This week, Youpin PICOOC held a media briefing in Beijing. Zhang Yue, CEO of Youpin, and Shen Chen, co-founder, shared their experiences and insights on challenges encountered in the early years, as well as the company’s latest validated business model.

PICOOC was founded in April 2013, commenced operations in July, and launched its first product, the Latin smart health scale, in December. It currently offers a range of smart body fat scales, including the S3, S3 Lite, S1 Pro, MiNi, and Panda. In June 2014, PICOOC secured $21 million in Series B funding from Tencent and JD.com. With competitors such as Xiaomi and Lifesense also introducing similar body fat scales to the market, what strategic moves and changes has PICOOC implemented since its Series B round? How is it carving out a differentiated path in this fiercely competitive landscape?

VCBeat has learned that during its Series B funding round, PICOOC attracted interest from multiple investors. Although Xiaomi also expressed investment intent, PICOOC ultimately chose to accept investments from Tencent and JD.com, as it sought to maintain full control over its brand, pricing authority, and supply chain.

Youpin CEO Zhang Yue is highly optimistic about the health management sector. He believes that household hardware will inevitably become internet-connected in the future, whether it involves home products or health-related devices. User demand in the health sector is substantial, and all user decisions are data-driven. Moreover, users in the health management segment tend to belong to the middle class. Compared with the traditional model of selling hardware, monetizing through data services—including models that drive traffic to offline channels—is certainly viable. This has been the key focus of Youpin PICOOC over the past two years.

Youpin began developing software last June. Zhang Yue revealed that it has been validated that Youpin’s users are willing to pay, with gross margins from service fees reaching 80%. In terms of monetization, Youpin is the only player in China’s smart health hardware sector that has successfully closed the business model loop and validated it at scale.

Following the large-scale rollout of Xiaomi’s body fat scales, market interest in such devices surged by 66%. Clearly, this sector is no longer a niche playground for minor players. The introduction of Xiaomi’s body fat scale has accelerated the trend of these devices replacing traditional home weighing scales, a shift expected to materialize in the near term.

Looking at another set of data, the ratio of household scales to body fat scales was 30:1 the year before last, and it developed to 27:1 last year. The popularity of body fat scales began to rise, with the entire domestic market growing by 130%, among which Youpin achieved a growth rate of 540%.

In 2016, global sales of body fat scales totaled approximately 120 to 150 million units, accounting for only 3% of the overall scale product market. If body fat scales were to replace traditional weight scales, the market potential would be substantial!

Now is the ideal time to enter the market with body fat scales and subsequently expand to cover the entire home health sector. Why is this the case? There are several reasons. First, any new category, product, or brand typically commands high prices during the initial market entry phase. In the second phase, as the product gains mass-market adoption, prices drop, leading to the obsolescence of legacy categories. For instance, automobiles were faster than horse-drawn carriages; eventually, consumers stopped buying carriages altogether and switched directly to cars. Traditional weight scales and body fat scales face a similar dynamic. When supply chain optimizations, structural improvements, and sensor advancements drive costs down to an affordable price point near 100 yuan, the market inflection point will arrive.

PICOOC Body Fat Scales Offer Several Key Advantages. In terms of sensors, the brand consistently employs higher-cost point-contact sensors. Regarding the scale feet design, the feet are articulated; this design effectively addresses inaccuracies that may arise when the scale gets stuck on wooden floors or in gaps. Other details, such as the load-bearing points at the four corners and the tilt angle, have all been carefully considered by PICOOC to enhance user experience.

Additionally, Zhang Yue revealed that the electrode pad design requires users to remove their shoes and socks for all four electrodes during measurement. However, the initial design accounted for the reality that users are unlikely to adhere strictly to such protocols. This issue is common in other products as well; for instance, improper use of home blood pressure monitors can lead to significant errors. Since users cannot be expected to measure blood pressure or body fat composition exactly as medically advised, the only viable approach is to enhance user experience through product optimization.

VCBeat has learned that Youpin did not focus on cost control in its product development during 2014 and 2015, operating at a continuous loss. It was not until July 2016 that the company achieved positive cash flow, with the value of its prior investments beginning to materialize.

Why is profitability achievable? Zhang Yue revealed that, first, Youpin has incurred substantial after-sales costs. The company offers a one-year replacement policy for any product failure; although logistics expenses are high, it has remained committed to this approach. The quality failure rate dropped to 0.06% in 2016, down from 0.2% in 2015. With high quality standards and an established procedural system, costs decrease as sales volume increases.

For ordinary internet products, success is achieved simply by excelling in software development and operations. However, smart body fat scales represent a hybrid model—half manufacturing, half internet. In this context, losing either user engagement or user retention would cause the entire business to fall apart. Youpin’s inventory turnover cycle is 17 days, which reflects a highly efficient supply chain.

Although Youpin secured investments from Tencent and JD.com during its Series B round, receiving significant early support from Tencent’s traffic and JD.com’s distribution channels, it has now established a strong reputation for product quality. In 2016, VCBeat learned that Youpin had sold hundreds of thousands of units, with current monthly sales reaching approximately 80,000 to 100,000 units, representing a doubling of production capacity. Additionally, the company has developed algorithmic models tailored for different ethnic groups, such as those for Caucasian and Black populations. These algorithms enable accurate differentiation among diverse ethnicities in markets like the United States and France, allowing Youpin to compete on par with major manufacturers such as Omron and Tanita.

Zhang Yue also revealed a set of data: the platform’s current daily active user (DAU) rate stands at 18%–20%, with a monthly active user (MAU) rate of 66.2%. In contrast, typical internet products generally have a DAU rate of around 1%. Another finding is that among users who purchased Youpin products between early and late 2014, the retention rate remains at 56% to date. For social networking and other internet-based products, retention rates after two years are often very low; achieving a 56% retention rate underscores strong recognition of the brand and product quality.

Another significant change is the gross profit margin. Starting in April 2016, we began testing a model that connects coaches with users by introducing coaches into the platform. Initially, we adopted a free-of-charge approach and recruited 60 participants to ensure quality control. Eventually, we introduced a fee of RMB 999, which customers were willing to pay. This segment now contributes substantially to our gross profit margin.

Going forward, Youpin will expand beyond fitness coaches to include other specialists such as nutritionists, catering to the needs of diverse user groups. The platform is already serving individuals focused on weight loss and postpartum recovery.

We began experimenting with this model when our user base was still very small. At different stages of a startup’s development, it is essential to continuously test whether these models are viable. Initially, I did not anticipate that we could generate revenue from serving daily active users through user-centric services; for a long time, we kept this strategy confidential. During last year’s capital winter, for hardware companies, generating revenue through services rather than advertising proved to be even more impressive.

Hardware is merely a standardized product that establishes a solid foundation for service offerings. For internet companies, the process of monetizing traffic is akin to fish farming: users are the fish, and one must carefully consider how long it takes for the stock to replenish after each harvest.

For hardware products, in addition to the B2B revenue model of advertising, Youpin has achieved notable results by connecting virtual products, users, and services. Zhang Yue revealed that the initial target was set at a 10% repurchase rate; if achieved, the paid model would be sustained. The actual repurchase rate reached 36%. Ultimately, internet products must focus on conversion rates.

Over the next five to ten years, the networking of hardware will inevitably reshape every individual’s home life. This is a highly positive development, and Youpin aims to leverage an internet-driven approach, with hardware as the entry point, to redefine everyone’s healthy lifestyle.

Note: All data related to this enterprise in the article were provided and confirmed by the enterprise.