Many brands like to talk as if they are disruptive, but few genuinely are. OnePlus, however, has certainly made its mark on the global consumer tech market. Entering the smartphone scene only four years ago, in 2014, OnePlus seemingly came from nowhere to sell more than 1.3 million units of its first handset.
The special sauce was simple: a combination of competitive specs and even more competitive price (just £250), then sell it direct to the customer, cutting out the middlemen. Major players such as Apple, Samsung, LG, HTC and Sony were all forced to take notice, despite co-founders Carl Pei and Pete Lau, both from Chinese consumer electronics company Oppo (Pei was a marketing manager), being practically unknown.
Since then the company has shifted millions of OnePlus handsets, doubled revenue from 2016 to 2017 to $1.4 billion, producing seven different models in three years prior to the imminent OnePlus 6, and gained significant footholds in rapidly developing markets (it hit 48 per cent of the premium sector in India last year). Though its global numbers are nowhere near the volumes enjoyed by the likes of the competitors listed above.
Born in 1989 in China, Pei – the spokesman of the two founders – is just 28 years old. He’s also a drop-out, failing to complete his degree at the Stockholm School of Economics leaving in 2011 to work full-time in the smartphone industry. He used to wear the same t-shirt every day, swapping between nine identical garments, and opted for Airbnb accommodation wherever the OnePlus whirlwind took him.
I met him in London one morning last week to discover the amiable but quiet Pei was starving, his stomach audibly rumbling having only snacked on a few almonds and an espresso that morning. But his hunger belies his one weakness: Pei is a foodie, seeking out the best restaurants in whatever city he visits. Maybe he’s trying to cut down the calories, compensating for a post-launch blow-out?
OnePlus has done well from launch. But you didn’t have such grand expectations for your first phone, did you?
Yes. I remember Pete [Lau, co-founder and CEO] and I talked about setting goals for the first year. We said if we sell 30,000 phones, we will have proven our model. It’ll mean that people out there in the world actually care about what we’re doing. If we sell 50,000, it’ll be a really good year and 100,000 would be like a moon-shot, a very difficult to achieve goal. We ended up selling almost 1,000,000 phones that year. So, it was a blessing and a curse: it went really well, but that set us up for arrogance and failure for the year after.
What arrogance? What failures?
Building the global team, we didn’t have a lot of resources, we didn’t have a brand name, and it was really hard to hire people. It’s a brand new company no one has heard about, based in Shenzhen, and we were trying to hire all this global talent to come here and work for us for lower pay and for longer hours – so, obviously, no one wanted to join us. But after we launched we got so much attention that the resumes started pouring in, and we thought just our hard work and our intelligence created something out of nothing.
That arrogance made us lose track of a lot of things. We started caring about winning awards or getting media recognition instead of realising that we might have just been at the right place at the right time. Our team had some smarts but we’re not the best people in the world probably, so that realisation came later when in 2015 we released two products that weren’t well-received along with some marketing that also wasn’t well-received. So, it kind of brought us back down to earth.
The Smash The Past campaign? [A OnePlus promotion at the time gave the opportunity to 100 “winners” to smash their old handsets to get a 16GB OnePlus handset for $1. Unfortunately, eager punters started smashing their phones well ahead of the promotion’s start.] But you have a background in marketing. Why the mistake?
When we started this company I was 24, so I wouldn’t say I had any background. When we started OnePlus, we knew that we were late to the industry and there were already a lot of brands out there. So we knew we had to be different. We wondered if there was a possibility of creating a brand that also feels more like a club or like a religion? But if you already subscribe to a religion and you want to change religions, there’s a switching cost or an initiation ritual – and so that’s where we got the idea for Smash The Past. So, if you’re already subscribed to another brand, then to join us, you have to sacrifice that brand. I think for a company in it’s very first year, that was quite an okay campaign because it gained us a lot of attention and it really put our attitude on the map.
The year after, we became overly confident. The first phone in 2014 we dubbed the “flagship killer”, the OnePlus One. In 2015, we released the phone dubbed “the 2016 flagship killer”. So, we were like: “Okay, this one is so good that it’s going to be a flagship killer even next year”. I think we were overly confident and arrogant.
The very first OnePlus cost £250. The OnePlus 6 will be much more expensive, possibly approaching prices of the top-tier. How does that marry up with the original mission of OnePlus?
Our approach has never changed. In the very beginning, we wanted to come out and create the best Android flagship, and it was very important for us in the beginning to only create flagship phones. We first look at what are all the things that should be in a flagship phone that we feel will add up to a great experience, and that’s it. Then we look at the cost of producing that product and we take a fair margin on top of that. Over the past couple of years, people have been requesting more and more out of their phones. Larger displays, faster phones. Also the component cost in the market has increased across the board. So, our mission has never changed, it’s still the same, it’s just that the market is different today. So, even with the OnePlus 5T or the upcoming OnePlus 6, it’s still going to be priced very fairly.
