Podcast transcript #83: Building a Wearable as a Service solution from China in the smartwatch industry
Find here the China Paradigm 83 and learn how our guest developed a Wearable as a service solution from China to build up an innovative people’s safety device from China. At the same time, you will have a better understanding of how to make a successful fundraising in China and other very useful topics.
Full transcript below:
Matthieu David: Hello everyone. I’m Matthieu David, the founder of Daxue consulting and its podcast China Paradigm and today I am with Laurent Le Pen. You are the founder of Omate, a Wearable as a service solution from China. You have been in China for 12 years now and 12 years is a cycle in China. You arrived at one type of animal sign and you are back to this sign again; 12 years and you started your business with something I am very, very interested in and I think a lot of people will be interested in, the Kickstarter.
In 2013 in something which is a difficult thing to do as an entrepreneur; hardware, products and something which is very sexy but few people deliver, wearable as a service. We are more used software, right, and you are offering a wearable as a service solution from China. This is a watch. Omate is a watch. You went from fashion to actually a working element and you switched from something which is designed for fashion to something which is designed for kids and lone workers, it’s a people’s safety device from China. I had to Google what is a lone worker to understand what a lone worker is and I believe you are going to tell us more about it. On Kickstarter you did a $1 000 000 fundraising in China in 2013, if I’m correct; at least that is what is on your presentation which is very, very impressive. So, I believe you have a lot to say and you are calling from Shenzhen and you have been in Shenzhen for 10 years or 10-12 years. You have spent your life in Shenzhen. Thank you very much for being with us and what’s Omate today; size, revenue that you can share, number of people working in the company and what do you do?
Laurent Le Pen: Thanks for having me, Matthieu. So yeah, we are obviously in Shenzhen. We have a small audit or meeting room. So yeah, Omate; we have been around since 2013. Previously actually I come from the mobile phone design industry. I was working for Philips mobile in France and I worked from Paris and in late 2007 the company asked me to move to Shenzhen, but whereas I was an altar for our industry like consumer electronics and telecom or mobile phone design and back in… 7 years after like in 2013 I started indeed with the Kickstarter and it was pretty new and today… so we pivoted a few times as a start-up in that wearable world, but today we focus on a wearable as a service solution from China, as you mentioned.
We kind of created it to explain what we do and basically, we use our Smartwatches, so the hardware and telecom Smartwatches connected to the telecom network over 4G and we focus on people who need protection, it is a people’s safety device from China. So, that allows us to basically cover several segments that going from the kids; you know like this kid watch from 5-10 years old which are likely used to locate or to communicate over a video call with their kids and then I would say the opposite of the live spectrum; like the 70 years old and above whereby using the same adware we designed a new software and we connect it to some services, especially with the insurance companies and telecom companies. So, in that way we can basically when people press the emergency button, we will extract the GPS location and we will trigger a video call with the professional call center. So, that’s a real professional service, right for the kids and it’s more like; you know as a free service through apps that the parents can locate their kids and in between we have this segment called the lone workers where basically people working in an art environment or any environment where they can be at risk because they are alone so it can go from security to people working in construction, transport, utilities, etc.
So that’s the three segments today that we cover, but before that, we have been shown different processes and actually, our very first model was you know as a sports watch and after we moved to fashion and finally to kids and then with the seniors today which represent about 70% of our revenue. So, that has been a lot of change and to answer briefly your question; so, today we have 12 people full time here in the R&D side in Shenzhen and we have a support team in Hong Kong and in Europe and in the US where we can like ship out our customers and locate them because most of our business lives in the US and Europe especially for the seniors and lone workers and for the kids it would be more in Asia.
Matthieu David: I see. So, I saw a smile when I was saying fashion; fashion device, initially. So, can you tell us more about the story? You began your idea when it was a Kickstarter and what was it exactly for Omate and for the smartwatch?
