DUBLIN -- The smartphone market is tough. Hundreds of companies are battling to sell phones ahead of their competitors, and the founder of one startup says that rather than becoming a bigger company, in the next five years simply surviving will be seen as success.
Carl Pei is the co-founder and head of global at OnePlus, a small Chinese startup which has gained attention for its budget smartphones sold directly to consumers around the world through an innovative but often frustrating invite system that intentionally limits demand. On Thursday, the company begins selling its third ever phone, the OnePlus X, which also is its cheapest smartphone to date, costing just $249.
Speaking to International Business Times in Dublin, where OnePlus is showing off its new phone to attendees at the Web Summit conference, Pei said that he is already seeing smartphone companies disappearing and survival is what he is focused on right now. "In the coming three to five years it is as much about survival as it is about growth. If we can grow at a healthy pace -- not too fast, not too slow -- while we survive, I think that's a great goal for the next few years."
Pei admits he and his co-founder Pete Lau are “self-inflicting a slower rate of growth" on themselves, but he is also bullish on where the company will be in the next half-decade. And in the next twenty years, Pei said he thinks OnePlus can be one of the world's biggest smartphone brands: "I would be surprised if we weren't because I don’t think there will be a lot of players left in 3 to 5 years. It is inevitable you won't see a thousand companies in the smartphone industry several years from now.”
Consolidation in the smartphone market is inevitable and this is something one of Pei's competitors -- and admirers -- John Sculley agrees with. "It happens in every industry, you eventually see consolidation and most people simply go away," Sculley told IBT in Dublin. Sculley, a former Apple CEO who famously fired Steve Jobs, has also entered the smartphone business with his design-centric Obi Worldphone, which competes on price with the OnePlus X. But Sculley is using his vast experience in the mobile business to distribute his phones widely and through channels OnePlus cannot reach.
Indeed, Pei said that adding the knowledge of someone like Sculley is among the company's top priorities in 2016 and hiring more experienced people would be one of the things the company would do if -- as planned -- it gets a fresh capital infusion from investors in Silicon Valley. Pei said OnePlus has already seen interest from the Bay Area but it simply hasn't had the time to explore those opportunities yet.
Sculley hopes to reach a margin of around 8 percent for his Obi Worldphones despite their budget prices, thanks to his supply chain expertise and connections. OnePlus can produce a premium phone at low cost mainly because of three things: company size, lack of mediation and word-of-mouth brand recognition.
The company has a relatively small team of 900 people: "We don’t burn a lot of money so we don’t need to sell a lot of phones to break even,” Pei said. The company also sells its smartphones directly to consumers, so it doesn’t have the same channel costs -- which can be up to 20 percent of margins -- and does not result in cash-flow problems like many smartphone companies. Finally, unlike, say, Samsung, which spends billions on marketing every year, OnePlus spends virtually nothing, relying on word-of-mouth to spread the brand name.
With the company breaking even in 2014, it may report a loss this year, “but not too much” Pei said. As such, it's not in need of a huge capital influx immediately, and if it did want to prioritize growth, it could nix its quirky invite system.
At the moment, that's not something the co-founder is considering because he does not want to be stuck with unsold product: "That subjects us to a risk at this point that we are not comfortable handling. We might sell a lot of phones, but we might also fall flat on our faces."