In the next five years, several giant companies may emerge in the smart lock industry

At present, in the field of home appliances, some home appliance giants occupy the vast majority of the market share. In the next five years, several giants may also emerge in the smart lock industry.

Channels are king and terminals are the key to success. For the smart door lock industry, which is crowded with more than 2,000 brands, 2019 may usher in a watershed year, and the progress of the layout of the sales and service network of channels and terminals will be the key to the competition.

Smart door lock manufacturer Dessmann has recently been recruiting investors on a large scale in key regional cities such as Changsha, Beijing and Guangzhou. It is reported that Dessmann currently has more than 500 dealers. This time it aims to improve and strengthen the layout of the entire offline marketing service system and prepare for the sprint. In the view of Dessmann COO Li Xuping, whether it is user timing or market timing, smart door locks as a whole are on the eve of crossing the gap. Once crossed, sales will increase sharply. When the market structure has not yet been formed, it is the best opportunity to reap the rewards.

"The entry threshold of the smart door lock industry is very low, but the threshold for success is very high. The reason why there are thousands of brands rushing in now is that some manufacturers only need to design a brand and find a factory to produce it and then sell it. However, there are no more than 20 smart lock companies that actually have a manufacturing base and good core technology research and development capabilities." said Li Xuping, COO of Dessmann.

New home appliances of the future

Li Xuping defines smart locks as "new home appliances of the future." Why are they new home appliances? Because home appliances have several characteristics: first, they are in urgent need, and every household has a need for them; second, the quality of home appliances must be very reliable; and third, they must be very convenient to purchase.

Before 2018, selling locks had certain strong or associated recommendation attributes, reaching consumers through sellers, decorators or home appliance products, but in the future, smart locks will become a random shopping product, and users will make decisions faster and faster. Another observation is that the entire market for smart door locks is very close to the market capacity of home appliances, just like refrigerators, washing machines, air conditioners and other products, every family has at least one or two.

Through analysis of various internal and external research data, Li Xuping summarized the basic conditions of several major industries in the domestic smart door lock industry.

The first is that the market base is small and sales are growing rapidly. From 2018 to 2020, there will be a large-scale explosion period for smart door locks. In the next three years, the industry growth rate will be maintained at least 80%. In terms of sales channel share, offline retail currently accounts for 40% of the entire industry, online retail accounts for 10%, and the entire retail accounts for 50%. With the development of the industry, the proportion of smart locks reaching consumers through retail channels will continue to increase, while the proportion of other channels such as engineering channels and door matching channels will gradually decrease.

The second is the low penetration rate and huge market potential. As consumers are still in the market education stage, the market penetration rate of smart door locks in China is currently 5-8%, but the penetration rate in Japan can reach 50%, South Korea can reach 80%, and many developed countries are basically at the level of 20-30%. The huge market capacity of smart locks in China has not yet been developed.

Compared with the market capacity of traditional home appliances, especially compared with the sales of refrigerators, washing machines, air conditioners and other home appliances, smart door locks may be more like air conditioners. For reference, in 2018, the shipments of refrigerators were about 40 million sets, washing machines were 35 million sets, and air conditioners exceeded 60 million sets. The annual sales of smart door locks are conservatively estimated to exceed those of refrigerators and washing machines. Whether it can exceed air conditioners depends on whether the market for intelligent interior door locks can take off in addition to household door locks. If the market for interior door locks can also take off, smart door locks will move towards the level of air conditioners or even higher.

At present, in the field of home appliances, some home appliance giants occupy the vast majority of the market share. In the next five years, several giants may also emerge in the smart lock industry.

The third is that brands are highly dispersed, but through reshuffle, more than 2,000 brands will be concentrated on the top 10 brands. Referring to the changes in the Korean smart lock industry, there were more than 300 brands in the early days of the Korean smart lock market, and then in the next 7 years, there were only 7 well-known brands from more than 300 brands.

Product and service experience must be the highest level of competition method. From a product perspective, the stability and security of smart door locks are higher than traditional home appliances. If traditional home appliances break down, there is no need to repair them for a while, but if a lock breaks down, it is absolutely not acceptable. If the user returns home from get off work at night and finds that the lock is broken, it directly affects the safety of family property and security feelings.

