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Carl Pei: The Smartphone Biz Gets A Disruptor

Carl Pei, co-founder of Chinese smartphone start-up OnePlus, won’t let the facts get in the way of success.

Fact: In the third quarter, five smartphone companies commanded a majority share – 56.1 percent – of global smartphone sales. Those market-share leaders are highly visible marketing powerhouses with names such as Samsung, Apple, Huawei and Lenovo-Motorola. And let’s not forget Alphabet’s Google, which also designs and sells its own phones.

Fact: The resources of these vendors could bury a start-up in a torrent of TV, print and online advertising, not to mention advertising and promotion by the companies’ carrier partners.

Yet OnePlus is thriving by offering premium-build, high-performance unlocked phones at modest prices and selling direct to consumers on an invite-only basis around the world to hold down prices and control inventory. Also to hold down prices, the company eschews traditional marketing techniques and advertising to focus on social-media outreach and an active online user forum.

Another key strategy is selling phones at cost as part of a longer-term strategy to amass a global following, and then expand into profitable accessories, software and services, Pei said.

The company has already started selling cases, cords, screen protectors and, starting in Europe, extended warranties.

For its debut product in 2014, OnePlus planned to sell only 30,000 phones but wound up selling 1.5 million to pull in a break-even $300 million.

Since its founding in 2013, OnePlus has attracted a large global fan base that came out in force in August when the company staged pop-up events over a 24-hour period in New York, San Francisco, London, Paris, Berlin, Milan, New Delhi, Bangalore and Jakarta.

In New York’s Times Square, thousands of fans of the upstart mobile brand lined up for hours for a chance to spend a few minutes with demo units, rub shoulders with the company’s young staff, and perhaps win a coveted invitation to purchase the device.

A month earlier, the company broke again with marketing tradition by staging a virtual-reality launch event using Google’s Cardboard VR headset and a special web-streaming smartphone app. Viewers were transported to OnePlus’ Shenzen headquarters, where Pei walked viewers through his offices as employees whizzed by on skateboards before he introduced the “flagship-killer” OnePlus 2.

Before that, Pei and co-founder Pet Lau created a blogosphere frenzy with a steady stream of sneak-peek sketches, teaser specs and Reddit-chat design clues before launching the OnePlus 2.

The flagship killer features aluminum/magnesium frame, stainless-steel accents, 5.5-inch 1080p screen, LTE, 4K video capture, fingerprint sensor, and impressive specs: 2GHz octacore processor, 3GB RAM, and 16GB storage at $329. A version with 4GB RAM and 64GB of storage is $389.

Another new phone, the OnePlusX, is due in the U.S. on Nov. 19 at $249 with 5-inch 1080p AMOLED display, 2.3GHz quad-core processor, 3GB RAM, and 1080p video capture.

Pei and Lau both hail from Oppo, which also built its business by stressing high-quality at a low cost. Oppo remains a contender its markets: Blu-ray players, headphones, and home and portable headphone amplifier/preamp/DACs.

OnePlus could successfully carve out a similar niche in the U.S., where sales of unlocked phones are on the rise. But it faces some challenges:

Sales of the OnePlus 2 disappointed because of software glitches and incremental improvements over its predecessor. And the new OnePlus X lacks key GSM LTE bands. Also, like the OnePlus 2, it uses the company’s own Oxygen OS instead of the open CyanogenMod OS that helped make the original a success.