Are parents willing to pay for AI?

Written by / Meng Huiyuan

Edited by / Chen Dengxin

Typeset by / Annalee

"Smartwatches are the best hardware carriers for large models in children's scenarios." Recently, at the "Let Me Be Your AI Partner" 360 Large Model Children's Smartwatch Product Launch, Zhou Hongyi once again affirmed his determination to focus on child users.

It's not surprising that Zhou Hongyi can't let go of children's smartwatches. Although this category is not yet a popular consumer hit, its market potential is undeniable: According to relevant data, shipments of wearable devices in China in the first quarter of 2024 reached 33.67 million units, a year-on-year increase of 36.2%. Among them, with the recovery of market demand, shipments of children's smartwatches reached 4.04 million units, a year-on-year increase of 44.4%.

Not to mention that this race track has already produced a national brand with annual sales exceeding 100 million yuan, Xiaotiancai. However, precisely because of this, Xiaotiancai has seized the position of industry leader through its marketing strategy of "if you don't buy Xiaotiancai, you can't make friends," and has thus achieved a certain degree of "monopoly" over a considerable number of child users, appearing to be a dominant development trend.

From social applications like WeChat and QQ to various functional options such as photography, payment, and app stores, current children's smartwatch products are already very mature in terms of hardware and software functions, making it extremely difficult to find a strong entry point. Even for industry competitors, the focus must also be on finding more rigid demand selling points beyond the "social" and "security" attributes.

And this time, with the gradual rise of the "AI+hardware" trend, it may also be the beginning of a new change in the landscape of the children's smartwatch industry.

When Xiaotiancai becomes a must-have option

"We hesitated when buying whether to choose Xiaotiancai or Huawei, but in the end, we bought Xiaotiancai because only 3 of my child's classmates use Huawei. To make it convenient for my child to make friends, we had to buy Xiaotiancai," a parent told Znke. Even though there are now many brands of children's smartwatches, including Huawei, Xiaomi, Xiaoxun, 360, and others, in reality, there is no choice, and everyone can only choose Xiaotiancai.

As a relatively special consumer product, the difference in users and buyers of children's smartwatches has long made the marketing ideas and shopping logic of related brands different from mass products.

As the decision-makers of purchase, parents' most basic demands for such products are still core functions such as positioning and communication. However, when a children's smartwatch meets the needs of parents while also taking into account the needs of children, it is bound to have stronger appeal than other brand products.

Parents still demand core functions such as positioning and communication

As the leader in the children's smartwatch industry, Xiaotiancai has easily captured the minds of child users with its super strong social attribute under the function design of "touch to add friends," and this function can only be used between children's phone watches of the same brand. After Xiaotiancai has accumulated a certain number of child users, its closed ecosystem has also built a strong brand competitive barrier.

The key is that Xiaotiancai is not cheap. One parent shared that when she was shopping for Xiaotiancai series products for her child, she noticed that the new products launched by Xiaotiancai in recent years have a trend of becoming more and more expensive, and even the brand rarely offers discounts online or offline. "It's expensive, but we still have to buy it," she said.

"There are many reasons why children's phone watches are expensive and popular," Zhang Mingzhi, deputy dean of the School of Economics at Shandong University of Finance and Economics, pointed out in an interview with the media. From the demand side, Xiaotiancai's market share of phone watches has reached 35%, giving it market dominance. This means that once consumers start using its products, other consumers may also follow suit, and this market share dominance is also one of the reasons for the high product prices.

Although we can see that similar products from Huawei, Xiaomi, and other brands are trying to grab a share of this market through their respective technologies or marketing solutions: Among them, Huawei, Xiaomi, and other manufacturers have chosen to carry WeChat, flagging the convenience of interoperability with mobile WeChat for parents, in response to Xiaotiancai's social strategy; in addition to social functions, the brand battle in the children's smartwatch track has also extended to more functions, such as Xiaotiancai Z9 adding features like photo anti-shake, NFC, dial, health monitoring, and other personalized functions; Huawei 5X Pro boasts payment, learning, sports, and other functions; Mitoo Children's Learning Watch 7 supports emotional health monitoring, robust positioning, and other functions...

However, the move by major children's smartwatch brands to roll out personalized functions has also triggered another concern among parents. "The more functions a children's smartwatch has, the more worried I am. In fact, its biggest role is to ensure smooth communication between parents and children, let parents know the child's location, and have a longer standby time. Other functions like photography and educational games are somewhat putting the cart before the horse," said one parent.

The China Consumers Association also pointed out in the "Annual Report on the Protection of Consumer Rights and Interests in China (2023)" that children's smartwatches have continually extended their functions, including photo search, social interaction, shopping games, etc., and some advertising push notifications and built-in game content contain implicit negative value guidance that is not conducive to children's mental health. Children's learning tablets and electronic watches have serious built-in App gamification issues, payment software induces consumption problems frequently, and there are also hidden dangers in personal information security.

Can AI break the closed social circle?

In this situation where consumers seem to have a choice but actually don't, as "AI+" becomes a new competition point for all walks of life, it also brings new possibilities to the children's smartwatch track.

On July 9, 360 released the first domestic children's AI smartwatch—the 360 Children's Smartwatch A9 AI Red Edition. From the demonstration at its launch event, the improvement of AI technology in product expression is mainly reflected in more intelligent voice interaction and more comprehensive functional modules.