Laurent Le Pen: So, our first product was really a coincidence of business; like we were designing smartphones and we are still today like Android experts and that’s where we come from so that is our DNA. Then we started working on a project called ODOmate which was kind of sport watch that you can wear where you cannot bring your expensive or smartphone so in 2013 that was the very beginning of the people having these tablets and you know like big smartphones that we all have today; like over 5 inch and even at that time I-Phone was still a relatively small phone. It was a 3.5 inch. So, something like that; like I-Phone 4 and then it was also the beginning of the smartwatches. So, we decided to create this ODOmate project to, you know like trying to sell it to the B2B customers and no one really saw the value of it and said, “It’s too complex” or, “It’s not yet ready” or so on. So, I said, “Okay let’s do it.”
From ODOmate we created Omate, a wearable service solution from China, and because we had to give a name to that. That was our company name and it was a digital device which was a watch; a smartwatch or 3G watch at that time. We decided to call it a True Smart because compared to other smartwatches it did not need to be paired over Bluetooth. It could be smart by itself by connecting it to the network which was quicker. So, that was really unique. It was a first Android smartwatch and we had Google looking at us like, “What are you doing? You are not allowed to do this and that.” Anyway, we launched it on Kickstarter and very quickly we did a $1 000 000 fundraising in China so that was like… the million dollars wasn’t important. What was the most important was the 5000 users and we were used to dealing with you know like our B2B partners.
We had to deal with 10 customers or 12 customers or something like that and if they are a large company or small, medium enterprise, but we are at 5000 and we were becoming a consumer brand. It was a totally new game for us and we did pretty well because we did it on all… not everything on time, but honestly quite well and we did all of them and it was a good experience to become like suddenly having the spotlight from the press or from you know like the consumer side and very quickly we weren’t very legitimate on the sports segment. You know you have like the Polar, you have the Garmin and you have these very great companies and very good sports watches. We also understood that what we were doing is very geeky and exactly what we were presenting, actually.
We also… at the same time the other companies who had just started, maybe 6 months a year after, you have like the Apple watch, you have Google coming with their version of Android-ware so it was a time for us to differentiate and that’s what we were thinking like, “Technology is what you carry, but fashion is what you wear.” It is true. All these early devices were really designed by like engineers with no taste of fashion. I mean there was no fashion designer behind that while the watch industry is much more like into style and into diversity about your look and what you wear. So, we did this little adjustment or pivot to move to fashion and it was too easy because they also… everyone did the same maybe 6 months later; Apple, Google. They all came with their own fashion partnership and much bigger than what we could do. So, that’s where it led us to move to a wearable as a service solution from China that we do today and I am very happy about it because it allowed us to survive in that world.
Matthieu David: As a Kickstarter what did you emphasize on for people to spend at least $200 because if I count right, you did a $1 000 000 fundraising in China and you had 5000 people and so it’s about $200 and it isn’t a small amount. They had to trust you. You don’t have the product. What did you sell for them to buy? I understand it was a sim card. You insert a sim card in the watch which is not connected to Bluetooth and you can go out only with your watch and not with your phone. With the other watch you still have to connect both of them, if I understand well, but what else did you provide? I see that you can provide emergency calls; maybe it was not an initial feature. You can see the clock, of course, the time, but what was the initial value proposition?
Laurent Le Pen: See, it is more about we have to think back into the context wherein 2013; so, 6 years ago there was no real smartphone at that time. There were only a few brands like the guys were doing Pebbles. They were doing like E Ink and black and white, Bluetooth watch and it was very good. They were like doing this kind of you know like shin-band which were also very basic giving you like steps and the time and steps and notification. What we were bringing to the table with the true smart was already revolutionary. We were putting almost like a smartphone on your wrist, so you could run almost any kind of app you wanted. It was not the intention, but it was more like a developer addition.
So, that’s why we got and we could capture at that time the developer community you know like Android developer community and many people like us actually and many people like Omate engineers where we were like an engineer, Android software-based people and so, people that could check about IS; that’s all. It worked for us. They could see that we were really involved in the industry; in the mobile phone design industry so I was not coming from another industry. So, I was not like from the oil and gas industry and suddenly decided to do like a wearable as a service solution from China with Android. We were people who were already pretty involved in that environment. We had the credibility and I think that helped to gather some backers to sift out our product of Kickstarter at that time.
