Caixin
Sep 04, 2019 10:00 AM
TECH TALK

Gree, Xiaomi Chiefs in New Wager on Who Can Grow Faster, as Each Struggles for Relevance

Another case of déjà vu lies at the heart of this week’s Tech Talk, in this case the reboot of a bet between two of the nation’s best-known tech figures that made headlines six years ago. This time the pair making the bet is the same, namely Dong Mingzhu and Lei Jun, chiefs of home appliance giant Gree Electronics and smartphone maker Xiaomi, respectively.

While the bet this time around looks strikingly similar to the first higher-profile wager in 2013, much has changed that makes this latest contest quite symbolic. At the heart of things, this latest bet is really a contest between two former highflyers struggling to prove their relevance in a dawning age of artificial intelligence and the internet of things (IoT) where devices talk to each other and perform many traditional tasks without human assistance.

As to who might win, we’ll save my own handicapping for the end of this column to keep people in suspense. But first let’s review both the original bet and its latest 2.0 version.

The original bet came at a high-profile award ceremony for Chinese entrepreneurs where Dong and Lei, both at the top of their games, were being honored. At the time, Dong still enjoyed her status as China’s most powerful businesswoman, based on the big success of her Gree empire known for its air conditioners. Lei was the upstart challenger, having scored earlier success in software and just beginning to try his hand at smartphones that were still relatively fertile ground at that time.

The initial bet saw Lei challenge the more established Dong by predicting his company could pass hers in revenue terms in five years. The amount of the wager was a hefty 1 billion yuan ($139 million). Xiaomi grew at a breakneck pace for the next few years after that, but ultimately hit its own bottlenecks and other setbacks, and Lei ended up losing the bet.

Dong graciously declined to accept the big sum she was owed, and at a major AI conference last week in Shanghai offered a new 2.0 version of the bet. This time she said she would like to make another five year wager, without specifying a monetary amount. A far-humbler Lei reportedly replied that he “would like to try” once again to beat his rival.

Based on their latest financial results, this pair is actually quite similar at the moment in terms of revenue. They aren’t that different in terms of growth either. Gree reported revenue of 97.3 billion yuan in the first half of this year, which was up 7% from a year earlier. Xiaomi was just a shade behind at 95.7 billion yuan, up 20%.

While Xiaomi’s growth rate was higher, it’s still quite low for the kind of fast company Xiaomi wishes it was. By comparison, the much larger Alibaba regularly posts larger revenue growth, including 42% in its latest quarter. And even the troubled Huawei, which looks more like Xiaomi in terms of products, managed 30% revenue growth in the first half of the year.

In search of relevance

With all that background in mind, let’s spend the second half of this column looking at where Xiaomi and Gree fit into the current tech universe, and their prognosis for the future. At the time of the original bet in 2013, I would have said these two companies were like night and day. Gree represented a mature generation of “old tech” with limited potential, while Xiaomi came from a much younger breed of “new tech” with far better prospects.

But fast forward to the present and these companies actually are look strikingly similar despite their very different origins. Put simply, these two are on a semi-collision course as the tech world converges around a much-talked-about ecosystem of devices like air conditioners and smartphones that are part of the internet of things.

In that system smartphones might represent a portal for people to instruct their home appliances like air conditioners when to turn on to cool down the house before the owner gets home. Or the phone might even take the initiative on its own by, for example, noting its owner planned to have dinner at home that night based on her calendar setting and instructing the air conditioner to turn on an hour early to cool the place down.

The fact of the matter is that both Xiaomi and Gree have treaded into each other’s territory already with this kind of future in mind. Xiaomi has rolled out an array of “smart devices” like air purifiers and wrist bands on its own and in partnership with others. Gree rolled out its own smartphones at one point, and is no doubt hard at work trying to embed artificial intelligence into its appliances to make them smarter.

One last thing worth pointing out is that, in my view, both Dong and Lei represent past generations of tech entrepreneurs who were once cutting-edge but are now getting a run for their money from a newer group that is more tech savvy. I would call Dong part of China’s generation 1.0 that rose to prominence on such lower-tech goods like home appliances and TVs. Lei is part of generation 2.0, which includes early internet leaders like Alibaba’s soon-to-retire founder Jack Ma.

In that paradigm, I would say the next decade probably belongs to a generation 3.0 of newer whiz kids like Zhang Yiming, founder of the company Bytedance that is the brains behind the popular TikTok short video and Toutiao news apps.

That still begs the question I raised at the top of this column that I promised to answer, namely who will win the latest bet between Dong and Lei. I could be snarky and simply say “Who cares?” since it’s quite possible both companies could be irrelevant by then. But in deference to two people I quite admire, I would probably put the odds in favor of a Xiaomi that is starting to rebound after a difficult period and seems to have a firmer grasp on how an IoT future should look.

Doug Young has lived in Greater China for two decades, including a 10-year stint at Reuters, where he led China corporate news coverage. Send your questions or comments to DougYoung@caixin.com

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