CES Day 3 – Huawei – Eggs and Bacon

Huawei now has the eggs but can it bring home the bacon?

• One of the most interesting developments at CES was the emergence of understanding by Huawei that it needs an ecosystem to make money.
• Huawei and Stanford University spin-out, Omlet, have announced a collaboration to create an open social ecosystem on Huawei devices.
• Omlet is a social platform where the users are at the centre rather than advertisers.
• This means that users have complete control over their data and their privacy should never be compromised.
• Huawei and Omlet are starting off with social networking, with an emphasis on sharing photos and themes, but if it is successful, I am sure it will spread to the other parts of Digital Life.
• It looks like Huawei will be installing the Omlet platform at the factory which should ensure better performance and greater stickiness but it brings it into conflict with Google.
• These devices will not be compliant with Google’s standards which allow handset makers to offer Google Play and access to over a million different apps and services.
• In developed markets, this is considered to be crucial to the Android offering and gives Google enormous leverage when ensuring that its ecosystem is front and centre on the smartphone.
• This could be a significant hindrance to take up of the Omlet ecosystem as users will have to be content with one of the other, inferior, app stores.
• Huawei is also developing its Hilink offering to allow it to integrate the different devices that it makes.
• The idea here is to encourage users that own on Huawei device to buy another one in order to benefit from the enhanced functionality that owning more than one device can offer.
• At the moment Hilink is little more than an app. that allows the user to manage his different Huawei devices and the reviews are full of complaints with regard to how this app. gobbles battery life.
• I suspect that this is due to excessive use of the WiFi radio and shows that Huawei still has a lot to learn when it comes to writing efficient radio software.
• The good news is that Huawei appears to be taking on board an understanding of how important the ecosystem is to its long term profitability.
• RFM forecasts that Huawei saw strong growth in smartphone unit shipments to 69.5m units in 2014A (5.4% share) but doubts that it made more than 3% EBIT margins.
• This is because it is competing on hardware specification like every other Android maker and has nothing with which to make users desire and pay up for its devices.
• An ecosystem through Digital Life services and cross device integration is what is needed to create user stickiness and better profitability.
• Succeeding here is all about understanding its users and writing fun and easy to use services so that users will want to live their Digital Lives with Huawei.
• This is fiendishly difficult and although Huawei is beginning to understand what it needs to do, its execution remains very wide of the mark.
• I see nothing yet that separates Huawei from its peers but it has taken the first step towards doing what is needed to secure long term growth and profitability.
• For 2015E, I continue to think that Apple, Google and Microsoft will be the ones to reap the most reward from the ecosystem.