Despite shipping 20M smartphones per quarter, Huawei remains a phone maker that few people in the United States are familiar with. We sat down with Huawei’s chief marketing officer (CMO, Consumer Business Group) Shao Yang in Shenzhen/China, for an interview. We have previously met Mr. Shao Yang at Mobile World Congress, and he once again answered a host of questions going from Huawei’s brand and product strategies to more direct product-related questions (including Windows Phone 10). We got an interesting glimpse into how Huawei thinks, and what it is up to. The crunchy details are presented below, but it comes down to three words: Differentiation. Innovation, Focus.
Would Huawei commercialize the MediaPad X1 in the U.S as WiFi-only?
The context for this question is that a number of Huawei products are not available in the U.S because their modems have not passed the Federal Communications Commission (FCC) certification. There’s actually a WiFi-only version of the MediaPad X1, but at the end of the day, Huawei believes that customers were happy with it because they were able to use it mainly as a (huge) phone. It’s not for everyone, but this is the best user experience for that device, and one that is not really prevalent in the West because people don’t like to make phone calls with a very large 7-inch device.
What is the strategy to sell more products in the U.S?
"DIFFERENTIATION. INNOVATION, FOCUS"Huawei fundamentally believes that it has to get “closer to the customer”, which means that it is currently trying to avoid carrier sales channels for its Premium products. “Traditional channels don’t like new stuff”, says Shao Yang. This means that Huawei will continue to push its most innovative products via its website, and provide support directly (Huawei still has entry level products as part of its mix).
“e-commerce provides more speed and flexibility” he adds, and this will allow Huawei to innovate at its own rhythm, without the inherent lag induced by having carrier partners approve software updates etc. Huawei could provide faster OS updates because of that.
Yet, Huawei realizes that the strategy will take time: “quality and user experience at an affordable price, is where the value is created” according to Mr. Shao. At no point did Huawei hint that it will start competing in the absolute high-end spectrum represented by $700 phones. Instead, it wants to bring a Premium quality in mid-ranges prices where it can have the most impact (understand “more people can afford it”). The Huawei Mate 2 is sold in the U.S for $299 unlocked, and without a contract.
People need to see and touch products. What is Huawei’s retail presence?
“Premium” quality and design is a concept that is difficult to grasp when you can’t see and hold a device. In the West, most people would think of “Premium” as “high-end”, but it really means great quality for the price in Huawei’s mind.
Huawei recognizes that it is better if people can see and play with the devices to have a feel for them, but it is not about to open stores worldwide. That’s why it had partnered with Walmart last year to promote the Huawei Mate 2 in the U.S market (arguably not the classiest retailer, but it does have reach). At the moment, there is no other partner to be announced, but this is something that Huawei would probably like to expand.
When asked if the company would build “experience centers” of sort, the response was rather indirect and suggested that no such centers are officially in the works.
What about Windows Phones and Windows 10?
Huawei thinks that Android offers a better differentiation opportunity, and that’s why Windows Phone was on standby. Right now, Huawei will not build another Windows Phone device, but is interested by the idea of a tablet that could run on Android and Windows in a dual-boot configuration.
Since Android is the platform of choice for Huawei, what about a “Pure Android” device?
This is a fair question, and since other Chinese phone makers (or even Motorola, NVIDIA…) are doing this quite successfully, would Huawei do it?
Once again, it comes to differentiation and the answer is “no”. Huawei believes that it can bring enough to the table with its Emotion UI graphical interface to please users. Huawei doesn’t take the pure Android option off the table, but for now, Emotion UI remains their primary UI platform.
I personally think that Emotion UI as seen in the Mate 7 still has some ways to go in terms of design, but after talking to the Huawei design lead and after seeing some of the things they are working on in terms of UI, this is going to an interesting place. Much like LG has managed a huge UI design jump from the G2 to the G3, Huawei is poised to make an even bigger jump in their next line of products.
How will Huawei shake off its image of budget phone OEM?
Like other OEMs, Huawei has traded in the budget phone market and in the U.S, this may be how most people know the brand – if they know it at all. Ultimately, this is something that Huawei wants to shy away from (“high sales of bad phones can destroy your brand”, says Shao Yang), and the only reliable way to change the brand perception by making products that people love [instead of spending in marketing], says Shao Yang.
"HIGH SALES OF BAD PHONES CAN DESTROY YOUR BRAND"Although Huawei’s marketing budget has increased with their overall growth, Huawei is often seen by observers as “not spending enough”. This is a highly debatable question, but Huawei thinks that their “marketing investment is at appropriate levels for now”, and they are probably right that they cannot brute-force their way out of this. Just look at the final Palm ad campaign to be convinced that this is no silver bullet.