On the other hand, from the perspective of service, smart door locks are a product that requires a quick response, and it is not allowed to wait a few days to solve the problem. Many new brands have launched 5 or 6 brand products in order to expand quickly, but the service response is not up to par. This is not an industry that makes quick money, and it is not a long-term plan if it is not based on service response.

Once the smart door lock market transitions to large-scale users and is regarded as a necessity, not only will the product experience and iteration speed have to keep up, but the overall requirements for manufacturers will also be very high.

The gradual concentration of brands will have two effects. First, consumers will feel more and more assured. If a user buys a smart lock with very poor quality, he will have the mentality of "I will never trust smart locks again". He must buy a good brand. Driven by big brands, the quality and service will be more guaranteed. Second, the price will be reduced after the scale is established. The price of smart door locks may be 3,000-4,000 yuan in the early stage, but in the future it will be closer to the price range that consumers can more easily accept.

How long will it take for smart lock manufacturers to grow from 2,000 to the top 10? Li Xuping told Yiou Home: "The shortest possible time is 3 to 5 years. This is a process of brand reshuffle and product upgrading. Users are still most concerned about products and services. Manufacturers who want to occupy the top position in the reshuffle must pay equal attention to both."

In terms of products, users initially focused on functions, and gradually paid more attention to appearance, sense of technology, security, and stability; when the user base accumulates large enough, the test is the completeness of the entire service system.

Mainstream players have their own strengths

In Li Xuping's opinion, the current market structure of smart door locks mainly includes the following types of brands: the first type is professional manufacturing brands of fingerprint locks or smart locks; the second type is emerging Internet brands, the third type is foreign brands; and the fourth type is home appliance brands.

These four types of brands have their own advantages and disadvantages. Foreign brands are generally very expensive, but they have a certain number of loyal domestic users and fans who trust these brands. The existence of these brands also slows down the price war in the industry. These brands basically do not have any promotions. They do not pursue the growth rate of the Chinese market too high. Basically, they are satisfied with an annual growth of 20% to 30%. Their localization is not very thorough, and their response and decision-making speed to the overall domestic market is relatively slow.

The other type is professional manufacturing brands, which will take a more stable view of consumers' long-term behavior on smart lock iterations rather than short-term behavior. These companies are not marketing-driven, nor resource- or capital-driven. They have been working in the smart lock industry and will study users' pain points more thoroughly and comprehensively. However, their disadvantage is that they acquire user traffic more slowly than Internet brands. Li Xuping believes that at least one or two professional brands will occupy a relatively good position in the industry.

The third category is Internet brands. The development speed of this type of enterprise will be very fast in the early stage, and they can quickly gather attention and early users, but they also have great weaknesses. Internet brands rely on single product breakthroughs, and quickly impact the market through extremely high cost-effectiveness and creating popular products, but the richness of products may not be enough.

Secondly, the profit margin is not enough. Choosing cost-effective means that the gross profit will be relatively small. If the gross profit drops to a very small level, the channel cannot be balanced. Offline channels must have enough space to survive. Channel agents need to make a profit. The problem faced by Internet brands may be that they are missing a leg and lack offline capabilities.

"Internet brands are not very strong in traditional channels, to a certain extent because their gross profit margins are not enough, but if the profit margins are increased, this will be different from the Internet positioning. If Internet smart door locks continue to focus on cost-effectiveness or lower prices, they will not be able to go offline. There are problems with coverage. Secondly, their product updates and iterations are too slow, and the types of needs they meet are limited. For example, we can develop door locks for engineering needs, develop those for the home market, and develop those for retail needs. Once Internet brands expand their product lines and business lines on a large scale, their internal management and service costs will also increase." Li Xuping said.

The fourth category is home appliance brands. For a large home appliance group, it is difficult for the group to pay attention to smart door locks with a business scale of only 100-200 million in the early stage. For example, some business units with less than 10 billion yuan in the group's strategy cannot obtain more resource support from the group. Relying on a very small team, it is basically impossible to pry the group's resources. Without strong professional manufacturing capabilities for smart locks, and without strong traffic acquisition capabilities like Internet brands, it is difficult to gain a big market advantage. This is why many large home appliance brands cannot make some small categories of products, because their main resources and advantages are concentrated in the group's core business and products, but the advantage of this type of smart door lock brand is that it has a certain vitality backed by a large group.

