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Lenovo Starts To Play In The “Things” Market: TBR

lenovo internet of things

by Ezra Gottheil, principal analyst at Technology Business Research

The Internet of Things offers device vendors like Lenovo the opportunity to diversify their consumer portfolios, increase revenue and profits, and establish deeper relationships with customers. Lenovo has been working on its things portfolio for about a year, and the company is poised to bring its expanded collection of products to market in China. The near-term impact on corporate performance is likely to be small, in the tens of millions of dollars, but positive, and give the company the opportunity to learn more about a new and expanding market in connected devices.

The revenue impact on Lenovo will be limited by what TBR believes is a less than $1 billion market for consumer-oriented connected devices like fitness bands, smart-watches, Google Glass, and Nest thermostats. This market has enjoyed triple-digit growth from a tiny base, and is about to receive a large boost from the Apple Watch. While the Apple Watch will drive Android smartwatch sales, we believe there will be few other breakthrough products in this category, ones that dramatically increase device vendors’ revenue and profits.

Lenovo is experimenting vigorously in both the development and marketing of IoT devices. Lenovo is looking to leverage its design, technology, and supply chain strengths to deliver products beyond the typical menu of PCs, smartphones, and tablets. Growth in those markets is slowing, or has stopped entirely, and Lenovo aims to expand its footprint.

If sales and marketing costs are minimized by using e-commerce, companies like Lenovo that have both infrastructure and expertise in making technology-based devices, can profitably deliver a much broader array of products. The market for any of these devices is much smaller than the PC, tablet, and smartphone market, but it is a growing market, and one that can be expanded with the creation of additional products. By offering new types of products, the company will re-engage with customers frequently, renewing their relationship even when customers choose not to buy.

TBR believes this is a sound strategy, one that other PC, tablet, and smartphone vendors will follow. By combining a variety of devices and a commitment to ongoing development with a low-cost sales and marketing platforms, Lenovo is pioneering a new approach to creating and selling consumer technology-based products. This approach fits Lenovo’s culture of device proliferation, rapid decision-making, and efficient sales and marketing. Imitating Lenovo will be a challenge for its largest competitors, Samsung, HP, and Dell. Nevertheless, TBR believes Lenovo will have success with its approach and the other companies will follow, resulting in a livelier consumer technology business.

Having connected products also gives Lenovo the opportunity to learn about how to fully leverage the data generated by the devices. Every “thing” generates data with a primary purpose that is key to the thing’s value proposition – to reduce energy costs or learn user preferences for automated behavior, for instance. But the data is often useful in other ways, both to the customer and to third parties like the energy supplier, the government, or other companies. With things in the field, Lenovo will develop its understanding of the full potential of the Internet of Things.

Lenovo has been developing its Internet of Things strategy for more than a year. In July, 2014, Lenovo announced the creation of a new unit called Lenovo New Business Development (NBD). The first batch of products included two types of smart glasses, smart air purifiers, and a smart router. Each type of product was developed in partnership with a different outside firm, one with expertise in the product category.

Then, in October 2014, Lenovo announced that it was creating an internet-based smart devices and services business, operating under the separate ShenQi brand, to sell smartphones and other smart devices. This was an explicit answer to Xiaomi’s success in selling smartphones online. In February, 2015, Lenovo announced that Internet company Baidu was investing $100 million in ShenQi.

In March, 2015, ShenQi CEO Chen Xudong announced the opening of the online store on April 1, saying that the first products would be basic home appliances such as smart light bulbs and power sockets. “We explored for a few months that IoT products were quite complicated,” he said. “We decided, therefore, to work first on smart homeware. We will not get into wearable devices for another two to three years.” Chen also announced that ShenQi smartphones will be independent of Lenovo’s operations in that segment.

Despite taking a low-risk, low-cost sales approach to IoT, Lenovo remains a pioneering brand in the space. We expect Lenovo to continue creating and selling a range of consumer technology-based products in China and, eventually, in markets outside of China. Lenovo’s efforts will directly challenge a range of competitors, including Samsung, HP, and Dell to respond with devices and/or partnerships of their own. TBR believes Lenovo will thus add fuel to a burgeoning market for smart devices.

 

ezra gottheil

Ezra Gottheil is a principal analyst in TBR’s Computing Practice, for which he is team lead on coverage of Apple, Asus, Acer, Dell hardware, Google devices and platforms, HP hardware, Lenovo, Microsoft devices and platforms, Samsung, Sony, and Toshiba. Ezra is also a principal researcher on projects including consumer and business tablets, PC warranties, PC supply chains, Device as a Service (DaaS), ChromeOS, BYOD, mobile device strategies, app stores, and social networking.

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