Matthieu David: You say the people who buy on Kickstarter are that geeky, basically? They will look at your profile, they will listen to where you come from, they will trust you because of who you are and more than the product you described?
Laurent Le Pen: It is definitely the product, but I think it is a lot bigger than the product. You look at the team, you look at how we communicate; we are really B2B guys. We are not B2C people. We are not a consumer brand. We are like a small start-up. We are worth $1 000 000 when we were just a 6-month old company. So, we just had a prototype and we invested our own money. So, we could see that we had a working prototype and then the press; it is thanks to the press. We had no PR, we had no influence. We didn’t know anything about that. I guess it didn’t really exist at that time, but it’s like a snowball effect.
After I think the first day, we did a $100 000 fundraising in China and we reached our goal after that and after 30 days of our company we got $1 000 000, but that’s a long time ago and we had also a very small budget on marketing. We had zero. We just had a video. This is not possible today. Now we do or when we launch our new product; a limited edition we do it differently, but we spend totally different. It is much more professional when you launch a Kickstarter or Indiegogo nowadays; much more.
Matthieu David: How much did you have to invest to get the prototype back into the team from your own money?
Laurent Le Pen: We invested about… me and my partner at that time; Jack and I spent 50 000 each so it was already an investment of $100 000, but that project was in the pipe for us to sell to the company so it’s just because we could not find anyone to invest or to launch the product in production, but the prototype was half-done. We had like some wires and I’m still into that. 6 years after, I am still into that. So, we have like this kind of prototype phase and it was like what we call in a pallet run number 2 when we announced and then we did a pilot run and after we did a mass production. So, the backers of 5000 helped us to move to production, but I was not feeling it was that big at that time. Today I mean it is great, but the most important was not like the amount of money. It was really like the fact that suddenly we had a community and people looking at our product.
Matthieu David: How easy was it to find the factories for the product that you work with? How many did you meet? How many did you work with? Could you describe a bit more about the challenges and on the opposite; maybe it is easier than what people expect.
Laurent Le Pen: So, from our side, it is very special. I was already there in 2013. For 6 years I was in Shenzhen and I had multiple like factories I was working with for phones and so it was very easy for us and that is probably the part where giving the most credibility to our audience is because they could check that I was already delivering products in the past that before you know working with Phillips, working with some carriers/operators worldwide so we had this expertise for a long time so for me, that was an advantage. We had the factory; we had all our supply days along with the components we were using. They were all qualified by us so it was very different from people who are designing for probably in the US or in Europe a device and then it’s like a nightmare because they arrive in Shenzhen and they want to sample the product and it’s… so that’s valid for them, but that was a big advantage for Omate is that we have already that in place.
Matthieu David: You have been interacting with them? Did you speak in English or could you describe a bit more on that; how it is working when you were working with them for your own product which is a bit different from when you work for a big company, I believe?
Laurent Le Pen: Yeah, so now we deal with Chinese manufacturers, international people or contractors in English so this is a very stand-out process.
Matthieu David: Okay, but would you move from a big company; I think that is interesting for people who are listening to us. You have moved from a big company which is well-known among factories and so on and you moved to be an entrepreneur to have one prototype. How do factories react to that? Are they willing to help? Are some of them dropped actually with you? Did you have some difficulties?
Laurent Le Pen: No, again we add that it’s just about the network. So, after some years; that makes 12 years so obviously everyone has their own business, their own expertise and some always have credibility in the market and after it is just about… especially when you come with a $1 000 000 order, I mean not a $1 000 000, but at last with 5000 units to manufacture is not to have the people to get interested or to… because after they can. People are smart and people see it like, “This 5000 is just the beginning. Maybe this will move to a million units and maybe that will become the next GoPro”, but it did not, but I have a friend who signed GoPro at the very beginning. He signed just to make the touring and the same; it was like some American guy doing like this little funny camera and he just manufactured it and it became a crazy story.no, it is dropping down.
