Wearable computing is often talked up as the next big thing. So how hard can it be to build a smart watch? Pebble, an independent (i.e., not owned by an existing tech company) competitor had some significant delays as it moved from Kickstarter campaign to actual product. It essentially underestimated complications of sourcing materials and getting things built. But it doesn’t have to be so hard (Shanzhai: China’s Collaborative Electronics Design Ecosystem, The Atlantic, May 18).
A different story emerges in the burgeoning wearable electronics market of Southern China, one that is based on a rapid, flexible and open ecosystem called shanzhai 山寨.
Take, World Peace Industrial (WPI), a Taiwanese electronic sourcing company located in Shenzhen, as an example. The company’s application technology unit (ATU) spends millions annually to develop reference circuit boards, called gongban 公板 (“public board”). A gongban can be used by a variety of different companies, who either incorporate it in their products directly or build atop it as they please via modifications. ATU develops 130 gongbans annually in areas ranging from smart phones, tablets, smart watches, smart homes, and industrial controls—and distributes the designs for free. WPI then makes money by trading in the boards’ components.
“We call this shanzhai in Shenzhen. It’s a mass production artwork,” explains Lawrence Lin head of the Application Technology Unit at WPI. Thirty some companies in Shenzhen are shipping their own smart watches with gongban from ATU and gongmo (‘public case’) sourced from the massive shanzhai ecosystem, which consists of tens of thousands of companies that manufacture and distribute goods. …
In the emerging area of smart watches, WPI and other solution houses create gongban, which provide common electronic functions including Bluetooth connectivity to mobile phones, and sensors to measure the wearers’ movement, as well as monitor heart rate and other vital bodily statistics. These gongban are designed to fit into a variety of gongmo that are ready to be branded on order. The flexibility to mix and match gongban and gongmo enable companies to quickly put together their own smart watches with customized functions and styles for various niche markets. Today, customers of WPI ship close to 100,000 smart watches per month.
What do a gongban and a gongmo look like? Take a gander:
There are a couple of points here. First, WPI is essentially creating a market for itself by solving other people’s supply chain problems. Creating public boards greatly simplifies launching a smart phone for any firm that wants to get into the business. Developing such boards is not cheap but by inviting in lots of users it lets WPI achieve some scale without having to take on the cost of marketing to end users.
For WPI’s customers, the question is how you can develop a unique product when you don’t completely control the guts of the watch. Perhaps the market is growing rapidly enough that having competitors with nearly identical offerings doesn’t completely depressed profits. Or, more likely, the offerings are sufficiently differentiated on cases or their software interface that customers are not completely aware that watches are nearly identical.
The second interesting point is that we have sort of seen this movie before. The Swiss watch industry has long had a similar set up. ETA, a division of Swatch, has produced movements that other firms have used in their watches. Over time, this has greatly expanded the industry and allowed for a number of upstart brands. And then Swatch tightened up its supply of movements forcing a number of brands to invest heavily in manufacturing (see here). This setting seems pretty different from the Swiss industry. The basic design of a smart watch is much more fluid and the technology is still developing. However, it is interesting that the growth of the industry is being fueled by a supplier willing to provide a key component while others scramble to develop the market.