LeEco – Le-trenchment

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LeEco looks to return to its roots at home.

• LeEco’s foray into the United States looks like it is coming to an end which combined with a major restructuring at home, probably brings to an end any realistic hope of becoming a digital ecosystem.
• I understand that LeEco is about to lay off all of its employees in the US that are involved in developing, building and selling the devices and ecosystem that LeEco is offering.
• Those that remain are thought to be staying to look after existing customers but I suspect that most that remain will be the ones that are working on the automotive ambitions of Faraday Future.
• On top of this, Jia Yueting, the mercurial founder of LeEco, is also stepping back from his position as CEO of Leshi Internet Information & Technology Corp. (LeEco’s parent) although he will remain chairman.
• He will be replaced by Liang Jun who has been running the content business since joining from Lenovo in 2012.
• LeEco’s CFO has also been replaced with the CFO of the China business.
• Furthermore, it looks like all of the content related businesses will be merged into Leshi while the automotive business is spun out as a separate unit.
• All of this points towards a big retrenchment where LeEco will once again become a Chinese digital content company with a shareholding in an electric car company.
• I think that this means that all LeEco’s activities in the US will be focused on Faraday Future which is trying to build an electric vehicle at a yet-to-be-completed factory in Nevada.
• At the end of the day, I think LeEco tried to do things much too quickly and did not pay enough attention to the fundamentals of creating an ecosystem.
• If I take LeEco’s ecosystem as it is today it has weak coverage of the RFM Digital Life Pie as it really only covers Media Consumption.
• It also gets a poor score against RFM’s 8 Laws of Robotics mostly due to the fact that it has not paid enough attention to detail when it comes to the user experience.
• I get the impression that the software was simply ported over from the Chinese version and not enough time has been taken to adapt the user experience for the US consumer.
• The devices themselves offer great value compared to competitors with an 85 inch 4K TV for $5,499 being the best deal available by quite some margin.
• However, it all falls to pieces when it comes to software and this is where LeEco was hoping to make its money.
• I have long held the opinion that LeEco did not have the resources to create both a digital ecosystem and an electric vehicle and that it should close its automotive operation and focus on its core business (see here).
• However, it appears to have gone one step further in closing its ecosystem ambitions and spinning out automotive where I suspect it will be seeking participation from other investors.
• I suspect that Leshi will now return to competing in the Chinese market which is heating up with increasing levels of investment in content coming from the BATmen.
• Consequently, the outlook is pretty bleak as Leshi’s ability to out invest the BATmen is highly questionable especially given the troubles that it has had with expanding into the US.
• I would pick Tencent as my favourite Chinese ecosystem for investment.