We all know that the GoPro is not the GoPro that was like 5 years ago, but I can tell you for 5 years that they did like crazy things. They moved to a million units in almost a month. People say that Chinese people are very business-oriented so they are happy to… and especially in the press at that time wearable tech was very hot in 2014, I would say; 2015 many people especially as soon as Apple came in the game and Google and the Samsung and all the brands it didn’t move as well as expected, but it was a new category. So, people were excited to deal with one of the early birds of that segment.
Matthieu David: A step earlier with the prototype and at the prototype stage how did the factories react to your request? Did you do everything by yourself and you didn’t need a lot of factories as only you sell a prototype or you had to deal with the factory already?
Laurent Le Pen: No, for prototyping we had our own workshop and were proposed by manufacturers who would like to provide some early engineering samples of them and we could ask about it and then we have like what we call the SMT’s or some of the technology where you can basically build your boards and the same we got some good support from our partners so no, prototyping is not… it is more like debagging the software. This takes a long time otherwise we are very advanced.
Matthieu David: I see. So, you have three segments; kids, lone workers, and seniors. Could you tell us what do they look for with your product specifically? I see there is a button; a red button to ask for help, I believe it is a people’s safety device from China, but what is the value of your product compared to I-Watch? I have an I-Watch here right now. What value of your product compared to the I-Watch?
Laurent Le Pen: Well, the Apple watch is different like in a way that it’s really focused on every day, everyone and it’s mainly connected to your smartphone so it’s kind of a more complex ecosystem. What we do is very, very focused on the specific segments. So, there are different niche segments like the kids, as you mentioned or it is really like with a very cute user interface and very focused on some, for example, video call and you can end like some voice audio messaging and your location in case of an emergency. This will only communicate with an app so what we do is that actually when we integrate a sim card, you don’t want your kids to receive SMS or people to be able to call your kids directly so we download all these pictures and we only connect to the data. We are integrating new technology to get rid of the sim card, a virtual SIM Card technology, but only to communicate with data over the cheap sites.
So, this is very, very revolutionary for what we are doing on that segment and on the three segments it actually would be applied, but we focus on really making these devices as an IOT product in China and all over the world and it is pure IOT device and for the senior; when you press the button then it’s a very similar service, but it’s a pro version; like the professional version because it will connect – and the same goes for the lone worker – it will connect to our call center and that call center based on an emergency, for example, the grandmother or grandfather who has this watch on his wrist and if anything happens at any time or anywhere he can press the button and then we will extract the GPS location, we will call back with a video call and according to what the wearer is speaking or not we can also check the vital signs, etc. and based on that we can really trigger an action so that can be calling an ambulance, bring; like we have a white list of people which are safe to contact and that can be as a neighbor, it can be someone in the surroundings, etc. It is a people’s safety device from China.
So it is really a customized service for the seniors whereas for the kids it will be more like a generic communication device, but once again these are very different from the Apple watch and also when Apple watches; I think Apple watches is coming on the… the wearable segment as a senior so they are going after this segment with kind of a premium service that the price of an Apple watch is still like and it’s still linked to an I-phone so a complete package plus the service becomes very pricey. We try to make it much more affordable and I think that’s why they are partnering up with us. We are now selecting an Apple watch in their package, but usually, people will select our watch because it’s way more affordable and our complete service is less pricey.
Matthieu David: When you talk about senior people do you sell to those nursing homes or hospitals or do you sell directly to children and senior people while buying for those senior people and then can be in touch with them in case of issues. Is it a B2B business or B2C business?
Laurent Le Pen: Yeah that’s a good question. For the senior and the lone worker, it is purely B2B so we will team up with people who already have like these kinds of ecosystems and are working with that so insurance companies are very good. They are very smart people and they have already this kind of data relative to the age of people and people who could be interested in that. The B2C side of it is that there are some people that would be interested I guess to buy a senior smartwatch, but that would be very similar to the kid watch where it would become like a free application. It is very odd.
