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Woobo - how a born-global start-up is using AI to bring children’s imaginary friends to life

Tails from entrepreneurs

{{{Lucas Coronel and Cedric Jaeger}}}

Previously, Gian Marco Brizzolara told you the untold story of Zhongguancun, China’s Silicon Valley located in Beijing’s West. Zhongguancun is the capital of AI innovation in China, being home to 400 AI companies (a quarter of the total in China) and around 40% of China`s unicorn companies. One AI company is Woobo, founded in Boston, Massachusetts, by Dr. Feng Tan, an MIT PhD in robotics. The company is backed by GSR ventures, a top Chinese VC, and is now preparing its launch in China after going to market first in the United States.

 

Today, we are telling you how innovation happens in Zhongguancun through the story of Woobo. We had a conversation with its founder, Dr. Tan, on how to design an AI companion for kids, his experience as an entrepreneur in Beijing, and how it differs from his time in the United States.

Woobo

What exactly is Woobo?

Dr. Tan and his team want to use AI to bring children’s imaginary friends to life. His product, Woobo, could be compared to an upgraded teddy bear or to a smart pet. Rather than a robot, it is a fluffy, huggable, and smart manmade creature that is aimed to be more than a toy. Woobo has a personality, accompanies the child, interacts verbally, tells jokes, and answers many of the questions the child may have. It also accompanies the child during its daily routines, like counting down the minutes when the child is brushing its teeth.

However, Dr. Tan stresses that Woobo should not be misinterpreted as the attempt to substitute human-to-human interaction, but rather to supplement and enhance it. For example, Woobo suggests games for the parents to play with their kids and gives instructions for folding origami. To help children build a healthy relationship with technology, Dr. Tan vows that the product is designed for one hour of usage per day.

Woobo

The product is already being sold in the United States, where Woobo’s journey began, and will launch in China soon. But how do you monetize an AI-toy? Woobo follows the Kindle-model, offering free content and paid upgrades. Normally, it is sold for 100 to 150 dollars, but is now being tagged at a higher price in preparation for the China launch.

So far, customer feedback has been positive, although there are still glitches and bugs to work on. The product keeps 65 percent active users after the first month, and clocks 35 minutes of average daily usage. 62.1 percent of users rated it with 4+ stars, and 65.6 percent would recommend Woobo to friends. The idea of having robots interact with children has supporters but also critics. The main point of critique is that the product might undermine parent-child interaction, but also privacy-related concerns have been voiced. Dr. Tan is still optimistic that these voices will calm down with time.

The retail robotics market in China is very crowded, but Dr. Tan believes that Woobo will be able to grab an adequate share of this high-growth market. After all, he believes that in 5 to 10 years, all households will have a robot. According to Research and Markets, the global educational robot market was valued at $ 773 million in 2018 and is expected to reach $ 3.38 billion by 2027, with a compounded average growth rate of 18.2 percent from 2019 to 2027.

The entrepreneurial journey

Building on this first understanding of the product Dr. Tan is selling, we set out to explore the entrepreneurial journey behind Woobo. The idea of an AI-enabled companion for kids was born during Dr. Tan’s time at MIT and quickly taken through its accelerator, a 3-month summer program with $ 20,000 funding for deeper market research. The first investment round of $ 800,000 came quickly after, sourced through personal connections. This amount supported the early venture for 15 months.

When Dr. Tan and his team ran out of money in 2017, the product wasn’t ready to go to market. As a result, the second round turned out to be much more challenging. In the end, resilience and a consistent push for new capital resulted in a successful backing by a Chinese public education company. From there on forward, raising money became more streamlined with a third round from GSR Ventures, a top Chinese VC.

Even though Dr. Tan started Woobo in Boston, he now chooses to be based in Zhongguancun for similar reasons Gian Marco Brizzolara explored in a previous article. The tech cluster comes with lower labor cost, a high density of accelerators and incubators, access to academia and talent as well as an environment perfect for networking and a quick exchange of ideas. Dr. Tan, half-jokingly, even mentions how good the feng shui of the area is – the believe that a certain positive energy is present because of past successes.

Reflecting on his entrepreneurial experiences in both the East and the West, Dr. Tan shared key differences regarding consumer behavior and the state of the local tech industry. Chinese consumers, for instance, focus a lot on practical value, i.e. as much and as cheap as possible, according to our interviewee. Western consumers, on the other hand, value user experience more. This contrast is well exemplified through mobile applications. Chinese prefer “crowded” apps offering a broad variety of services whereas US-developed apps “feel” much better.

Typical Chinese apps vs. US apps, illustrating the concept of practicality vs. experience

Typical Chinese apps vs. US apps, illustrating the concept of practicality vs. experience

Such differences in customers’ perception consequently result in a contrast in firm behavior. In Woobo’s case, prices are, for instance, set in a way that accounts for Chinese consumers checking the US retail price and expecting a heavy discount for the local market (The US price was increased to $ 249 a few months ahead of the China launch to give Chinese customers the impression that they were getting a heavy discount when buying their Woobo at half of this price). More broadly speaking, Chinese tech companies usually start by targeting a much broader market and focus their scope only later in their life cycle. The approach of addressing a basic need and developing a product for a billion people seems to be the go-to-approach for Chinese entrepreneurs. With this focus on practicality, areas such as marketing and experience design are considered underdeveloped in Chinese start-ups compared to their counterparts in the US.

 

Looking at established tech firms, Dr. Tan comments on the broader vision that management boards show in China. According to him, a culture “without boundaries” has allowed BAT (Baidu, Alibaba, Tencent) to diversify aggressively and control many more verticals than comparable companies in the West. Our interviewee mentions Yelp, although a comparatively smaller company, as an example by raising the question why they did not introduce a payment system like Square on their platform. While answering this question is certainly out of scope for this article, we look forward to observing the future development of the more monopolistic character of Chinese tech.

Lessons learned and advice for young entrepreneurs

What lessons did Dr. Tan take along his entrepreneurial journey in the United States and China? Some of them are common lessons that are important for every entrepreneur. Dr. Tan emphasizes the critical importance of having a good mentor, a factor that helped him widely while going through his first rounds of fundraising. Additionally, he stresses the role of deep reflection in solitude.

For starting a business in China, he says, taking a time off from the tech bubble and going out to see the “real world”, to see what “real people do, think, and need” plays a critical role, especially when designing products for a fast-changing society. “Lots of things happen in China – it’s magical”, he says. Entrepreneurs should be attentive to these occurrences among the wider population, and embrace all opportunities to discuss ideas with others entrepreneurs. He thus is very active in the Zhongguancun start-up community, and shares and reads articles on WeChat moments, which as he says, contains filtered information and is the best way to stay informed about trends in Beijing’s tech world. “I am actually an introvert”, he says, “but as an entrepreneur, I have to be an evangelist of my product”.

What does all this mean?

Operating a trans-continental start-up, like Woobo, has its advantages, but also poses big challenges. Dr. Tan and his team profited greatly from the opportunities and connections available in Boston, like MIT’s accelerator program, and are now leveraging the possibilities offered by Zhongguancun, the place to be for tech-founders in China. Although Woobo’s early presence in the United States has served as a perfect testing ground and boosted its reputation before entering the Chinese market, the strong differences in consumer behavior and preferences of US and Chinese consumers require substantial adaptability. Especially in the space of education and parenting, expectations are high and the margin for error low.

Dr. Feng Tan
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