Questions and Responses @ DM

Thought I would share with others on here as I am sure we all have similar queries / concerns.

see below to and from DM


Hi Dave,

Sincethe webinar answered a lot of the questions people had, there have been a fewdevelopments with US/China trade war and talk of new cheaper smart lightcompetition driving down prices and reducing margins.

I would like to post your answers on Hotcopper

Twoquestions about Lifx

If the 25% tariffs remain on Chineseimports into the USA, what are the prospects of profitability this calendaryear?

With regards to smart light competition,Wyze and IKEA were mentioned on HC recently. Can you give an overview of themarket place for cheap lights and the attraction of more expensive lighting.

OneOhm question:

Bud stated in the webinar that the wrongcustomer base has been targeted in 2018. How has that changed in 2019?Obviously don’t expect specific names, more customer types.

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thanks for your email – I appreciate the questions, happy to provide answers.

The China/US “trade war” and tariffs are a changing situation that we’re monitoring closely. Like I’m sure all our peers, we engaged specialty tariff consultants quite some time ago to help us navigate these waters. As it stands today, not all products exported from China into the USA are subject to the 25% tariffs, and as we’ve just seen with Mexico/Canada, tariffs can go away as quickly as they are imposed. We have a number of plans in place to address a “worst case” scenario regarding tariffs, including ways to reach profitability in this scenario. I can’t say any more than that – other than to remind you that probably all our smart light competitors manufacture within a 100mi radius in the same part of China, and all will need to take action in the event that 25% tariffs apply to smart lights AND the tariffs stick. If any definitive and material impact on our business from the tariffs becomes the case, we’ll advise the market accordingly.

As for competition – I’d also make the comment that absence of competition is always vastly more worrying that competition. That said, and while I never want to sound complacent – the LIFX team has been monitoring their competitive landscape for the past 5 years. They test a lot of competitive products, and they keep a close eye on new entrants (of which there have been many over the past few years, and also many exits too). New entrants this month are no different to new entrants in prior months or years – none of which have impacted LIFX’s ability to be the clear #2 in the markets into which we sell.

Remember, as goes the tariffs, so goes competition – all of these lights are probably made in the same ~20 or so factories (I’m making that number up, but you get the idea). Nobody is able to buy components massively cheaper than the incumbents, nobody is able to build massively cheaper than the incumbents, nobody has invented massively cheaper shipping than is available to the incumbents. Can you build a cheaper product with razor thin margins, sacrificing big box retail/marketing and selling only on Amazon? Sure. But that’s not how you break past the early adopters and into mainstream adoption.

BTW – that’s a fine strategy for some. IKEA make and sell extremely cheap smart lights that they sell in their furniture stores. This works for them, but has had little impact on the global smart light market. The fact that multi-billion dollar corporations have entered the market (IKEA, GE, TP-Link) and have not displaced the incumbents at this point in time, shows that while prices will absolutely come down over time, this is a market that isn’t just about building the cheapest product.

One side-note – if a company wanted to build a low-end, inexpensive smart light, the most cost effective way for them to do this would be to license the LIFX technology (refer to the shareholder letter and webinar for recent commentary by me on this). Assuming a customer had the ability to manufacture a sufficiently inexpensive light bulb/fixture, licensing the LIFX technology to make it smart comes at a low-enough cost that could support the kind of price point that Wyze and IKEA sell at.

Re: your Ohm question, the short answer here is that selling energy monitoring to customers on the basis of energy savings is still a tough sell economically (the election last weekend demonstrated the electorate’s prioritization of the “moral issue” of climate change vs. “economic issue”). However, when faced with needing to meet regulatory or audit requirements around energy – the market and customer is much different. Also, the channels through which we sell are changing – for example I just returned from a week in the UK meeting with energy retailers and resellers who already have energy customers into who they could sell a monitoring system (ie: highly pre-qualified customers). Travis will share more info on this with the market as this strategy evolves (but he’s over there right now, and it is evolving quickly). In the meantime, the engineering work to ensure we have our new hardware fully plumbed in and our reporting outputs well in-line, is progressing rapidly.

Hope that helps – let me know if any follow up questions pop up.