The vice president of hardware at Google says we have reached hardware parity with mobile phones, and therefore their focus is going elsewhere, such as software. Do you agree?
I agree on a feature level where we all have access to the same components. We use the latest Snapdragon chipset, other companies can also use it. In the early days of the mobile phone, I think people were ticking boxes: does it have this feature or that screen or does it fulfil my needs? Today, all these features are more or less the same across the board. This means that every brand has to focus much more on nailing the details because now everyone is 80 per cent of the way there, so if you want to go from 80 per cent to a 90 per cent product, that’s where the competition lies. We’ve been focusing a lot on getting the last 10 to 15 per cent right instead of pivoting to something else like software. Software is not our core competitive advantage at this moment.
Users have been very positive about our quality and design, so with the OnePlus 6, we spent a lot of time on the glass. A lot of people I’ve shown it to, they couldn’t tell. They thought it was metal because of the way we treated the fit and finish. In 2015, we experimented with a ceramic phone, but ceramic is heavy and brittle, so we have replicated the same look and feel as ceramic but with glass. So, you get all the benefits of ceramic, the beauty of the look and feel, the how it feels, the sheen, but it’s not as brittle.
Upgrade cycles are stretching to the three-year mark. Do you think an aesthetic upgrade like a nicer case back is enough to make people part with an already perfectly good working phone that does everything they want it to do?
Apart from the hardware, we put a lot of emphasis on the software and how it fits together. So, our software people say it looks like the same version of Android that Google makes, but we’ve done a lot of testing under the hood and optimisation to make it as fast and smooth as possible. If I can just provide one example: smartphones, they’re processor has a lot of cores and normally it doesn’t use all of them. They’ll intelligently decide how many to use at any given time. But we’ve tweaked it so that when you’re launching an app it fires up more cores, so just for two seconds the app launches really quickly, and then it slows down again. We’ve done more than 200 optimisations like this on top of Android that you won’t see, but you will feel it’s a faster and smoother experience.
But, yes, we’re at a point where smartphones is becoming a mature market, especially in the western markets. The growth will slow down, but that’s a perfect opportunity because there will still be people who care about the details and care about really good product. There will also be people who don’t care about it. As long as we capture the people who really care about these things, we’re fine because we’re only focused on making flagships, and that’s were all the value in the market lies. Again, look at our business model, which is creating a really good product and giving the user a fairer price. If you say that there’s parity, then here’s this new brand creating a really good product and it’s selling it at a fairer price to me, why wouldn’t I switch?
But the reason we’re seeing people changing their phones less and less is because though it’s nice to have an app launched a split-second faster, your average consumer won’t notice it in this age of incremental differentiation. So how long can you continue to do this?
So far, it’s working for us, and we’ve already consciously said no to a larger chunk of the market who are indifferent to their phones. We’re very happy that other brands are much better at catering to these customers than we are. Overall, if you look at the entire market, the amount of competition is actually decreasing. So, as long as we can stick to really clear positioning and keep delivering year after year, as the market further consolidates and as long as we don’t make a major mistake and create a bad product, you will only see us grow.
You’re releasing two new models per 12-month cycle. Can that continue?
Right now, the vast majority of our customers are still purchasing phones online, and these customers have a very different profile: they’re very tech-savvy, they know what all the latest specs are and all the new brands. They are also less patient. You can see a clear difference between a lifecycle of a phone online versus offline. Online it ramps up really quickly and after a few months people forget about it because the next big thing is out there already. Offline the phone can live for much longer because the consumers are less swayed by the online news, but more by the salesperson in the store. So, right now, since our business model involves a lot of online consumers, it’s smarter for us to have two products a year. I think this will change, but it’s not going to be that quick. In a couple of years, when we have, say, 60 percent of our customers offline, then we can consider another strategy.
You had a stab at virtual reality launches, then dropped this approach. Why?
It’s really important is to understand what’s core and what’s noise. In tech, every couple of years, there’s something else that’s newer and shinier than what you’re currently working on. A few years ago, it was drones, and then it was VR and now it’s probably AI or AR. When we were looking at VR, we just never thought that if we were to extrapolate five years, ten years that we could see us using a substantial amount of VR in our day to day lives. What I will observe now is that a lot of people who got these VR headsets, they’re just putting them on the shelf now. They’re not even using it that much anymore. I was watching Google I/O the other day and they didn’t really mention VR either.
The problem with asking an online community about design choices is that it’s only the minority of that audience which really cares that actually bothers to reply. Is that a problem?
You have to parse it. Sometimes consumers cannot articulate really what they want, so you’ve got to find the underlying meaning of what they want. People said in the beginning when we released the OnePlus One, ‘Don’t make a phone that’s bigger than five inches,’ and we understood this as, ‘Don’t make a phone that’s uneasy or clunky to hold’, and not necessarily that we have to have it within a certain size.
Are you still living out of suitcases, staying in Airbnbs and buying multiples of the same item of clothing, or have you settled down a bit now?
