How do small American companies make inroads in China? The trick may lie in finding mutually beneficial partnerships with local companies.
Sonos, a Santa Barbara company that makes wireless home audio systems, on Monday announced a deal with Tencent Holdings, a Chinese company whose QQ instant messaging platform is used by 721 million people.
The partnership calls for Sonos to build Tencent's QQ Music, a subscription streaming music service, into its devices sold in China. Financial terms of the arrangement were not disclosed.
For Sonos, which started selling its products in China about a year ago, having a local juggernaut like Tencent on its side helps the company promote its products in a new market. Giving buyers the ability to instantly fire up an existing, legal music service right out of the box also helps Sonos differentiate itself from low-cost competitors in China.
Meanwhile, Tencent has been aggressively expanding its footprint beyond its stronghold in mobile, both in the U.S. and in China, by forging ties with American companies. (Last year, it spent $400 million to acquire a majority stake in a Santa Monica-based Riot Games Inc.) With Sonos, Tencent has a way to penetrate home entertainment systems, which some call "the living room play."
It's also a way to get more of QQ Music's 200 million users to switch over from the free, ad-supported music service to the premium paid version. The hope is that Chinese consumers will pay for the convenience of being able to pipe QQ Music throughout their home via Sonos' devices. The QQ Music will be free initially on Sonos, but Tencent plans to begin charging users a monthly fee later this year.
Currently, several million subscribers pay QQ Music's monthly fee of 10 Chinese yuan, or roughly $1.59, for unlimited, ad-free access. (The company would not disclose exact subscriber figures.) The low ratio of paying users partly reflects the difficulties of getting Chinese consumers to pay for music that is otherwise readily available for free, albeit illegally, in an environment rampant with piracy.
Last week, Tencent struck a similar deal Ford Motor Co. for its QQ Music service to be built into Ford's New Focus cars sold in China.
-- Alex Pham
Photo credit: Sonos