ByteDance steps into hardware business

January 23, 2019 12:08
ByteDance has acquired some of Smartisan's patent rights to explore business opportunities in the education sector. Photo: Reuters

Beijing-based smartphone apps developer ByteDance enjoys a valuation of as much as US$75 billion, but one of its biggest issues is that it doesn't have its own hardware to deliver content to users.

This becomes all the more obvious as internet giants from Apple and Google to Alibaba and Tencent build their own ecosystems through an integrated hardware-software approach. 

Chinese media on Tuesday reported that staff at Smartisan Technology, a small smartphone maker founded by Luo Yonghao, were asked to sign new employment contracts with ByteDance that put them on a six-month probation.

In response to the reports, a spokesperson for ByteDance said the company has acquired some of Smartisan's patent rights to explore business opportunities in the education sector.

ByteDance also confirmed that a number of Smartisan employees have joined the company under the deal.

However, it refused to disclose further details about the acquisition, citing confidentiality.

People close to Smartisan said the deal involves acquiring several products, including a tablet for education and an early education device. There has been no confirmation about these products.

Unlike its more established peers such as Xiaomi Corp. (01810.HK) and Huawei Technologies, Smartisan is a boutique smartphone maker. 

But while Smartisan is smaller than the majors in business scale, its founder Luo Yonghao is a well-regarded figure in the industry, just like Lei Jun of Xiaomi and Richard Yu of Huawei.

A teacher by profession, Luo founded Smartisan in 2012 in a bid to produce smartphones with elegant but trendy designs.

So far the company has launched eight smartphone models, and has developed its own operating system, the Smartisan OS, which was based on Android.

Smartisan has filed at least 64 patents since 2013. Most are for electronic devices, including wireless communication equipment, voice recognition solutions, and a keypad for mobile devices.

There is also one for a fingerprint scanner, which was later incorporated into the company’s flagship smartphone, the Smartisan R1, in May last year. Four months later, it stopped filing patents.

In targeting Smartisan's hardware, ByteDance said it is building up its own education business. 

In fact, the company first showed interest in expanding into the online education business in 2017.

At an education trade conference ByteDance hosted in Beijing, CEO Zhang Yiming said technology and education would soon be integrated to provide the best solutions and teaching experiences.

The company started operating an online education platform, Gogokid, in May 2018. The platform provides one-on-one video classes to Chinese children aged four to 12 to learn English from foreign English-speaking teachers online.

The service competes directly with Tencent-backed education startup Vipkid, which raised US$500 million in its latest funding exercise in June 2018.

ByteDance also launched a learning app called Haohao Xuexi to provide subscription-based service for users to listen to podcasts of more than a thousand online courses.

The service charges users 38 yuan (US$6) per month, competing with Dedao, which has 17 million users, and Tencent-backed Ximalaya FM.

Following the huge success of its smartphone apps Toutiao and Tik Tok, ByteDance is seeking new revenue sources to support growth. This explains the company's shift to subscription models.

And amid the rise of artificial intelligence and machine learning technology, the company is seeking to build its own devices to establish a more direct connection to users.

All these moves should help ByteDance complete its own ecosystem and achieve sustainable growth.

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EJ Insight writer