That was a phase [laughs]. I still don’t like to buy a lot of things because I have to travel a lot, and I still have my suitcase. But just wearing grey t-shirts and only living in Airbnbs, that phase is over now.
Before university you developed a generic MP3 player then sold it to the public. Did you always want to make hardware, even when you were very young?
I wanted to be a kung fu martial arts teacher. I really liked Bruce Lee when I was a kid. But because I grew up in Sweden we travelled to China, and I saw that China was completely different to what [was portrayed] on TV – as a poor and developing country. There was a lot of successful people there, but they hadn’t had the same level of upbringing or the same resources I had. That was a turning point, I think. I thought, I’ve got to do something with my life. And I started thinking: what’s going to happen in the future? Well, there’s a lot of Indian people, there’s a lot of Chinese people in the world, and they’re going to work really hard, so if I compete with them on studying or working really hard, I’m probably not going to be able to make it, so I have to think of more innovative ideas.
Where are you hoping to take OnePlus in the next ten years?
Our vision statement is to build a healthy company that endures. When I showed it to colleagues, they were like, “This doesn’t sound very inspirational. It doesn’t sound like you’re going to change the world. Why isn’t it like make the world more open and connected? Why is it just survive?” But if you’re able to survive for 50 years or 100 years, then look at all the companies around today they have been surviving for so long – they’ve all gone on to change the world. If your vision statement is to focus on disruption and the next flashy thing, that might lead your company in the wrong direction.
We see this all the time, you have this hyped-up company and a few years later they don’t have any revenues. For us, if we survive for 50 years, then we will have inevitably changed the world but also survived a few waves of technological change. So, the short answer is we will stick to what we’re doing and survive for a very long time.
What if one of the major corporations wants to buy you out? Is OnePlus for sale?
First of all, it will be very expensive because, unlike some companies, we’re profitable. Our revenue numbers are quite healthy as well, and our growth’s quite healthy. Whether it’s about me staying for 50 years and always being involved, I don’t know. If we can build a team that’s better than us and can steer this company for even longer, then that’s perfect – but selling conflicts with building something enduring.
If you weren’t running OnePlus, what would you be doing?
I would probably be running a bar or a restaurant, or even a youth hostel somewhere remote where you can hear stories from travellers, that’d be good. Maybe when the team at OnePlus can do my job better than me, I can take a little time off.
Hang on, so when the company can look after itself, you’re going to go off and run a hostel somewhere?
Maybe [laughs], that’s the current idea. But long term I want to explore how we can augment the lifetime of humans, because it’s not about creating immortality, but it takes a long time for a person to learn. It might take 40 years for a person to start really contributing to society, and then from 40 to 60 it’s only 20 years or 25 years that you can really work. But if you can expand that by just ten or 20 years, I think the progress of technology and innovation would happen a lot faster.
If Einstein could have lived for ten years longer, or Steve Jobs for ten years longer, I think it would have been a really beneficial thing for the world. That’s something I’m really excited about, but it’s probably ten or 20 years away for me to start working on that.
Advances in artificial intelligence would help with that. Everything seems to be going that direction. But you’re hardware focused. This surely can’t be something that OnePlus ignores?
I would say it’s kind of the Wild West right now of what AI actually means. In the smartphone industry, people would now say our camera is part of the AI, and they back it up by saying: “OK, it can recognise what scene you’re in. If it’s night time, it’ll optimise the metrics for a better low-light shot.” But that has existed since the compact camera. So, it’s a little bit misused. But we’re using certain elements of machine learning in our phone: the front camera can unlock the phone using face unlock and this is done by analysing a lot of scenarios and faces through machine learning. So it has elements of AI, but we don’t want to come out and wave a flag saying hey, we’re leading in AI.
Long term, we’re excited about the things that, for instance, Google are doing. They have the assistant actually book a restaurant, and even though the person on the other side wasn’t a native English speaker, and misunderstood some of the terms, the assistant still booked the reservation. So that’s really exciting, and we have to look at the practical reality as well.
And the data implications…
Exactly, so we have to ask ourselves, who can create a better AI product, Google or OnePlus? Who has the more suitable resources to create that? Today, at least, the answer is quite clear, so it’s not something that we should be spending too much time on. And we work closely with Google, we’re one of the first companies to come out with the Android P data, so why not just utilise their technology in our products? In the long term, who knows?
You’ve achieved much at a young age. Do you now set yourself even higher goals or just enjoy the ride?
Actually I feel like I’m still struggling a lot, and it’s because in the beginning we had a small team, quite easy to manage. But when things scale – we’ve got more than 800 people now – you have to scale up your abilities as well. It’s not that easy. And some things come with experience and time. I’m nowhere near achieving what I’d like to achieve as a leader or as an entrepreneur.
You don’t hear many leaders of companies admitting things like that…
I still think we all have a long way to go. If we can become really strong and really good, then what other people are doing isn’t going to be relevant anyway. It’s a culture that we all share at OnePlus.