Tough competition and low margins in its traditional home appliances and mobile phone business is prompting TCL Group to turn its gaze to services such as video-on-demand and internet finance. The move underscores the pressure that Chinese manufacturers as a whole are facing to transform their business models and seek recurring service-based revenues.
The group, which controls Hong Kong-listed entities TCL Multimedia (01070.HK) and TCL Mobile Communications (02688.HK), has said that it aims to generate more than 50 percent of its revenue from a wide range of user services in five years.
The transformation plan entails a “double plus” strategy, with “intelligence + Internet” and “products + services” as the core principle. Outlining the roadmap, TCL said it basically aims to change the group’s product-oriented focus to a user-oriented one.
One of the key strategies is to tap the business potential related to online to offline commerce, a topic which has become quite popular in China’s internet industry as online companies seek to extend their influence to the offline market. What TCL wants to do is to leverage its hardware presence to build an ecosystem to provide online services to users of its products such as TVs and mobile phones.
The group is said to have invested HK$500 million to establish a business unit focusing on the establishment of online to offline business. As the second largest shareholder of property developer Fantasia Holding (01777.HK), among the O2O possibilities that TCL is exploring are property management value-added services, online to offline group purchase as well as property smartphone app development.
The partnership with Fantasia will bring TCL a huge customer base for its proposed services. Users will enjoy intelligent homes, family cloud as well as intelligent community platform services.
TCL is not the first in the market to provide services to its hardware users. Globally, Apple Inc has been the pioneer in the field by offering online music services to its iPod, iPhone and iPad users, which turned out to be a huge success.
TCL has already introduced cloud services to its mobile phone users, as well as several value-added services like games, music, video and reading services.
While the revenue generated is so far small compared to TCL’s hardware sales, the management believes the services segment will blossom into a much bigger business in the long run.
TCL has also established a solid foundation for online payment services by offering a wide range of Unionpay compatible smartphones, generating a monthly cash flow of 50 million yuan to 60 million yuan. Eventually, this online payment business will enable the company to step into the internet finance market.
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