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May 25, 2017

All That Glitters…

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LeEco’s vision for the U.S. was bright and promising, but a bit more fleeting than some anticipated. The company started that way, with a spectacular launch event that promised an array of hardware (from TVs and VR, to a connected bike and self-driving car) as part of a much broader vision to be the ultimate content ecosystem. But its strategy quickly started to show flaws, with little positive news following the initial hurrah, and a slow trickle of doubts and rumors about if it was possible to turn the LeEco dream into reality.

Plans to create an “eco city” office complex to house the thousands of expected employees in the Bay Area quickly disappeared. More importantly, for a company that planned to be an “ecosystem player”, the few additional content deals the brand secured were either small, or sat outside the LeEco-focused interface. This ultimately left the company with a range of hardware, but little compelling content to differentiate it from every other OEM. And the self-driving car concept didn’t seem to move beyond the original prototype model.

The trickle of bad news eventually turned into a flood, with rumors of layoffs and, ultimately, the collapse of the company’s plan to purchase Vizio, which would have created a strong base of installed hardware from which it could expand. Not only did the “eco city” dream go quiet, the company apparently put the land that it was to be built on up for sale.

Earlier this week, the dream was finally snuffed out with the announcement that 325 U.S. employees will be let go. What’s left is a struggling hardware company that will focus its efforts on Chinese-speaking households in the U.S. While not a terrible fallback position, since the company can leverage the content partnerships it has in China, as the original Chinese-based LeEco was a content company first and foremost; the real message here is that the company’s dream of changing the U.S. tech world is over.

To understand what went wrong, we don’t need to look very far. As we said at the time of the launch, LeEco was undertaking a very bold strategy with long odds against its success. Sadly, that prediction has come true less than a year later. The company over-extended and blew through its capital too quickly. It didn’t help that exchange rates turned against it making everything a bit more expensive. And further, it appears to have misjudged the highly competitive content business and how hard it is to create a differentiated model in a land where almost every content source is a readily-available app.

It’s this last point that should be a warning to other OEMs looking to differentiate their TV hardware through content. The tech world is quickly following in the path of smartphones, where a few core operating systems will become key. Google, Apple and Amazon will dominate the app and content world across not just mobile, but all screens over time. This means that all content will be developed for these operating systems first and smaller platforms later. Larger OEMs can obviously still differentiate a little without embracing one of these behemoth solutions, but smaller OEMs will need to pick a platform, rather than trying to curate their own band of merry apps.



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