Softbank Robotics – World’s First Consumer Humanoid Robot “Pepper”
Softbank Robotics introducing Pepper
“Sold Out”. 10:00 AM on June 20th, 2015, Softbank Robotics released its first wireless humanoid robot on earth in its website – and at 10:01 AM, registration closed. 1,000 robots were sold out in less than one minute. Here I would like to introduce Softbank Robotics “Pepper”, as one of the most effective early stage business model in the world.
Softbank unveiled “Pepper” in 2014, the first revolutionary wireless connected humanoid robot for consumers. Softbank Robotics was established in 1st of August 2014 as a 100% subsidiary of Softbank Group to solely focus on Pepper business. Pepper is a communication robot. It intends to pull out demand for communication, entertainment, and promotion. Although the ability to communicate with the human is still limited, Pepper can interact with people through its vocal communication, physical gesture, and 10.1-inch display.
[Linked to introduction video]
To attract consumers and generate profitable business, Softbank Robotics effectively leveraged its product strength, creators community, and subscription model of Softbank group telecom business.
(1) Subscription business
Softbank’s breakthrough against consumers’ negative perception to pricy robots was brought by implementation of mobile subscription model. Already one of the most famous and successful company in Japan, Softbank shrewdly announced its product for the insane price of approximately $1,650 which shocked the media and Japanese for its insanely low pricing.
(Currency 1USD = 120 Yen)
In reality, including the mandatory 36 months subscription and maintenance fee, the total cost accumulates up to $10,000 in a long term. Still, consumers were attracted to Pepper because of its low purchase cost.
(2) Robot creator community
Softbank Robotics successfully nurtured “robot creator” community that creates the ecosystem of Pepper users. Just as Threadless created T-shirt designer community, the community worked as gaining retention and attraction of both existing users as well as newcomers.
To generate long-lasting community, Softbank tirelessly launched “Pepper Creator Certification” in order to authorize qualified creators. In addition, it opened “Pepper Pioneer Club” who will gain benefit to sell robotics app which will be opened soon. To incentivize competition, Softbank continuously hold “Pepper’s Creator’s Contest” and reward those who made interesting apps.
(3) Softbank group synergy
Unlike other robotics ventures which often struggle with promotion, Softbank Robotics successfully managed to save sales and promotion cost through utilizing business asset of Softbank mobile. Using Softbank group’s mobile phone store network all over Japan, Softbank Robotics provided the demonstration of Pepper at each of Softbank stores. Also, they bundled Pepper promotion in line with mobile service advertisement – thereby minimizing the cost of promoting innovation while maximizing existing promotion channel.
(1) Mass production and wireless function
Outsourcing production of Pepper was a key success factor to transform a dog into the cash cow. Softbank outsourced the manufacture of Pepper to Foxconn, the world’s largest EMS (Electronics Manufacturing Service) based in Taiwan, a drastic change from its high-cost production in Aldebaran, France, where it held “job shop” production model.
Through drastic outsourcing, Softbank Robotics drastically changed its cost structure within a year. Especially, it (a) lowered labor costs compared to the previous factory in Aldebaran, (b) utilized line production knowledge that Foxconn accumulated through electronics manufacturing, and (c) minimized procurement costs of robot parts by use of bargaining power and bulk purchase.
Moreover, Pepper embedded wireless connection as a default function. This enabled Softbank Robotics to start with a monthly subscription business model from the start.
(2) Software integration of intellectual properties
For all Pepper owners, online-accessible SDK platform is provided. Robotics apps may be created through SDK to create the wide range of application from simple movements to advanced customization using widely available languages. To assist beginner creators, SDK education programs are provided by Softbank Robotics, which was called “Aldebaran Atelier” for all robot creators with no charge.
Alignment with operating and business model
Through effective alignment between business model and business model, Softbank Robotics seems to make ecosystem that enables long lasting business.
Although the disclosure is limited because Softbank Robotics is a private company, Softbank Robotics has been able to keep its zero inventory since its start of Pepper introduction. Moreover, rumors tell that Pepper business already exceeded the breakeven cost for their variable costs, and partly covered fix costs.
Furthermore, Softbank already took a footsteps into global expansion. On June 18, 2015, Softbank publicly announced that it will expand Pepper sales in collaboration with Alibaba and Honhai. Moreover, as Softbank owns Sprint, introduction to Sprint stores in US is now discussed internally. Be prepared to see Pepper robot in Sprint shop soon!
Most of source based on interview from Softbank Robotics employees
Student comments on Softbank Robotics – World’s First Consumer Humanoid Robot “Pepper”
Satoshi thanks for sharing these insights – really interesting business model and an amazing field.
Will be interesting to see if the deferred revenue model will be able to withstand any significant issues in the future? I would be slightly concerned that given the infancy of this technology should it start to go wrong Softbank’s “insurance” model require significant expense without having received the upfront payments to support it. Amazing demand seems to indicate the market could take a higher price too!
I think the application of this kind of AI through humanoid type robotics will be really influential on business over the next couple of decades and have often tried to think through which existing industries will benefit most from the growth in this kind technology. I seem to be able to come up with lots of traditional industries that I think will be crushed by robotics but would love to identify some invest-able adjacencies that might be able to benefit.