I mean I am based in Shenzhen and it would be very hard to sell a watch in the US, for example, and to have someone phoning after which call center and then call it back in Shenzhen and then I have 20 people here to listen to what it is and that won’t work. It is really like for this kind of service it needs to be local or national; as local as possible. I would say the state or the US or a country in France, it worked very well that way in an insurance company in Germany or the UK. They are doing safe motions which are doing a great job as well and this kind of call center service. Medical guardian is in the US as well; one of the leaders actually in that field. They offer a watch with a service because it can operate the call center behind the end of the process.
Matthieu David: The insurance companies work with nursing homes, with hospitals and they would provide you with a watch? They would make the hospitals, nursing homes, buy a people’s safety device from China and then provide the service behind it; the support service. How does it work? There are different parties involved here.
Laurent Le Pen: Yeah so when we did find it feasible with an insurance company and after we can resell the watch to other insurers or brokers or nursing homes etc. the way that we will integrate our adware and software and customize it according to which partners it would sell and after the service will be customized as well on their side. So, it’s a B2B business model. I would say up to B2B, to B2C. It can be like a long way before it goes to the end-user, but that doesn’t matter. In the end, what we want is for them to have some professional and the best service possible.
Matthieu David: So how far do you go into the service? As I understand for the hardware you build the hardware fully and entirely the watch, but what about the software? You are building your software or your watch on Android and I believe you can already use some apps delivered by other companies and developers on Android, but what do you provide with your team of software developers on top of that for the insurance companies which are certainly asking for customized software because I don’t believe they would want to go to another company, develop with other people at the same with you like the hardware. How does it work for the soft part of it?
Laurent Le Pen: So yeah it is a combination of balance. So, everyone is their own co-business. Basically, you can… we are open to many kinds of businesses in our business case. So, if in some cases people have a very good or very strong robust software or it is already integrated into their platform so we will nudge that and so we will integrate it to our baseline software development software and then otherwise we can open a source code and then they can build directly on the root of the device and it has happened in other cases so it really depends as well; very open. On the kids’ side, we have a full solution where we are even integrating the connectivity. So again, in this world and what we are doing and, in our industry, you must be flexible to be able to gain some market shares and to launch a product because that’s how it is. We work with balance and every one has its core business and everyone can bring its own part to the table.
Matthieu David: I go back to the comparison with the I-Watch. The I-Watch is pretty complicated. You have small icons with a lot of software’s and we have to download them… sometimes you don’t even know you have downloaded it and you find it on your I-Watch and I believe indeed for senior people it is a nightmare. It is difficult to watch and it is difficult to see and you don’t understand too many things; too many items. So, how do you structure the watch to be basically easy to be used by those populations which are kids, seniors or people who are at work who don’t want to look for the app for 1 minute before finding it? They need immediately to get the right app.
There are some of our partners who want to provide more things especially for some type of users; probably the younger generation like in the ’60s or 70’s when they were still very active and still up to date and they want to have like, for example like the weather or this kind of information, but we try to have like the rate or we can provide all this information or reminders to take the medicine, but for my favorite one; my favorite software as a wearable as a service solution from China that we offer are really the ones that are following “the less is more” philosophy in a way that it’s straight to the point and it’s super easy to use and there is no extra. You just focus on the mission. So, it depends.
Matthieu David: So, what you are providing for seniors is the watch that always works to see the time and you are adding basically phone and you are adding an emergency call and you are adding a camera if I am correct? So, it is a people’s safety device from China?
Laurent Le Pen: Yeah. So, the main features would be like GPS, 4G, video call, but all combined together with one mission. So, you have a watch, of course, a timepiece, you press a button to turn it on and to save battery life you can see you can display like the time and some basic information; the date and then when you press the red button it will turn on the 4G module and will extract your GPS location and it will trigger video call with the call center. So, these three features altogether will triangulate like your location and we can see where you are if you are able to speak if you can explain the situation and even if you press by mistake it is fine. It is part of the service; the service you pay on a monthly basis. So, the call center will just say, “You just pressed the button. What is the matter?” Then the lone speaker and then people will watch the device and they would just say, “Oh I made a mistake.” “Okay, no problem. Have a good day. Goodbye.” So, it is really like service for any emergency, a people’s safety device from China. It is like your freedom on your wrist.