According to the introduction, one of the core functions of this product is to become a child's AI partner, enabling real-time voice interaction and learning guidance anytime, anywhere: For example, the AI Chinese composition teacher does not directly generate corresponding articles in cultivating children's writing, but instead guides and inspires their writing ideas; the Translation Little Expert function teaches children memory methods for reciting English words when helping them; the Ancient Poetry Analysis Teacher also lets children understand the origin and interpretation of classical Chinese before completing recitation...

360 Children's Smartwatch A9 AI Red Edition

In other words, unlike previous children's smartwatch products that mainly focused on core functions such as positioning and communication and extended horizontally to areas like learning and health, through the empowerment of AI technology, children's smartwatches have begun to take on the role of intelligent partners that integrate safety, education, and entertainment. With the in-depth development of AI technology in learning functions, this is also, to some extent, a new way of balancing the needs of children and parents.

"The positioning of A9 is not a learning machine, but through its unstoppable communication ability and the characteristics of instant communication and photo-taking, it stimulates children's curiosity and desire to explore knowledge, gradually cultivating their habit of active learning," it is understood that among them, the unstoppable communication ability is crucial. "In the past, smart question-and-answer cognitive abilities were limited, neither able to engage in continuous dialogue nor answer complex questions, so children quickly lost the desire to dialogue after using them a few times. But A9 is different. It can make an omniscient friend who can answer and communicate smoothly and accurately. At the same time, oral dialogue and photo-taking to learn English can also open an English mini-class at any time."

In this regard, some practitioners believe that "children's needs are to have fun, while parents' needs are safety and functions that are beneficial to their children's growth. The demands for fun and helping children grow have seemed somewhat contradictory in products without large models in the past. Fun often manifested in games and excessive social abilities, while quality growth functions such as downloading some audio courses and question banks became wishful thinking by some parents, becoming functions that 'gather dust' in the watch."

The above person said that after combining with large models, the screen size of watches is limited, and games and exercises are not suitable for watches. Voice communication is the most suitable way, so the ability of voice communication and the functions it can achieve must become interesting and useful. "Children's minds are full of strange ideas, and questions often emerge endlessly. Many of them do not get feedback from parents, and there are also some little secrets that they don't want to share with their parents. At this time, they need a 'non-adult' who can answer any of their questions. In this process, it continuously sparks children's curiosity, lets them learn knowledge, develops better study habits, and can also give correct guidance on psychological-related issues, which is exactly what parents need."

Of course, although the technical prospects and development directions are promising, whether products and brands can achieve a breakthrough with AI technology empowerment remains to be seen through the actual experience and observation of children and parents during use.

As Kong Rong, co-dean of TF Securities Global Frontier Industry Research Institute, said, "Many people are willing to pay for AI technology, but it also depends on the actual performance of AI technology. If AI performs smartly enough to understand user needs, users will be willing to pay a reasonable price for it. Conversely, if AI performs poorly, users may not use it."

The new windfall targets far more than just children's smartwatches

"Companies continue to invest in the AI field because they see a clear development direction and believe that over time, AI will continue to grow and progress," some argue. The reason why related companies are willing to invest is that they see this certainty and believe that AI is a worthy investment area.

This is especially true in the children's smartwatch industry. The children's smartwatch track can attract Internet giants such as Huawei, Xiaomi, and 360 to enter the market thanks to it being a true "big business in a small market." According to data from the Qianzhan Industry Research Institute, it is expected that the market size of China's children's smartwatch industry will continue to grow at a compound annual growth rate of 20.9%, reaching 27.6 billion yuan by 2026.

From initial positioning tracking and voice communication to the current inclusion of various personalized functions such as social interaction and photography, children's smartwatches have developed in China for ten years. Accompanied by the increasingly rich functions, their market prices have also continued to rise, with the top models now costing more than 2,000 yuan, almost on par with the price of an entry-level smartphone... Under such a brand competition landscape, consumers face the frustrating reality of brand barriers, functional involution, and rising prices, resulting in the forced loss of choice.

Based on the new era background of "AI+", not only has the children's smartwatch track released AI new products, adding a new comparison option for consumers, but multiple industries have also ushered in terminal replacements, such as Dell, Lenovo, and Huawei's AI PC new products, LeTV AR glasses X2 Lite with built-in large model voice assistants, Timekettle's simultaneous interpretation device X1 that realizes AI translation, and Apple's vision pro mixed reality headset, which was the most talked about in the first half of this year.

Judging from the available information, as AI technology is fully integrated into hardware products, it will undoubtedly be a brand-new experience upgrade for consumers. Once a brand can create an AI hardware product that impresses consumers, this innovation is highly likely to lead a new round of consumption boom.

AI technology is widely integrated into various industries

In this process, even the trial-and-error technology investments of related brands are valuable. After all, over time, AI will continue to grow and progress. From the government work report mentioning AI multiple times during the two sessions to Apple's comprehensive AI transformation, to this year's college entrance examination essay topic "Artificial Intelligence," the penetration of AI into daily life seems to be more rapid than expected. The AI large model is not a media outlet, not a traditional search engine, and not a child's social toy, but a smart tool for children in the new era.

Adapting to the development of the new era, only those who make good use of AI in the future will not be eliminated.