Thanks for your comments and feedback! I am also interested whether this deferred revenue works well for Pepper and become next robotics version of Apple iPhone : )
In terms of insurance scheme, I agree there are possibility that fix & repair cost may exceed that of insurance payment. Current cost down through scale economics and standardization of robotics parts may also compensate for lowering repair costs. I assume they not actually fix the broken parts but simply substitute with the new one to save some time for field engineers.
Still, there is a risk that cost exceed the insurance revenue, as you mention. In that case, I assume Softbank Robotics will simply increase their monthly insurance charge.
I am also interested in how this model will turn into success or failure. Regardless, AI or robot related business is expected to expand in near future and we shall dig into this area!!
This is very intriguing example of Softbank’s marketing strategy, especially its “Pricing model” boosted successful sales. I still remember the excitement of people on “Pepper” was enormous when it was introduced in public, which was more than the time when “Aibo” of SONY entered in to the market.
However, I am very curious whether this pricing strategy hits the overall breakeven cost including R&D, even though the post mentioned that “rumors tell that Pepper business already exceeded the breakeven cost for their variable costs, and partly covered fix costs.” If business around Pepper was strongly supported by its abundance financial capability of Softbank, we still need to wait until robotics business become profitable enough standalone.
Despite the question above, I still Pepper optimistically and think that Softbank took a huge step ahead in the commercial robotics industry in a sense that this had a significant signaling effect to a robotics creator community, which is valuable given the huge potential of robotics business in the near future.
Thank you for your comments! I agree that R&D cost has not been covered yet, since M&A price of Aldebaran is estimated to be around 100Mil USD. This indicates there is lot more way to go until Softbank group covers R&D costs for purchasing Aldebaran. I believe that this model can be done only by Softbank because it has lots of risk capacity to take and already has steady revenue source from its lucrative mobile phone business. Still I wish the Pepper business to succeed and make breakthrough for the whole robotics industry.
Pepper is such an interesting product. I remember people were skeptical and shocked about hearing that the telecom giant Softbank to move into the robotics field.
Surely they leveraged their stores to use as marketing channel. I remember that Pepper is placed in many stores in Tokyo and people are inevitably attracted. I was also one of them. I talked to the robot sometime last year during my lunch break in a weekday. Though, his / her response was neither punctual nor satisfactory enough to convince me to purchase it.
Having said that, I love the concept of “Pepper Pioneer Club” and “Pepper’s Creator’s Contest”. Sotbank is renowned for its marketing skills and they leverage its strength to facilitate its development process. Their subscription pricing model seems to provide Sotbank its flexibility about offering new subscription packages as they develop more functions or applications in the future. Or, maybe they aim to broaden revenue sources not only from the end users but also from application developers and other network services providers which provide services through Pepper. In any way, Pepper opened our eyes to see the future of our lives with handy robots and Sotbank made an epoch making step to bring robotics into the retail field.
Thanks for your comments! I agree that there are lots of things to do for improving communication level of Pepper. Softbank has partnership agreement with IBM for use of Watson in Japanese market but communication in Japanese maybe the bottleneck compared to English. Hope this business model works outside of Japan as well.
Thank you for such a great post Satoshi!
The subscription model has truly made such a expensive “gadget” affordable for many consumers and businesses. Its developer community and online SDK platform will allow developers and individuals to generate content for the platform, creating a network effect.
I’m really fascinated by artificial intelligence, and excited to see how Pepper will be used in both consumer and business settings in the near future.
Thanks for your comment Lucy!! Absolutely, subscription model made users easy to purchase, at least by minimizing initial purchase cost. Community is now growing and user generate contents is beneficial for Softbank Robotics that it does not have to prepare contents by themselves. Let’s keep in touch with this funny Pepper robot together : )
Wow! this is incredible. I had no idea the price can be decreased in such level. I am another person who is shocked by it!
From curiosity, I understand many people are working on humanoid robots. However, I wonder. It seems non-humanoid robots may have more practicality, yet we always crave to create human form robots. Wonder what’s your thoughts on this 🙂
Thank you for you comments, Go! That’s a great question. There are many non-humanoid robots like Rumba, and Jibo. Those mainly takes up “functional” role of human activities and I think there will be more non-humanoid robots that will come out to the market, too. Softbank insisted on humanoid robot because it wanted to serve as a communication hub and relieve loneliness for elder people who lacks social interaction. However, the price is still a bit too expensive for elder whose income is lower than $30K – $40K / year range, and improvement on communication width and depth is another issue. As a wanna-be entrepreneur, I would like to start non-humanoid robot simply because its cheaper to invest on!!
Thank you writing about one of my favorite robots, Satoshi! I was very excited to read about the great alignment between Softbank’s business and operational model to bring robots one more step closer to becoming a household staple. I’ve always been fascinated by how some companies are better than others at capturing value of new technology for consumers. Robotics has always been a sexy field with lots of promises for the future, but (as you mentioned), it is actually still very far away from commercialization due to its prohibitive pricing. Companies like iRobot have taken a more incremental approach and introduced “mini” robots such as the successful Roomba, with very specifically defined singular function, as an approach to ease mass adoption. Pepper appears to be the first commercial robot to offer consumers the full “robotic” experience, but at a feasible price. I’m very excited to see where Pepper will go in the world!
Thanks Tina!! Yes, I think Softbank is really serious about robotics market. I also heard that CEO Masayoshi told employees that he would tolerate for 10 years of deficit for some of robotics related business because he thinks its more of a long term investment. This Pepper gives full robotics experience, although it needs improvement on communication level. I also hope fluent Robots come across the market in near future!!!