Matthieu David: Does it take also some data; like pressure or whatever it could do to send it through to the insurance company and say, “Hey, maybe there will be a problem soon.”
Laurent Le Pen: That’s really what everyone is investing it. The grail is really to get like all this kind of information and instead of becoming an emergency device you become like a preventive emergency one, a people’s safety device from China, but you know you want to avoid things. It’s a really complex work, but definitely, this is where we are investing in the next few years in terms of R&D to integrate some which can be combined with some of our adware. It can be like the ad rate monitor. That can provide you with a lot of information. Then you need to combine them with some algorithms and then to analyze its data and finally to extract when this data gives a diagnostic which is accurate and this is not yet the people we are targeting. It’s a niche. It’s a very valuable niche in the niche businesswise because we are very happy if we save lives that way.
Today we do it more like the people especially the seniors; the main issue is that when you reach a certain age you have a high chance to fall and when you are alone and you fall and you are still conscious this is like almost 90% of the time and every day we have like a total of over 50 000 units worldwide in news and these people… you know every day we have people pressing that button. So, every day we have people triggering this emergency and that’s what is pushing us like to innovate and could we predict that? It is not that easy. So, then the chronic disease; this is kind of a different business but very interesting. It is probably a younger audience as well with people who are at risk especially after they had a disease. The patients as well which are coming out of operation, for example, or out of the hospital where you could give… you could offer that watch for several weeks as a preventive device, but again it is kind of a different… there are many people working on that and we are part of them as well.
Matthieu David: I see. You talk about it in the document you sent to us about Omate. You talk about design to position time of 6 months. Is it the usual time it takes to initiate a new product or a new version of the watch?
Laurent Le Pen: Ideally from design to engineering; that is all the typical process. All our design actually we only make our own designs internally so we don’t really do it for others. It happens from time to time that people ask for adjustments etc. it is kind of complicated, but we do it because it becomes complex when you have more parties involved and different kinds of what we use to say here in the greater barrier. We say like exotic components; like components which are not too new or not easy to source locally and here we are in the best place to source any consumer electronic components or mobile phone design, IOT products in China and all over the world so in the adware; silicon valley so it is super easy, but when you add some different components that can also increase the time of design from 6 months to 9 months to one year which is not common to I would say in the west and we design a product, the design phase would take like from design to engineering and to production, would take more from 1-18 months; 12 months to 18 months. In Shenzhen, we can go very, very fast so that is the point probably about that side.
Matthieu David: I’d like to go back to the new product you are going to launch soon. If I understand correctly you told me that this device will not need anymore a sim card and it will still be connected to telecom and to the internet. Could you tell us more about that?
Laurent Le Pen: Yeah so this is something we will announce later, but it’s okay I can share with you. It is fine. You probably heard about it. So, you know that the sim card has been shrinking down to… we had these big sim cards ten years ago and then we went to these mini sim cards and then we got this micro sim card and in your Apple world and in your I-phone; the new I-phones there is something called the E-sim which is still an electronic component. It is 1mm x 1mm and it is very good in terms of integration, but it is still a component and is a component that is relaying to operators and like any sim card is linked to a network and is linked to an operator. Probably when you buy your sim card you have the name of the operator on it and it makes it very difficult for IoT products in China and all over the world to run with sim cards. It is very hard to mass-produce and to try to make it a global product very easily…
Matthieu David: One more thing; it is adding a cost to the customer because they need to buy a new sim card and they need to buy a new plan, right?
Laurent Le Pen: Exactly and that’s why IOT people are not very good yet to sell IoT products from China and all over the world because this product with the service, but in between the enabler of the service you need to have a sim card and if you don’t provide the sim card that really destroys your whole business model. So, for many years we have been trying to figure out all we can you know as a bill with a sim card and to have like a sim card which is like very you know like originally friendly, worldwide friendly. So, with several experiments and finally, there is a new technology called virtual SIM card technology; one of the leaders is actually the Mi-Fi leader. You know this portable Wi-Fi module that you can use as a hot spot for when you are traveling.
