easier.
• This is exactly what most of the other car makers are looking at doing where VW is exploring a system with LG, Volvo is working with Ericsson and BMW appears to be going it alone.
• I see an opportunity for a neutral party such as HERE to play a big role in helping these plans come to fruition.
• I think that these moves put pressure on Tencent and Baidu to accelerate their moves in this direction as simply sitting on better Digital Life services is unlikely to be enough.
• The example of Apple Maps shows that a vastly inferior service can gain meaningful traction solely on the back of being preinstalled on a device and set as default.
• Consequently, if Baidu and Tencent do nothing and YunOS continues to gain traction, their dominant services could begin to be eroded in terms of engagement.
• They have time to act, but the time is now as these sorts of developments take a very long time to come to fruition.
• Despite being ahead in this area, I remain concerned that the market is over optimistic in terms of what it thinks e-commerce will deliver in China this year which is the main reason why I am cautious on Alibaba’s shares.
• I continue to think that both Alibaba and Google look overvalued.
• Baidu alongside Microsoft and Samsung remain my top picks for the immediate term but I am keeping a close eye on both Apple and Tencent.