The third-order war completes the reshuffle

During the competitive reshuffle in the smart door lock industry, price wars, product wars, and standard wars will begin one after another.

Price war is the simplest and most brutal way. At the beginning, the industry had high gross profit margins, and later a group of low-gross-profit manufacturers entered the market and wanted to take advantage of the situation, so they would resort to price war measures. Because professional smart door lock manufacturers have explored a lot of engineering experience, standards, and R&D investment in the early stage, many manufacturers who engage in price wars can basically ignore the early investment. Now, the investment in OEM production of a smart lock is very small. The company can maintain operations with extremely low gross profit margins, and it does not have a stronger ability to fight other wars.

When a price war breaks out, many players will withdraw. If the mainstream players can also control the price cost, then the miscellaneous players will have no room to survive. When the mainstream smart door locks are sold at a price of 3,000 yuan, manufacturers selling 1,000-2,000 yuan will still be able to survive. When the mainstream players also control the price to 1,000-2,000 yuan, then the miscellaneous players selling below 1,000 yuan will have to find ways to survive or withdraw.

"Price wars are simple and crude, but they are definitely not a healthy industry behavior and are the most undesirable. Because when consumers choose a smart door lock, they must not choose the cheapest smart lock, but a smart lock that is cost-effective and safe. Cost-effectiveness depends on the long or short term. In the short term, it depends on the gross profit margin of the product, and in the long term, it tests whether the manufacturer's service capabilities can support it." Li Xuping said.

The low-level strategy of breaking away from the price war is the product war. Whether the product is more popular with consumers, whether the product is safe enough, whether the design is more user-friendly, whether the appearance is better, and so on, these are what each brand will study persistently. This is not a battle, but the basis of competition among manufacturers.

When the industry develops to a relatively mature stage, it is the standard specification, and manufacturers who can participate in the formulation of standards have more say. Standards are different from user market behavior. When the number of users of such products increases, more stringent industry standards will appear, such as anti-destruction standards, electronic standards, Internet of Things standards, information standards, anti-theft standards, etc. Standards will gradually play a role in regulating the industry.

Consumers may not have any perception of it. As long as they find it useful after taking it home, for example, I can unlock the door remotely, and the user finds it very convenient when using it. They do not realize that hackers may intercept the signal and open the lock. It is very likely that they may not break into a single lock, but that all locks in this series can be hacked, which will cause very bad consequences.

Standards are the rational side hidden behind the product. Users will only realize that the product’s protection performance is insufficient or that there are problems with the hardware design process when problems occur. These need to be standardized in advance to avoid large-scale hidden dangers in the future.

"People will buy products because of their convenience, appearance, and functionality, but they will reject them if they are unsafe. Safety is the prerequisite for an outbreak."

"The prerequisite for participating in standard setting is that you must have a sufficient number of users and have stepped into enough pitfalls to have industry experience. Standards designed out of thin air are definitely different from standards accumulated from countless experiences. Standards without experience tend to be theoretical values. Only standards after covering millions of users are closer to the needs of actual users and scenarios." Li Xuping told Yiou Home Furnishing.

Conclusion

2019 may be a key year for smart door lock players to compete for rapid growth. The speed of technological innovation and product iteration is a variable. As the fully automatic smart lock technology is conquered and better experience is developed, electronic protection and hardware protection are getting better and better, and consumers are becoming more and more assured, the market may usher in a round of explosive growth.

In addition, the Internet will also accelerate the popularization of consumer awareness of smart door locks. In the past, market education may have taken five years, but now it may only take two or three years to complete. With trends such as 5G, AI, wireless charging, and whole-house intelligence, the smart door lock industry seems to be full of more imagination.

On the other hand, the smart door lock industry is a reshuffle with thousands of companies competing in chaos. Above the trend and under the bubble, the laws of business history are always surprisingly similar. I wonder who will become the rising superstar and what kind of mess they will leave behind.