So, one of the media is called Skyward. It is a great company based in the US and in Shenzhen and we are teaming up with them. We are going to launch something where we integrate the virtual sim card into a wearable as a service solution from China and we believe that will be a game-changer because it will offer this virtual SIM card technology service so the device will work outside of the box, immediately and more importantly it will be a kind of a global warming. So, it will use as a local network wherever it is in the world. So, we will start first in the US, but step by step we will be able to explore other countries, other regions, other continents by offering the same device which can connect directly out of the box thanks to this virtual SIM Card technology. So, people will remove one step of the people to definitely use our device.
Matthieu David: So, a virtual SIM card technology reminds me of a service that Stripe is offering which is a video IBAN. So basically, you have your IBAN from your bank and then you want an apartment and you want to know this money comes from someone; that person who is wanting your apartment and you are going to give them a virtual IBAN which is actually to be linked to this person. Is it similar that the virtual SIM card technology is like you have your own sim card, but you can multiply actually the location of the sim card with the virtual SIM card technology or is it the hardware which has actually a centralized sim card and you have on each item of the hardware the virtual sim card? Could you tell us a bit more about technology?
Laurent Le Pen: I am not sure about Stripe or on the banking system, but what we are doing with this virtual SIM card technology is really that it will just provide kind of a local number, but it will change automatically because we are only using data. Data has no number. It is no phone number and again you cannot erase it; SMS, MMS, phone call and everything will go from an application just like we do with a WhatsApp call or with WeChat in China. So, it will communicate with the phone, the smartphone for the kids and the watch; the watch will have this virtual sim card where it will be able to connect to any network, but the beauty of it is that it can detect a GPS location and the tower location.
It will connect to the strongest network and this is a game-changer because especially for emergency and people’s safety devices from China or what we call like the PRS; like a personal emergency response service like this kind of device is very important to have very strong connectivity; anytime, anywhere. So, using this virtual SIM card technology it will just connect to the closest tower. So, you would always have and it suddenly can connect to one operator and then in the afternoon and in the morning, you can connect to another one depending on where you are and without affecting the cost because all this cost will pre-integrate into the device. Our goal will be to offer an unlimited data connection to our end user.
Matthieu David: There will be a monthly cost.
Laurent Le Pen: We want to avoid the monthly revenue and so it looks beautiful like that, right? You have revenue, but for IoT products, in China and all over the world it doesn’t really work this way. Again you don’t want the people to have like the trouble to think like, “Okay I bought this device like for $100 and it is a great device and I like it” and after every month I would have $10 per month, but at the end of the year this I $120. It is actually more than the cost of your device. So, what we want to integrate is by negotiating with more units we can provide a better price and we can integrate into that price. So, if I tell you, “Instead of $100 I offer you $129, but it is like unlimited.” I think this is a game-changer.
Matthieu David: But how do you do it? How can you support the service for ten years?
Laurent Le Pen: Of course there would be like any unlimited thing like I am trying to say there is a need which we still have to have like a fair usage of the service so I believe we will start with a one-year service where we say we provide like a one-year unlimited service. Use it as much as you like. After one year you can contact us back. You can say like, “I want to pop up to get another one year” or, “No I am not using it enough. Maybe I will just buy a sim card on the side.” It will still keep a sim card slot for people who still want to use their own service and also for B2B some people have some benefits with their local operators. So, again we are very open people. This is probably like a good summary of what we are and what we do. We are very open in our business model, very business-oriented. So, we must bring flexibility to probe that. We do it every day.
Matthieu David: About financing Omate; you talked about Kickstarter. We started the conversation with that and fully understand how it works, but you also raised money from 500 startups and at that time it was still the macro. How did you raise money from them and what was the need for the money because you already raised money from the Kickstarter?