At the moment, and in the U.S market, the FCC approval process for their modems remains the main roadblock. In time, this will go away, and with brisk sales of the Mate 7 smartphone in China (it is out of stock), the company seems pretty busy at home.
What areas does Huawei need to innovate in? 4G? Chips?
Huawei Campus in Shanzhen
Huawei is quick to remind us that 50% of its employees are working on R&D projects, and that its huge campuses are buzzing with engineers trying to solve all kinds of technical challenges. In the Shenzhen campus alone, there are 33,000 employees working on R&D activities. Fundamentally, Huawei started as a network company, so it says that it wants to be the best there. “There’s no excuse for not having the best 4G connectivity” he adds.
However, they simply listen to customer feedback and solve problems as they go. Shao Yang was candid in saying that the mobile phone road has not been an easy one. Huawei’s products started with their share of criticism: too big, too slow, so-so design, cheap materials… but in only a couple years, they have invested heavily in overcoming these problems with a nearly fanatical “bang for the buck” mantra: Adding Value.
The thing that Huawei is interested by the most, however is “synergy” – something they recognize Apple is doing extremely well. Since they build so many technologies from the networks to smart home electronics, they would like to see a way to make this work together better. This is not unheard of for a company of this size, and we will have to see if Huawei can create enough synergy to make a huge difference in actual user experience.
Processors, modem and system on a chip (SoC)
Huawei builds their own SoC, which compete with phone chips like the Qualcomm Snapdragon for example. Shao Yang explains that since Huawei is deeply involved in the wireless networks (they claim nearly half of the LTE infrastructure installation worldwide), building their own phone chip with an integrated modem is vital to the synergy that the company is looking for.
Its subsidiary HiSilicon is tasked to produce these, and the Kirin 925 is seen as a cornerstone product since it integrated Huawei’s latest communication technologies and provides a satisfactory level of performance.
At the same time, Huawei reminds us that it still works with Qualcomm in many phone designs, and that it is not just about competing with Qualcomm and others in the chip market, but it’s about the synergy between the phones, the chip, the network and their brand of Android OS. Having control of the chip is a must-have.
The Premium phone market is so tough, why even go there?
Shao Yang’s answer is absolute: “Huawei would lose by doing that”. “we’re not a low-cost company”, he adds, pointing out that with half its staff working in R&D, it would be impossible to sustain its phone business by building low-cost products. It’s just math if you think of it: 10% of the company’s revenues go back to R&D at Huawei, and that’s more than the gross margins of real low-cost players.
How important is the wearable market to Huawei? What about Android Wear?
Huawei says Wearable Tech is important to them because Wearables could be a good medium for innovation and synergy between Huawei products. To them, the phone remains the most personal device of all, and adding a single thing to the mix is already difficult, if one wants to add meaningful value.
When asked if they would use Android Wear, Shao Yang replied that his company is focused on “being different”. While not answering directly to the question, it’s fair to interpret that as a “no”, for now. The company plans to have Wearable announcements for MWC 2015, which is just around the corner.
Would Huawei enter new product category? What about a GoPro Killer?
"BRANDS WILL DISAPPEAR"This is a question that comes often because Huawei can build a lot of things that could compete with GoPro, Dropcam etc… which are seen as “easy” higher-margin plays.
Shao Yang points that the phone market is huge but also very dangerous. There are tectonic changes and players will rise and fall, sometime quickly. “There will be very few survivors” he says, and to be one of them, Huawei needs to focus.
“In the next few years, my guess is that you will see (established) brands will disappear” he says.
Conclusion
It was interesting to catch up with Mr. Shao Yang. We have observed Huawei for a few years, and the evolution of their product line has been surprisingly fast.
Huawei feels that its worldwide strategy is working, and it intends to carry it on in the West, including the United States. I suspect that you will hear more about them once the FCC certification process is done.
Although many companies are focused on quick growth and heavy marketing budgets, Huawei has decided not to follow this route. It is an company with an engineering mindset that has grabbed a near-majority of the world’s LTE infrastructure with a simple strategy: add value, make customers happy.
Everyone agrees that this is an uphill battle, but with phones like the Huawei Mate 7 offering a tremendous value for the price (killer battery life, light weight, large display), the Honor series being a hot product in Asia, and a host of new products being planned for 2015, it’s worth keeping an eye on what Huawei is doing.
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