Chinese tech firm LeEco made its biggest splash on American soil yet yesterday with the announcement that it's acquiring Vizio, the biggest US maker of TVs, for $2 billion. You might not be familiar with the name, but in LeEco's short history the ambitious company has achieved one of the fastest and most flamboyant rises to prominence so far in the Chinese tech space, going from streaming video site to aspiring self-driving car pioneer.
Although LeEco has had a whirlwind 18 months, its beginnings were much more humble. The Beijing-based company went public as Leshi Internet Information & Technology Corp in 2010, at which point it was focused on Letv, a Netflix-style video website founded by Jia Yueting and Hank Liu in November 2004. The service wasn't particularly popular in China for most of its existence, but picked up significant steam in the last couple of years; the company then decided to enter the smartphone business, striking deals with directors like Zhang Yimou (Hero, House of Flying Daggers) to create content for its devices. It was around then that Letv caused controversy by, of all things, comparing Apple to Hitler.
Attention-seeking statements aside, the phone launch demonstrated Letv's ultimate goal — to be an expansive hardware and software company where you'd buy one product to use it on the other. Co-founder and vice-chairman Liu tells The Verge that this involves seven "sub-ecosystems" including electric vehicles, smartphones, TV, sports, content, cloud and internet technology, and online finance, all with the guiding principle of "complete ecosystem, groundbreaking technologies, and disruptive pricing."
LeEco promises "complete ecosystem, groundbreaking technologies, and disruptive pricing"
And it's this focus on ecosystem that led the company to rebrand itself as LeEco early this year. "'Le' means 'happy' in Chinese, so Letv is 'happy TV' — it's very famous in China," LeEco SVP Winston Cheng said after yesterday's Vizio announcement. "But our chairman decided that the strategy is no longer just about the online video side, so we had to change our name. So in January of this year we decided to have a global branding exercise. It's a new brand everywhere."
The ecosystem-focused approach may sound familiar if you've followed fellow Chinese upstart Xiaomi, which is a smartphone seller at heart, but puts its brand on various products from electric bikes to rice cookers that may or may not slot into an Internet of Things ecosystem. LeEco's strategy is different, however; the company started in the realm of video content, and looks to differentiate itself through entertainment. It's invested in creating and licensing content like movies, sports, and music, and also owns the means of distribution — where it goes further than most entertainment companies is in creating the hardware that the content is consumed on, too.
Smartphones — which LeEco calls "superphones" — are an unsurprising entry point here. The company's most recent flagship, the Le Max 2, is of a piece with other high-end Chinese devices, offering high specs inside an iPhone-aping body for a relatively low price; the most surprising aspect of the phone's design is that LeEco went out of its way to beat Apple and Motorola to the punch by omitting the headphone jack in favor of USB-C. It also has a compatible VR headset, as you might expect. LeEco only sold around 3 million smartphones last year, but plans to raise that figure to 15 million in 2016.
"This deal is much bigger than just selling TV sets."
And while TV manufacturing isn't a business that many companies want to get into these days — just ask Apple — it's another obvious part of the plan for LeEco. But although the company has been producing sets for a few years, it's still early days. "Our TV business sold 3 million units last year — that's roughly half the size of the industry leaders in the Chinese market," says Cheng. "But that's significant, because our channels were 100 percent online sales."
Buying Vizio, on the other hand, instantly makes LeEco a major player in the US market. "We could have chosen to use the $2 billion to enter the market organically," says Cheng. "But I think we see significant risk there. [Vizio] is a 14-year effort to build an excellent brand, to have the channel built, a great product. And from that perspective, we think it's a lot more synergistic to partner this way, rather than fight it out in the market." The acquisition goes beyond pure retail presence, too. "This deal is much bigger than just selling TV sets," says Liu. "We plan to incorporate our ecosystem to Vizio products, including content, applications, cloud services and much more."
Vizio, meanwhile, now has a greater opportunity to expand outside of the US. "One of the things that excited us most about the acquisition is LeEco's global resources and their global access, and their desire to continue to push that even further than it is today," says CTO Matt McRae, who also sees potential for LeEco's content strategy to improve Vizio's products at home. "Content is a big part of what we think is important moving forward. Not just on the TV — across the screens — but specifically across the living room. So content integration is a lower-hanging fruit. Some of the backend integration could be as well. LeEco has this huge global CDN [content delivery network], as they discussed today."
There's a certain elegance to LeEco's vision, where it funds a ton of content and then sells you a phone and TV to watch it on. But that's not to say the company isn't prone to wild flights of fancy — quite the opposite, in fact. The most prominent of these is its attempt to become a force in the automotive industry, which we first heard about at CES this January with the extraordinarily hyped launch of Faraday Future's concept vehicle — LeEco is bankrolling the US company and is on board as a technology and content partner. LeEco is also collaborating with Aston Martin on its RapidE electric sedan, and more recently announced plans for an autonomous electric car of its own. And an Android-powered bicycle with 4GB of RAM.
Despite a valuation of around $14 billion on the Shenzhen stock exchange, there are questions over how feasible it'll be for LeEco to make money out of its various hardware endeavors, and why it wants to get into each. For the next three years, Liu says that LeEco's major focus will be "synergies among the 7 sub-ecosystems and [how to] vertically expand beyond them, along with globalization." As if that wasn't ambitious enough, Liu adds that the company's goal is to reach the top three in every industry that it enters.
LeEco intends to reach the top three in every industry it enters
But even if you put aside the vast amount of spending required to make a mark in the car industry, TVs and smartphones are notoriously low-margin businesses, so there has to be a reason to get into them beyond serving as a vessel for content — otherwise, why not just put the content everywhere and let other manufacturers take the hit? And Jia has funded much of the company by using his own personal stake as collateral for loans, which is a high-risk strategy to say the least. As for his Nazi-laced attacks on Apple? "He's learning very, very quickly," says Cheng. "No harm intended, but not knowing the political sensitivities and social sensitivities here in the United States."
We're not talking about the most orthodox of companies, then. But LeEco and Jia could never be accused of lacking ambition, and the least you could say about Vizio's new owner is that it's likely to bring in an exciting new chapter for one of America's most quietly successful hardware makers. And let's just imagine the best-case scenario for a second: before you know it, you could be watching beautifully shot martial arts movies on Vizio screens while your self-driving car speeds you down a highway.