Laurent Le Pen: That was 4 years ago so yeah; Dave was still on board. Basically, we got like a lady and I got connected to Wilma and she was at that time in a kind of some investment at 500 and she left the company a few years later, but we came to… in 2015 and said, “Yeah I would like to know more about Omate. I know like people invested in Pebble. So, 500. We are also looking for a wearable tech company.” I said, “Okay. Why not.” It was really like an opportunity and for us, it was also at the time where we were exploring the US market during that fashion time; 2015. So, we were just like 18 month-old company and yes, that was an experience. We stayed with the team and part of the team stayed for 6 months in Mountain View. It’s a 500 start-up office. Again, it was great to see as a difference from different perspectives; the market, the US market, many smart people around that were really into software and internet and less into hardware. So, yeah, a great experience just like an opportunity like many others.
Matthieu David: I see your client base; I was Googling and I was looking for it on the client base and I see you did like a 217.8K USD fundraising in China. I don’t know if the number is right? That’s what we can see on your client base and usually for the start-ups they give like $50 000 for the prototype, but you already had the prototype, you already had a Kickstarter worth $1 000 000 in the bank account so where was it used to be with the 500 starts up?
Laurent Le Pen: 500 made an offer actually. So usually they invest in the 7% for the start-ups and then they send a little bit less to us and then at the same time it was like maybe 2 or 3 months later after we went out of the batch 13 and we did like new funding. We did like the only – I think no one did that after that – but we did an Indiegogo; a two-day campaign and that two-day campaign we did I think a $250 000 fundraising in China. It was a limited edition of a new model and we put 1000 watches in our new model and in two days we sold them out. We would do a two-day campaign and because we were moving our business model from B2C to become really B2B and we said, “Okay now you see we sold this 1000 units and this is a limited edition; 250 USD per unit so we got like $250 000 several days later.” That was the turning point to say Omate would become an expert in designing products and teaming up with other people. So, we always do that. We always launch our product and we do a limited edition because we still want to give like our early kind of community of people who want to buy a product at the very beginning and they want to be the first and they want to be like kind of part of the pilot and we will always offer like 100 limited edition and because it is not our business to do B2C we give them great deals. We really make them VIP and after we move our business to B2B so that means the distributor will contact us and say, “Okay I will take another 3000 units. I will take 5000 units.”
Matthieu David: I see. So that is your process. You rather campaign first?
Laurent Le Pen: Yes.
Matthieu David: On the kind of Indiegogo Kickstarter and maybe JD maybe sometime in the future and then after, you have the product and businesses can see you. They can even come to you to buy your product and then you have certain kinds of agreement pricing and customization because you say customization in your presentation for the businesses who buy your product.
Laurent Le Pen: Yeah exactly. It is kind of B2C to B, right? So, you launch a product and you announce it as a consumer company and you say, “We announce. We make a proper press release.” We launch the product and we say, “There is a very limited edition. “After the people are very frustrated, they come back to us several weeks after and say, “I want to buy it” and we say, “Sorry. It is sold out.” They say, “But your website is always sold out” and I say, “Because we only launch like maybe one or two products a year so we have very limited units for end-users.” Again, we really try to make these people VIP because for us it is important that they have a great experience.
If anything, for example, went back through quality control and there is one unit you know people receive and it doesn’t work we just tell them, “Okay don’t worry. We will send you immediately a new one. It’s free.” We really try to bring this amazing experience and we will not let them down. We can only do that on… I will not say that we will lose money, but we try to be just good with that. We just try to make these people happy, but we can only do that in a limited edition. Afterward, we can also demonstrate to our B2B customers that look, there are already some users that can bring back some ideas and we can customize and do it better and we can say, “Look, these people look pretty happy with the product.” It is easy also to demonstrate that the product is doing well so that they can start in their own market to get exclusivity in their market. Then we can ship out them locally.
Matthieu David: I see; very, very interesting and very efficient strategy because you don’t have to spend that much in marketing and your marketing actually making you a little bit of money, even you say you are breaking even on those limited editions. Thank you very much for your time. Actually, it was interesting that we didn’t go through the usual ten questions at the end of the interview because we had enough to talk about with all your entrepreneurship stories. Thank you very much, again. I hope you enjoyed it and I hope everyone listening to us has enjoyed it as well to talk. Bye-bye, everyone.
China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.
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